This Christmas, about 40 pence of every £1 spent will be done so digitally, a percentage which has increased steadily every year this decade. As a result, retailers have come under greater pressure to build a digital infrastructure capable of meeting the demands of the modern shopper. However, despite being fully aware of digital demands this Christmas, many retailers have seemed taken aback by the volumes and pace of e-shopping this December.
No more so was this exposed than over the Black Friday/Cyber Monday weekend, which saw a number of high profile website crashes. A host of legacy UK businesses experienced significant downtime, no doubt at great financial cost as disgruntled customer turned to rival suppliers. As well as demonstrating the growing role of online shopping in our consumer lives, the Black Friday weekend illustrated how much room for improvement there is for retailers’ digital make-up.
However recent CFO/CIO research from Canopy, one of Europe’s largest cloud providers, suggests retail decision makers in some of the largest organizations are not as focused on digital transformation as their counterparts in other industries, despite an understanding of the opportunity cost involved.
The report revealed only 42% of retail respondents admitted to supporting digital initiatives – compared to 75% in professional services, and an industry average of 55%. Despite this, over half of retailers felt a lack of adequate cloud infrastructure supporting digital projects cost their companies an estimated 4-10% in annual revenue last year – amounting to an average of €75 million. Reasons for this revenue loss included a lack of IT investment preventing on-boarding customers at the required pace, and increased customer churn because the business’ digital offerings were not of the same quality as competitors.
Heading in to 2015, there is a lot at stake. UK retail respondents from the survey estimate they could increase top line revenue by 9% in 2015 if they had the right cloud technologies in place to support digital initiatives - equating to €228 million. However, to achieve this, retail decision makers must commit to meaningful, strategically planned, digital reform – starting with how and where their website applications are hosted.
The most common cause of a website crash is an inability to cope with the amount of online shoppers at a particular time. This is an IT issue, in that the servers which host the website do not have the required capacity to cope when transactions exceed the infrastructure limit. During a spike in demand, such as during Black Friday, the website will become sluggish or even crash entirely. Research suggests that customers are not likely to return following a website crash.
There are measures retailers can and should have taken to avoid these problems. Websites which fare the best tend to be ‘cloud-native’ - meaning they were purpose built to run in the cloud. Furthermore, websites hosted in a public cloud are more likely to cope than those in a private environment. This is because a public cloud provides infinite scalability, especially if website applications are spread over multiple servers, giving a retailer more digital capacity to accommodate a sudden rise in shoppers. The best equipped retailers have a hybrid model of two or more public cloud providers.
Having the right tech infrastructure in place can transform a business far beyond its website. Decisions regarding where a company hosts its data, runs its applications and with which devices it equips its staff can help streamline supply chains, ensuring shelves are never empty, and quicken order-to-delivery timescales, guaranteeing customers are not disappointed even during the busiest periods. E-receipts and iPads can be used in-store to speed up payments and retailers can also take advantage of social selling by building a payment app for social channels, creating a new revenue stream like KLM has successfully achieved.
Digital transformation is a reality facing companies in all sectors as they morph into software businesses but retail is one sector where digital and the competitive landscape are felt most strongly. Digital is changing how consumers think and how they demand products and services. Due to their near total reliance on meeting the rapidly evolving expectations of the modern consumer, retail should be at the forefront of digital change, not bringing up the rear. It’s not long til Boxing Day – can lessons be learnt before then?
Sean Catlin, CTO, Canopy