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Digital Transformation in Retail: How Starbucks, IKEA, Walmart, and Sephora Revolutionize Industry

Reading time: 10 minutes

With a huge number of innovative startups disrupting every industry, established organizations faced a choice: adapt to the changing market conditions or to be left behind, stuck in legacy software and outdated business strategies. However, adjusting your business processes to emerging requirements is not an easy task, especially for global enterprise-level organizations. In addition to that, the cost of such a transformation might come to billions of dollars.

Yet, the price for failure to keep up with the competition is even higher. It might cost you customers, revenue, and even the market share you will lose to those who do better at serving customer needs.

If you are considering digital transformation for your business, better learn from the best. As a part of our new series of articles, we’ll look at the digital transformation success stories across industries. In this first article, we will focus on Retail & eCommerce.

Innovations in Retail: Key Strategies and Trends

Retail is probably one of the most digitized industries, imposing additional obligations and setting the bar high for newcomers and established market players alike. IDC predicts that by 2020 at least 55 percent of all organizations will go digital, transforming markets and industries with the appearance of new concepts both in business and technology.

With the staggering growth in eCommerce and mCommerce, increased focus on the consumer, and advanced automation capabilities, some retail brands have already reimagined their operations to keep up with the challenge. Among the key elements of their digitization strategies are:

Omnichannel shopping experience

While mobile application development and online presence are surely very important for a modern retailer, only by seamlessly integrating all shopping channels can you open the full potential of your business.

Optimized user journeys

Digital businesses always put the customer first. Thus, most retailers are currently using data analytics to gain actionable insights about their customers’ behavior and preferences. This allows them to tailor their offerings accordingly and provide personalized experiences.

In-store digitization

Beacons, connected IoT devices, and smart digital hubs/stations allow for better customer engagement and rich in-store experiences. The technologies offer a wide array of opportunities: from indoor navigation, contextual promotions distribution, and customer self-service.

Advanced payments options

By adopting innovative payment methods, retail brands move fast toward the digital future. From Apple Pay to Tesco payments, consumers will soon be switching from cashless to cardless, so businesses should be able to keep up.

Digitized customer service

The growing adoption of artificial intelligence and the massive popularity of chat apps unlocks opportunities to automate a number of routine business processes, such as customer support. Using a smart bot to handle most of the typical issues, like answering standard questions or handling returns, retail companies are able to reduce staff, while improving efficiency and customer satisfaction.

Warehouse operations

Digital solutions can be used to efficiently manage your inventory and supply chain. By offering mobile capabilities and enabling bring-your-own-device (BYOD) policies, you improve staff agility and performance.

Now, let’s take a closer look at the real-life implementation of the listed aspects of digital transformation in retail.

Target: Capitalizing on Personalization and Customer Loyalty

The second largest retailer in the United States, Target kicked off its digital transformation initiatives back in 2014 and has so far been able to achieve some outstanding results.

Implementing one of the most significant means of digitization, the company used Beacon technologies across 50 US stores. Being able to track the customer’s indoor location, the Bluetooth-enabled devices send out personalized recommendations and timely alerts on nearby deals, keeping the users engaged while in the store. Additionally, shoppers can easily spot the items from their shopping lists using in-store navigation.

Data and analytics are considered one of the company’s major priorities. With over 27 million users, its Target app is not only one of the most powerful weapons in the company’s digital arsenal, but also a rich source of insights on user preferences, behavior trends, and shopping habits. Moreover, Target has launched its mobile payments system in 2018.

Sephora: Blending the Digital and Physical Shopping Experiences

Sephora’s winning digital strategy relies on the brand’s customer-centric nature and its ability to perfectly blend digital and physical shopping experiences. Its first digitally enabled store, which opened in October 2015 in Paris, offers all perks of online shopping, plus allows for hands-on experimentation, like sampling the products, watching tutorials, and participating in beauty workshops. Using personal NFC cards, the customers can add actual products to their digital shopping cart while at the store and add more products online later. The items in the shopping cart will be handled as a single order.

With the help of augmented reality, Sephora allows the customers to “try on” their products. Namely, the company has built a virtual “Visual Artist” tool. After uploading your photo through Facebook Messenger, this smart chatbot will help you visualize different makeup styles and products, provide personalized suggestions, and offer some items you might want to purchase. Another similar tool acts as an augmented reality mirror that simulates makeup on the user’s face in real-time.

IKEA: The Virtual Experience of Designing Your Home’s Interior

Think of furnishing a home and IKEA will likely come to mind. IKEA has heightened user experience with the help of a mobile application utilizing augmented reality (AR). IKEA Place, available on Android and iOS, is basically an app that allows you to fit pieces of furniture in your house, using AR via a smartphone’s camera.

