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.
Why do I say that?
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.
What's really going on in retail?
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 products 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:
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:
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 different way.