How Retail Can Keep Pace as Digital Shopping Habits Take Over

Lance Homer
How Retail Can Keep Pace as Digital Shopping Habits Take Over

It’s an awesome time to be a shopper, but a tough time to be a store owner.

Digital technology has thoroughly changed the shopping experience, and today’s consumers expect traditional retailers to deliver the wide choice and low pricing they find on the web, along with a tailored offer or two on their smartphones. Many companies are struggling to adjust. Credit Suisse estimates 8,640 U.S. stores will close this year, quadruple the 2016 closures.

To survive, retailers need to learn to thrive at the digital edge, where commerce, population centers and digital ecosystems meet, and business happens. An interconnection-first IT architecture designed for the digital edge gives retailers speed, unprecedented command over reams of consumer data, and the flexibility to instantly reach partners and markets globally. This is how they can grab the attention of shoppers who now have a world of alternatives at their fingertips.

In search of flexible brick-and-mortar shopping

We’re entering the holiday shopping season, and the National Retail Federation forecasts a strong 3.6% to 4% increase in sales this year, compared to last year. But the issues facing the traditional brick-and-mortar store go beyond any bumps or slumps in the annual shopping cycle. The challenges these stores face have been extensively analyzed, but your average, semi-frequent online shopper can no doubt quickly diagnose the problem: The brick-and-mortar shopping experience is infinitely less flexible and adaptable than the online alternative. Choices are more limited, prices are often higher, personalization is scarce, and the advantages of an in-store purchase (such as immediate gratification) are diminished by fast and easy online delivery options.

Still, retail ecommerce isn’t dominating the world yet – far from it. The year 2017 will be the first in which ecommerce sales hit 10% of global retail sales, or about $2.29 trillion, according to the research firm eMarketer. But though the percentage is still relatively small, the trend for retail ecommerce is steadily up. eMarketer says retail ecommerce sales are increasing at four times the rate of other retail sales this year, and will continue with double digit growth until at least 2021.

As ecommerce becomes more prominent, industry observers worry traditional retailers aren’t changing their thinking quickly or dramatically enough to truly head off rising online competition.

“(In) whatever area they are competing for shopping dollars, it is like the old-world retailers are bringing a knife to the fight, and the tech companies are rocking a heat-seeking missile,” one hedge fund manager told the Financial Times.

Traditional retailers need to make a fundamental mind shift in four key ways:

  • Customize environments and personalize offers to their customers’ individual needs and priorities. Customers get this online and expect it everywhere.
  • Prove the value of coming to a store by offering better choice, more competitive pricing and quicker access to the right products.
  • Improve their own online presence so they don’t just leave the best of that realm to their competitors. Combine the advantages of physical and virtual stores.
  • Re-architect IT to get as close to customers and partners as possible, so consumer interactions move with the same speed and efficiency customers get on the web.

Interconnection comes first

These changes are significant, and it’s clear that better data collection and analysis is the key to making them. For instance, reams of data are available from consumers who are spending at least part of their shopping experience browsing online, but companies must be able to corral, store and analyze it in ways that offer relevant, real-time insights that engage and assist customers. Superior big data analytics capabilities are also needed to better manage inventory and ensure quick response to customer demand.

IT architectures must also have the agility to get retailers close to global markets, store sites and multiple physical and digital supply chain partners. Everything from payments, to real-time advertising requires deep collaboration with these partners, and the ability to get close to the digital ecosystems where all the different players reside is a major advantage.

To accelerate their path, retailers should prioritize deploying IT at the digital edge. An architecture that relies on dispersed Interconnection nodes strategically placed at the digital edge can ensure proximity to all the counterparties a given retailer needs to connect with. Proximity is essential because it’s the only way to guarantee the fastest, most secure, lowest-latency Interconnection possible. That’s critical when maximum speed, choice and responsiveness is simply what today’s shoppers expect.

In sum, the need for Interconnection is acute among retailers. The Global Interconnection Index market study, published by Equinix, offers insight into the rapidly increasing demand for Interconnection Bandwidth. It includes an industry breakdown that indicates Interconnection Bandwidth will grow at a 62% compound annual growth rate between 2016-2020 in wholesale and retail trade. Please take a moment to check out the study.

Also, read how an Interconnection Oriented Architecture™ (IOA™) strategy can help retailers build IT infrastructures that allow traditional retailers to compete in a digital world.

And our Consumer Retail Industry Solution Brief offers analysis and advice on how to thrive in a rapidly evolving retail climate.

Lance Homer
Lance Homer Global Head of Strategy for Electronic Payments