In a recent global survey, 350 retail CEOs were asked to nominate their strategic and investment priorities. The top response was “digital transformation”. I believe most of these leaders have misread the real challenge they are facing.
Let’s consider the biggest change in retail right now – the shift from traditional shopping in stores to online shopping. We call it “digital transformation”, but if we take a step back and look at what has really changed, the heart of the story is actually “logistics transformation”.
The traditional flow of pallets and cases of products to stores has been disrupted by a more complex flow of single items being sent directly to the customer, whether from a store, a distribution centre or even the manufacturer. Of course, digital technology plays a huge role, but the first order issue hidden in plain sight is how to deliver products to the customer in the most convenient and efficient way.
Leading online retailers, not least Amazon, have understood this. The engine of Amazon’s retail offer is fulfilment. Of course, this is supported by digital capabilities such as its recommendation engine, single-click ordering process and strength in cloud technology. But the real value driver is fulfilment. Amazon has grown so fast because customers love getting the products they want delivered to their homes, when they want, at a low price. Meanwhile for many of Amazon’s e-commerce competitors, the main challenge they face, and the most frequently cited reason for losing customers, is their fulfilment offer and execution.
Amazon takes a completely different approach to traditional retailers, applying less of a focus on functions like marketing, branding and advertising. Its focus centres on delivering great fulfilment and then growing through retention and word-of-mouth. As Jeff Bezos put it:
“In the old world, you devoted 30% of your time to building a great service and 70% of your time to shouting about it. In the new world, that inverts”
If you’re thinking this is just semantics and that we all know digital transformation assumes fulfilment, I’d encourage you to stop and think. Because where we direct our focus determines how we define it, how we go about tackling it, and the people and experts we put on it. I’m reminded of the saying:
“Energy flows where attention goes”
In my experience, many retailers prioritise the digital aspect of online shopping because they naturally feel more comfortable with the challenge of making the sale. E-commerce fulfilment is a new area that few retail leaders have worked in. As a result, they lack the knowledge and experience to feel confident and capable in what has become a critical business function. A sentiment I often hear from retailers is:
“We talk a lot about fulfilment, but don’t seem to make the progress we’d like”
If you find yourself falling behind in online retail and are unsure what to do, a good place to start might be to flip the way you’re framing the problem. Rather than focusing on digital transformation as the priority, shift your mindset to logistics transformation. You might start to see the problem and its solutions in a whole different way.
Jonathan has both developed retail strategy and led the teams and operations that deliver the service to customers, giving him a unique perspective. Jonathan has worked in retail businesses in the UK, US and Australia for over fifteen years, and was part of the team that developed the operating model for Tesco.com, a global pioneer of online grocery retail. Jonathan has also managed a supermarket with its own ecommerce fulfilment operation. Jonathan is the author of Retail's Last Mile: Why Online Shopping Will Exceed Our Wildest Predictions (2016), a book which explores the disruption of traditional retail by online shopping.