However, utilization of augmented reality is not the only thing that will help IKEA reach its clients. It has launched an idea hub called Space10, a research and design lab aimed at creating smart products and solutions. Space10 can be considered a crowd-sourcing platform for IKEA, as it uses a collaborative approach to creating new designs. Further, it can be used as a basis for a future IKEA product, heating up customer engagement. The platform also offers a mobile application, which utilizes augmented reality technology in addition to helping users view the developed product.

One of the most noteworthy projects at Space10 is the announcement of IKEA’s self-driving cars. The concept presented by Space10 includes various autonomous car designs that put cafes, offices, etc., on wheels. IKEA is also going to utilize the concept to create an IKEA shop on wheels. The plan will use autonomous vehicles to create moving showcase rooms. A customer will be able to order a car that will contain requested furniture laid out in the interior design. That way, customers will experience the actual furnishings that they can try out before they buy.

The project, which has just started, as yet has no live prototypes of the electricity-propelled, self-driving vehicles. But you can check the vehicle designs in IKEA’s Spaces on Wheels app.

Starbucks: Building a Full-Fledged Digital Ecosystem

Starbucks has one of the most successful digital transformation cases in food-and-drinks retail. This coffee shop chain has launched its “internal venture capital-style incubator for digital technology,” Starbucks Digital Ventures, back in 2009. One of its first products, its mobile application, became an integral part of the Starbucks digital ecosystem.

The company uses its mobile platform as a powerful tool to attract more customers, build strong brand loyalty, and increase overall revenue. The app provides a convenient digital loyalty system, which allows the customers to earn and redeem their loyalty points (“Stars”) right within the app. By eliminating old-fashioned membership cards and phone-number verification process, this digital loyalty program turned out to be a huge success, currently used by over 12 million customers in the US.

Another major innovation introduced by Starbucks as part of the company’s digitization is its Mobile Order & Pay (MOP) feature. This means that customers can order their drinks in advance, pay directly within the app, and pick up their orders at the store. The benefits of such a system are obvious: It eliminates waiting, provides a convenient and secure payment option, and increases the store’s through-put by reallocating labor from the register. As a result, 6 million orders and transactions are served by the MOP every month.

Pushing forward its digital payment initiatives, the company is planning to launch its Starbucks Rewards Prepaid Card with Chase Bank.

Amazon: New Shopping Experience with Cashierless Stores

Amazon is a commercial giant that has quickly become a leading technology company with its cloud services and its own app store. While eCommerce and mCommerce are considered the future, Amazon has implemented an advanced option for shopping in traditional brick-and-mortar stores. Amazon GO has thirteen stores in New York, Seattle, Chicago, and San Francisco. What is special about those stores is that there is no need to pay for the purchased items in the store.

The new store concept is part of the Just Walk Out Experience, because – with the app – that’s all you do to purchase something. After downloading Amazon GO app, customers connect their Amazon accounts. Using computer vision, sensor fusion, and deep learning algorithms (a subset of machine learning), in-store devices indicate which items were purchased by a customer. After customers leave the Amazon GO store, the Amazon account connected with the checked application is charged for the purchase. You can watch the Amazon GO introduction video to see how it works.

Recode estimates $1.5 million yearly revenue for the existing Amazon stores. The concept of cashierless stores bound with cardless payments seems to be a winner, due to the speed of in-store operations.

Walmart: Leading Data-backed Innovation in Retail

Having first introduced its eCommerce platform, Walmart Marketplace, back in 2009, the retail titan has been growing its digital potential ever since. Its tech division, @WalmartLabs, has launched a number of innovative products, including the Walmart mobile apps, its next-generation search engine, Shopycat (a Facebook app that provides tailored gift suggestions), and Goodies (subscription-based gourmet food delivery, which was closed after a year in Beta).

Among the capabilities that Walmart mobile apps offer are shopping lists (with voice input), digital coupons, geofencing and targeted offers, and indoor navigation. One of its products, Savings Catcher, matches prices from other online stores with the current Walmart prices. If it finds a cheaper offer, the system issues a coupon worth the difference so that a user can get the product at the lowest price.

Walmart’s online marketplace remains the core digital initiative the company is investing in. While only 3 percent of the company’s revenue comes from online sales, the numbers are still quite impressive. Three percent of $500.34 billion in 2018 is hardly chump change.

Like many other brands, Walmart understands the potential of data. The company’s CEO Douglas Mcmillon said that Walmart currently processes 40 petabytes of data every day. To make sense of all this information, the retail giant is currently working on the largest private cloud solution, which would be able to process 2.5 petabytes of data per hour. The company is actively using customer data to personalize the shopping experience, offer more relevant offers, coupons, product recommendations, and simplify checkout and payments.

