Thriving amidst disruption

Dr Raymond Khoury

KUWAIT: The retail sector globally is going through a period of rapid change that has forced iconic brands like Walmart to leave the confines of their brick and mortar space and make forays into the digital world. It has also forced digital pioneers such as Amazon to set up a physical space for their customers - proving yet again that as customers evolve, so must retailers.

For both customers and retailers, this is a time of discovery and disruption. Retailers need to rethink their business model, especially with a growing generation of digital native customers, pressures to enhance efficiency and processes, and the need to find new sources of revenue.

Understanding the new reality of retail in the GCC

After a period of rapid growth for years, with the region successfully positioned as a leading international retail destination, there has been some expected slowing of momentum recently. According to Kantar Retail, the Middle East retail market is expected to grow at 7.7 per cent CAGR between 2015 and 2020, down from 9.8 per cent CAGR between 2010 and 2015.

Keeping this in mind, the GCC retail sector needs to think through its digital strategy, assess short- and long-term opportunities, prioritize, prepare for challenges and regulations, and tailor plans to region-specific demands.  The GCC population is remarkable in the fact that a large percentage of the population is under the age of 25, making it even more imperative for retailers to have a strategy in place to cater to a generation of digital natives. According to Alpen Capital, the GCC population is projected to reach close to 60 million in 2020, of which, the number of people below 25 years of age is likely to surpass 22 million.1

But before we think digital, it is important to also understand the changing role of brick and mortar. Today, instead of just a store to grow sales, the physical space is an experience zone for customers, to establish long-term relationships and turn customers into brand loyalists. A case in point is the Apple Store in the Mall of the Emirates, which allows an immersive experience where customers browse, lounge and leave with hopefully a better understanding of the technology that the brand offers instead of feeling pressured to buy a product. So the retail space has evolved into a marketing tool, demand generator, and brand differentiator2.

Getting phygital

This shifting role applies across all touch points in the customer cycle - be it pre and post sales, and more and more seamlessly across physical and digital sales platforms, or what are collectively becoming known as phygital platforms.

This is where digitization can play a crucial role to enhance the customer experience and where associated advanced data analytics can draw beneficial marketing and service insights from the massive amounts of customer data being generated. All of this can then be used to provide a 360-degree personalized view of the customer for advancing more intelligent and enhanced customer experiences, and for also identifying new customer bases with similar interests. Aggregated data provides insights into customer behavior and preferences, thereby enabling more targeted marketing options for retailers.

Innovation in the retail space through digital strategies can be lateral or vertical. Lateral involves leveraging existing product lines that can be made into regular or repetitive revenue streams, such as groceries packaging and delivery. Vertical innovation is through offering new product lines that didn't exist before, based on analyzing customer behavior data, both online and in-store, such as customized 3-D printed objects.

Customers are ultimately best placed to benefit from digitization. Besides being offered a variety of options so far unavailable, all at the click of a button, they are also being empowered to make the right choice with easily accessible knowledge and the support of a community of informed peers on social media - a collective digitally-enabled market-backed selection process.

Facing fears

As digital strategies change the sector, it is important for retailers to prepare for some of the expected challenges.

For example, today automation allows for the tracking of products through the delivery process: from manufacturing to shipping and delivery. Automation enables process efficiencies and optimization, and eliminates redundancies. This will lead to a redistribution of jobs, and some traditional functions will need to be repurposed.

There is an understandable fear that digitization and automation may threaten jobs. Smart change management is key towards addressing this fear, to gain large-scale support for digitization in the retail sector. It is important to understand that instead of creating redundancies, digitization and automation enable a redistribution of functions and the acquisition or preferably development of new skills as the job roles become more sophisticated.

Security is another challenge. It is important to understand that maintaining security is a continuous process. Cybersecurity is a shifting target and includes comprehensive phygital security planning, as the physical and digital enablers tend to increasingly overlap, for example smart HVAC or security systems in malls and their interdependent technology platforms.

Another concern is maintaining data privacy. One solution is to anonymize information by stripping off personal details, so that insights from the customer data can be utilized while addressing privacy concerns.

Regionally, governments have also sought to drive a number of recent regulations towards enabling greater understanding and inviting more participation among governments and citizens when it comes to data exchange. For example, the Dubai Data Law introduced in 2016, requires both individuals and organizations - public and private - to make their data available, in an anonymous manner, either for free or in exchange for data from other providers. The aim of such initiatives is to have a broad base of customer acceptance so that retailers are able to utilize anonymous data to enhance the customer experience.

What's next?

Robotics is a field of much interest and has already started impacting the retail sector. From manufacturing to logistics, the unmanned world will become the norm in the not-so-distant future.

Virtual reality (VR) and augmented reality (AR) are helping to improve customer experience and are here to stay, a case in point being Marks & Spencer's Middle East stores, which have launched the Virtual Closet, using augmented reality for customers to try on outfits and accessories.

3D printing is also revolutionizing the retail sector - with industry analysts Gartner predicting at least seven of the top 10 retailers in the world using 3D printing. Spend on 3D printing in MEA is expected to increase from $0.47 billion in 2015 to $1.3 billion by 2019, according to IDC. Regional governments are also preparing for the increasing role of this technology across sectors. For example, the world's first 3D printed office building opened in Dubai recently, and the Dubai 3D Printing Strategy aims to make the city a global 3D hub by 2030.

Higher integration of Machine to Machine (M2M) technology in retail is also expected to enhance the customer experience, whether through m-payment trends or location-based targeted marketing. The connected world is becoming a goldmine of new ideas that can bring benefits to both customers and retailers.

Change is always disruptive and digitization in retail will be no exception. What is important is to not rush into it in panic, but instead to systematically plan for how it will drive enhanced customer experience, operational efficiency, transparency, profitability, and new revenue models.