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eCommerce Insight: Navigating the Next Phase of Digital Retail

As technology continues to transform retail and embed itself in all areas of commerce – including sports and fitness –  Profitero’s Keith Anderson looks at how companies should be navigating this period of accelerating change, in an article originally authored for the World Federation of the Sporting Goods Industry (WFSGI).

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Remember when technology was simply a “sector”—one of many discrete industries? Today technology is pervasive, embedding itself in all areas of commerce—including sports and fitness

Sensor-enabled wearable devices have health and fitness at their core, promising better athletic performance and fewer injuries. Action cam equipped drones capture events from new angles, enriching the spectator experience. The merging of the physical and digital will undoubtedly change sport in profound, unexpected ways.

Technology is also transforming retailing, and perhaps at a greater pace. In many developed markets (like the US and UK), total retail sales are growing 3-5% year-over-year; online retail is outpacing this growth by 3x at a run-rate of approximately 15% year-over-year. ­In some regions, breakout players like Amazon are outpacing total online sales growth by an additional 1.5-2x, capturing unprecedented share and disrupting established channels with seemingly endless selection, dynamic pricing, and an economic model that thrives on paltry profits.

And according to data from Deloitte, the stakes are even higher: in the US, greater than 50% of all retail sales are estimated to be “digitally-influenced,” with decisions about where to shop and what to buy being researched digitally before or during a trip to a store.

No one can predict everything on the horizon. But candid, frequently calibrated assumptions and new ways of working can help leaders develop the agility to manage accelerating change. Here are several “working assumptions” to consider:

– Digital will account for as much as 20% of retail sales in 2020.

Precise forecasts vary by market, and their accuracy is often questionable. But consider that Millennials—digital natives who already make a disproportionate share of their annual purchases online—are just entering their peak earning, peak consumption life-stage. And that brick-and-mortar retailers are shifting capital from net store growth to enabling flexible online fulfillment options like click-and-collect and ship-from-store. Through this lens, eCommerce may still be in its adolescence.

– Stores will be re-imagined.

Stores may never match the “endless aisle” of selection that pure-play online retailers boast. But they do benefit from proximity to where people live, work, and play; trained staff who can advise on purchase decisions; and physical product displays—enabling shoppers to actually see and feel a product before buying.

Still, the rapid growth of ecommerce will force repositioning. In many segments of the market, store networks will be “right-sized,” leading to fewer, smaller locations with tighter inventories. And these future stores will be reengineered to leverage their strengths efficiently. Consider Hointer, a brick-and-mortar apparel chain founded by a former Amazon logistics executive that uses automation to optimize labor and inventory. In a small showroom with a single display item for each style, the entire process of selecting, fitting, and paying for a product is automated.

– Transparency will increase.

The threat of “showrooming” was overstated, but shoppers unquestionably have more information and power than ever before. While shoppers research product prices, reviews, and other key information occasionally, retailers and brands are beginning to systematically monitor the online retail environment to put themselves on a more even footing with both shoppers and competitors like Amazon, which pioneered the use of competitive online price intelligence to optimize prices dynamically.

Dynamic Pricing Hints at the Data-Driven Future of Retailing

Source: Profitero

In September 2014, Profitero monitored 100 sporting goods products’ prices at Amazon and several US online competitors like Dick’s Sporting Goods, Sports Authority, and Academy Sports. Our competitor price intelligence revealed that Amazon and its third-party marketplace changed prices much more dynamically than competitors, with 100% of the products on Amazon and 88% of the products on the third-party Amazon marketplace changing price over the 2-week period, versus 13% for Academy, 6% for Sports Authority, and 3% for Dick’s Sporting Goods.

So, how to navigate this period of accelerating change?

  • Be present. Many leaders agonize over whether digital is incremental or accretive to earnings. It may not be in some cases, and caution is wise. But don’t lose track of upstart competitors with nothing to lose. If you aren’t present where shoppers expect to find you, competitors will be.
  • Establish a fact base. Despite the promise of better measurement, many companies are still “flying blind” without sufficient insight into how their products are priced, promoted, or displayed online—or how their competitors compare. Digital’s influence is too large to leave to chance.
  • Don’t mistake technology for strategy. Given the pace of innovation, it’s tempting to chase each shiny new object hyped by the press. Flashy experiments can serve a purpose for branding or publicity, but digital strategy that moves the needle has to be scalable and impact shopper behavior in a meaningful way.
  • Make someone accountable and everyone responsible. Given the pervasiveness of technology’s impact, all roles need a foundational digital vocabulary and competency. Plan to invest in broad-based training and development.
  • Pick your partners carefully. As Google, Apple, Amazon, Facebook, and other technology companies entrench themselves in retail media, payments, and logistics, only the largest companies will be able to build or buy their own proprietary capabilities (versus partnering). Carefully evaluate the economics and data governance of these partnerships to ensure the health of your long-term interests.

These are exciting and uncertain times in retailing. The companies with well-considered priorities, forward-looking cultures, and the right capabilities have much to gain.

Follow Keith @KeithAnderson

About Profitero

Profitero collects online data on more than 250 million products every day, delivering global online insights and eCommerce intelligence to the world’s biggest retailers and brands.

We provide both brick & mortar and online retailers with their competitors’ prices, promotions and full product assortment information. More than 50 global retailers, including Staples, Waitrose, Ocado, Morrisons, Walmart-owned Sam’s Club and Worten, rely on Profitero’s accurate and timely competitor price intelligence to make better informed and more profitable pricing decisions, helping them to increase sales as well as margins.

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