Tesco: Smart Technologies for a Better In-store Experience and Data-driven Personalization

Digitalization of Tesco can be described in many different ways, as it includes transformation on multiple levels of their business. The first step Tesco took at the beginning of the 2000s was implementing the brick-and-click business model. Already having a solid IT infrastructure to manage internal processes, Tesco launched online platforms that allowed customers to browse and shop online. Then a person could pick ordered items at warehouses dedicated to online purchases.

As technologies opened advanced options, Tesco took the initiative to improve their in-store organization. Customers were armed with scanning devices to do a manual check-out. The whole process was named scan as you shop, and it can also be done with smartphones today. It’s available only for Clubcard users, who are allowed to pack scanned items right in the store and pay for them with the help of a digital cart or an e-wallet. Customers can also scan discount coupons and vouchers to store bonus points on their device to spend them from the device. This helped to make the purchase process easier, boosting overall operation speed for brick-and-mortar stores.

So-called broccoli cameras were installed to keep track of empty trays, while electronic price labels helped reduce employee manual operations. Employees, in their turn, are using smart badges. Those badges allow for checking item availability by scanning its bar-code.

These in-store optimizations are enhanced by a data-driven personalization approach. Tesco Clubcard allows customers to receive offline and online discounts on their preferred products. The data is received using a card for Tesco purchases, giving a unique ID to every purchase. Armed with all that data, Tesco generates a personalized discount offering, sending these deals to customer mobile devices or Clubcard accounts.

Tesco also uses its mobile app to suggest a better in-store experience, allowing customers to browse product store location. The further development of Tesco’s digital transformation continued with the app using AR to show product location in the store for visitors and employees. Supporting brand recognition and application usage, smart devices sold by Tesco are offered with Tesco apps preinstalled.

H&M: Connecting Virtual Shopping with the Physical Conveniences

H&M is a Swedish mass-market brand of fashion clothes and accessories. Experimenting with mobile technologies, it’s searching for new ways to improve the virtual experience of finding, trying on, and purchasing clothes. One of the examples is the Perfect Fit app. The app is now being tested in Sweden. With the help of Perfect Fit, customers can create their digital avatar based on selfies they took. The avatar can be used to try on clothes while shopping online, as it will have approximately the same body proportions as the owner.

To withstand competition, H&M  implemented an image search right in their app. It’s basically a google image search for H&M clothes. It allows you to scan the image on the billboard, or Instagram, to find similar clothes by H&M. The app uses smart algorithms to pick the relevant results from the search, compiling a list of matching items.

An example of an H&M image search

Source: http://blog.wide-eyes.it

The items can be purchased from the search page so that it can be considered as a smart move to drive customer attention to the H&M brand.

Domino’s Pizza: Pioneering the On-demand Retail Economy

A global pizza restaurant chain, Domino’s was early to enter the online and mobile on-demand delivery market. Thus, digital and data-based initiatives are playing a major role in the company’s continued growth. Over 60 percent of total US sales were generated by mobile devices in 2016. As for 2018, Domino’s Pizza experienced growth of revenue from quarter to quarter.

Among Domino’s most significant digital initiatives are its loyalty program, Piece of the Pie Rewards, its mobile app and the proprietary point of sales system (PULSE). The latter includes a number of advanced features, such as automatic driver routes, inventory ordering, pizza tracking, custom online pizza ordering, and building. The system has significantly added to the overall operational efficiency by automating a number of routine tasks.

Domino’s main mobile offering is the Anyware app. The tool allows you to order over 13 million pizza combinations, using nearly any device, including a smartwatch, connected car, smart TV, Google Home, or Amazon Echo. The service also integrates with third-party services, allowing you to place orders using text messages, Facebook Messenger chat, or even Twitter.

The company is also expanding its partnerships with other tech companies and testing some experimental technologies, including drone pizza delivery.

Conclusion

As any consumer-centered industry, retail puts a priority on the customer experience. Optimizing this experience for the digital age is the primary task of any modern retailer. The brands can win by mixing online and offline experiences and establishing a solid omnichannel presence.

According to Deloitte, the following technology trends will shape digital retail this year:

  • The reimagined in-store shopping experience, focusing on inspiration or convenience;
  • Conversational commerce: adoption of connected devices and voice user interfaces (VUI);
  • Robotic technologies and AI-assisted shopping;
  • Applying agile methodologies at scale.

So, if your business still fails to innovate and struggles to meet customer expectations, it’s time to consider possible digitization strategies. Otherwise, you might be left behind or even go out of business, unable to retain your market share, not to mention further growth.

To learn more about how digital transformation reshapes different industries, see other articles from the series.

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