Feb. 7, 2012
By Leslie Hand, Greg Girard and Bob Parker, IDC Retail Insights
Every year IDC Retail Insights' analysts make annual predictions related to business and technology priorities, based on conversations with technology vendors, strategic consultants, and a wide variety of retail stakeholders (both IT and line-of-business).
Once again, in 2012, there is a clear recognition that the omnichannel consumer is in charge—spawning urgency to ready the full gamut of enterprise systems to genuinely engage this empowered consumer at every touch point as retailers attract, inform, sell and serve them. Regardless of the demographic target, selling to the resourceful and smart consumer will take retailing beyond "you will buy what we decide to stock" to "we will stock what you decide to buy." This puts a new type of customer centricity to the retail calculus.
Perhaps the most noticeable change is the depth and breadth of how omnichannel customer centricity has been embedded into the lexicon and strategies of major retailers globally. Priorities have shifted as well, as technology enablers including the four forces - social, mobile, cloud and big data – are now understood, and retailers have moved past reacting to, and identifying how to take advantage of these technologies, to enacting these capabilities as integral components of strategies to implement new platforms that engage omnichannel customers through the full lifecycle of the shopping episode.
2012 predictions theme: Consumers, not products or channels, will create the basis for growth strategies
The movement toward becoming more customer-centric is driving new industry business models. This premise remains connected to same-shopper sales as a growth strategy rather than same-store sales. That shopper, whether existing loyal, existing casual, or new, will be at the center of the business model, and retail brands will be built around the promises made. Channel and product strategies will flow from that brand promise and customer orientation.
Product strategies will have to match the brand promise and customer need. Retailers will become even more advanced in their analytic tools to create more relevant assortments and timely allocations. Further, product fulfillment will be a key device in generating loyalty, whether the execution is in sourcing product, shipping orders, or completing store tasks.
This customer-centric, omnichannel shift is making it quite clear that organizational structures that isolate channels (e.g., a Web-only division) are failing or will fail eventually. Retailers wishing to be customer-centric must start with their organizations that too often have a channel or product bent.
And the impact will be felt up the value chain. Wholesale distribution companies are already being asked to align with the priorities of their customers' customers. More items to more locations at smaller increments will be the new standard, and business models that enable that profitably will be central to distributors' strategies.
The omnichannel consumer will direct a new retail IT model for the industry — omnichannel orchestration and optimization
IT spending will continue its momentum in 2012. A good portion of the growth will be in technology, especially software, to support the customer-centric initiative. Our conversations with retailers over the past several months have revealed that this effort will be more than simply modernizing the application and commerce portfolio; rather, it will be a complete replatforming — what IDC Retail Insights calls the omnichannel orchestration and optimization (O3) platform.
As the figure shows, the objective of the technology investment aligns with customer-centric strategies as it puts the customer experience optimization at the center, whether that is individual shopping episodes or the long-term experience with the brand.
Working from the outside in, the platform is enabled by foundational technologies that are maturing rapidly — big data, cloud, social and mobility. The platform itself is a central repository for standard information/content management as well as operational processes. The real value from the platform will be harvested from the intelligence layer, which will leverage the standard processes (and associated information) across functional domains to align with the customer need and deliver on the brand promise.
Those functional domains — product management, supply chain, merchandising, and customer experience — will come together under initiatives related to omnichannel excellence:
- Omnichannel fulfillment. The customer-centric strategy is meaningless if the retailer can't execute.
- Omnichannel merchandising. The old assortment science no longer applies.
- Omnichannel marketing. Retailers must attract shoppers to their brand in the consumer's context, not to their store with promotions bait.
- Omnichannel commerce. As ecommerce gains more share (of both dollars and influence), mobile and social commerce is hitting a fast track. Unified commerce is the key.
The balance of our predictions explore these four initiatives further to see how retailers will approach the business challenges and deploy technology to take advantage of the opportunities. Predictions 3-10 are as follows:
- Retailers will race to innovate and will operate more efficiently as a result.
- Retailers will synchronize the supply chain with the clock speed of their customers.
- Retailers will create great brand experiences by enabling engaged employee experiences.
- Planning paradigms will begin to evolve to support genuine customer brand engagement strategies.
- Continuous assortment planning orchestrated for space will become the planning hub.
- The store will evolve — Welcome to the omnichannel store.
- Customer experience improvements to boost online conversion will go beyond the web store.
- E-Commerce delivery models will fragment.
IDC Retail Insights recommendations for retailers
- Begin a program to create an Omnichannel Orchestration and Optimization (O3) platform to unify investment around customer centricity.
- Create a longer term strategy that ultimately shifts the IT investment emphasis to revenue generating projects.
- Rethink IT governance structures so oversight is more of a venture capital than a capital budgeting approach.
The webcast replay is also available for these predictions at IDC RI 2012 Predictions Webcast. (Photo by Danny Choo.)