Key Retail Challenges & How Brands Are Using Technology to Overcome Them
With the retail industry undergoing rapid transformations how can the retailers be prepared for the future? A detailed look at modern retail challenges.
13 min read
“People are always going to go shopping. A lot of our effort is just: How do we make the retail experience a great one?”
- Phillip Green
What is Retail Industry?
The term 'retail' is widely used to refer to various businesses and firms that sell goods and services to the ultimate consumer for the purpose of personal consumption. The retail sector comprises of all kinds of shops, from kiosks to supermarkets, from departmental stores and specialty retailers to online businesses.
Recent rise in retail sales among developing countries like Brazil, India and China, is an important indicator of the state of the country's economy and implies a direct correlation with rising disposable incomes of its citizens.
As of 2017, the retail industry was valued at $23,460 billion and is expected to register a compound annual growth rate (CAGR) of 5.3 percent in the next five years, reaching a total valuation of $31,880.8 billion by the year 2023. This growth of the retail sector opens questions about the recent trends and challenges in the industry and the role technology can play in understanding and providing solutions to them.
Biggest Challenges in Retail
Despite its increasing valuation, one of the major challenges that many retailers are facing nowadays is the lack of smooth transition from in-store shopping to online retailing. While some retailers have not been able to compete with e-commerce giants such as Amazon, others have who have done so and focused only on competing digitally haven’t had much success either.
An example, in this case, is Toys R Us. Toys R Us was a famous American toy retailer which started in the year 1948. However, in the year 2017, it was headed towards bankruptcy with a total liability of $5 billion. While its failure to keep up with changing customer expectations was one of the major reasons behind its downfall, a lack of strong online presence also played a crucial role in the same.
E-commerce giants such as Amazon, along with retail brands like Target and Walmart had priced their toys at comparatively lower margins and had engaged in aggressive online shopping competition, something that Toys R Us could not emulate, since its profits were dependent only on the sales of its toys. All these factors combined led to Toys R Us ultimately closing down most of its stores across the US.
Retail industry giants such as Walmart and Target have been able to sustain themselves despite the growing competition from online retailing, mainly due to technological upgradation. Walmart’s technology division launched several innovative products such as the Walmart mobile app, which is a Facebook based app that provides customised gift suggestions called ‘Shopycat’, and a subscription based gourmet food delivery called ‘Goodies’.
Similarly, Target has developed their own customer software, which has helped them to align inventory availability according to customer demands. Additionally, they are also able to track their customers’ in-store location, send personalised recommendations, alert them about any deals, and help them to find the items on their shopping list through the in-store navigation.
In the following section we will be looking at some key challenges of the retail industry, from the viewpoint of a customer and a retailer.
Challenges faced by Customers
Poor Quality Checks
This is one of the major issues buyers face while shopping online. Often, the quality of a product ordered online is substandard and not up to the mark compared to what is shown in the images on an e-commerce website. The reason for the same can be attributed to a lack of adequate quality checks by retailers due to a rise in the volume of online sales, which has made the selling of poor quality products in the name of brands a common practice.
Issues with Online Payment
Due to a rise in frauds while paying online, may customers prefer cash on delivery (COD), since there is a fear that their personal information may be compromised. While paying online, a customer either does not get a payment confirmation, or in some cases, the amount is not refunded if the customer wants to cancel his or her order.
However, in many instances, consumers are themselves not aware about online payment modes, thus, putting their personal information at risk of being misused. Sometimes, banks also don’t follow security measures as per the required standards or lack the required authentication process, putting the data of its users in jeopardy.
Challenges faced by Retailers
Shipping and Delivery Logistics
In some instances of online shopping, packages that are in the process of delivery either get damaged, or are lost in transit. This leads to packages being delivered to customers very late or after the stipulated time period. Many e-commerce firms also don’t have tracking systems to update their customers regarding the status of their package, which leads people to pay more for same-day delivery.
Long Waiting Lines
Often, especially during weekends or holidays, customers have to wait in long queues at checkout counters in retail stores. On average, Americans spend roughly 118 hours waiting in queues. This takes place due to shortage of staff, technical problems, or simply due to the fact that the process of billing by going to the checkout counter is an outdated and time-consuming process.
While in some instances a slow checkout process can be attributed to inexperienced staff, hiring people to perform a task that could be performed through automation is a highly inefficient task, since firms need to undertake several steps such as advertising for vacancies, recruiting employees, and then train them, all of which involve significant time and effort.
Rise of Online Retailing
Consumers who shop online are expected to use a variety of devices to shop online and interact with digital content, services, and experiences. Some of these channels include online marketplaces like Amazon, Flipkart and eBay, social media networks such as Facebook Product Ads, and search engines like Google and Bing, which match the users’ search results with advertised products, as a result of which customers often buy from the advertisements themselves.
However, out of the various channels, mobile retailing will account for the majority of sales via online retailing. In the year 2019, the share of internet retailing through a smartphone or a tablet will be 52 percent, and this number is expected to rise to 58 percent by 2023.
Different Customer Expectations
While in-store shopping is not completely obsolete, customers expect to seamlessly transition from mobile retailing to in-store shopping to make purchases and want similar shopping experience across all the channels. This is known as omnichannel shopping and is expected to enhance customer experience and satisfaction, since customers will be able to find similar products that they searched online, in retail stores as well.
One of the most well-known features of omnichannel shopping is the Internet of Things (IoT). Since IoT connects over 11 billion products, retailers have massive amounts of data that provide details for every customer’s product usage and buying patterns, which allows them to send relevant marketing messages and offers to their customers.
Image Source: Business Insider
For instance, Macy's, a well-known American apparel retailer has started using beacons which are Bluetooth devices which send updates to people’s smartphones based on their location and proximity from the nearest Macy’s store regarding any offers or discounts as well as pinpoint their location in a Macy’s store to send deals based on products liked or shopped online.
4 Brands Using Technology To Overcome Retail Challenges
Technology in the retail industry is expected to have a significant and positive impact on both retailers and their customers since it leads to fewer losses for the retailers and an enhanced and personalised experience for their customers.
Retailers can influence and understand customer behaviour, their shopping patterns, and how every transaction between them and the customer has the potential to increase loyalty as well as revenues.
On the other hand, customers will be able to benefit from technology since they will get better products and services, more customised, and a better researched or reviewed product. In other words, customers’ pre-buying experience will become closer to their post-buying experience when they buy the actual product.
Here are 4 brands which have used technology successfully to overcome retail problems and offer a fascinating experience to their customers:
There are two real-life examples which demonstrate how technology can personalize the customer experience. First is IKEA, a Swedish company selling furniture and home appliances. IKEA has developed augmented reality apps that can place fully assembled 3-D models of their furniture in their customers’ homes, which can also be resized to fit a room’s dimensions. This would give the customers an idea of how an item of furniture or appliance would look like in their house, which would, in turn, affect their buying decisions.
Image Source: IKEA Communications
Similarly, Farfetch, a luxury fashion retailer launched its ‘Store of the Future’ platform to improve its in-store shopping experience. At Farfetch, businesses can collect customer data while they browse in their store. While trying on different outfits, the technology would offer customers to look at different sizes, colours, and items. This is later stored in Farfetch’s database which they can use to access and understand their customers’ personal style, previous purchases, and browsing history.
Sephora, a global cosmetics retailer uses AI and augmented reality (AR) to create an omnichannel retail approach by finding different ways by which their customers can interact with their products. One of the ways it does is through the Sephora Visual Artist, which is a 3-D live experience that gives customers the option to try on Sephora’s products virtually via Sephora’s app.
Another way that Sephora uses AR is through ‘Tap & Try’ where customers tap on a product in a Sephora store and try it on visually. Similarly, the ‘Color iQ Device’ scans the surface of a customer’s skin and assigns it a number which then reveals foundations that match with the skin tone.
One of the major problems that customers face while shopping in-store is the long queues at the checkout counters. This issue can be overcome by using sensor technology or linking a customer’s purchases from a store with their digital wallets, which would deduct the amount once they have done shopping.
For example Amazon launched its no-checkout store called Amazon Go. It uses a combination of computer vision, sensor fusion, and deep learning to automatically detect whenever products are taken from a store’s shelves and keeps a track of them through a virtual cart. When customers are done shopping, they can just leave the store and later, Amazon charges their account, along with the receipt of the purchase.
Source: SF Business Times
Going Ahead - Retail Industry in 2020
Inspite of its huge potential, the penetration of latest technologies in the retail sector is yet to witness a quick growth, since retailers are often pressed for time as they need to fulfill cyclical sales and profit targets regularly, which leads to lower investment in technologies that require infrastructural and talent support.
This is not to say, though, that technology will not be used by retailers at all to improve their businesses. As seen in the examples of brands such as IKEA, Sephora, and Amazon, companies are investing and looking at different ways to understand how they can use technology to improve customer satisfaction, and make shopping a secure, yet interesting experience.
As we enter the year 2020, we can expect to witness a rise of retail innovations and technologies to solve complex issues facing retailers today. These could result into an integrated retail ecosystem which combines technologies like AR, IoT, Virtual Reality, and complex machine learning algorithms together to offer a seamless retail experience to people. Ultimately, an integrated ecosystem like that which bridges the gap between real and digital worlds could be the dream solution to major retail challenges and a fascinating experience for people.