Feature Story

5 Retail Transformation Blunders (and How to Avoid Them)

Common mistakes plague retailers in the rush to improve their digital businesses

Retailers are hungry to go digital. Some are successfully settling their hunger pains, while others are still cooking up ways to become digital.

At almost 100 years old, White Castle, a quick-service hamburger chain of more than 400 restaurants, is an iconic brand in the Midwest.

Yet, device-toting consumers expect this legacy company to offer today’s digital era capabilities.

That’s why White Castle ramped up its analytics work. Re-designed its website. Then launched a loyalty program. On top of that, the company revamped its mobile app to let customers find nearby stores and order in advance, among other features.

This type of digital transformation isn’t easy. It means changing business processes and products to take advantage of new technology, channels, and data.

Retailers need to understand what’s possible, create the right strategy, and prioritize projects. At the same time, they need to understand that customer behaviors and preferences change frequently. So does technology.

“We look at our digital efforts through the lens of trying a lot of things—not taking too much time to use each project—to learn where we want to go next,” says Kim Bartley, chief marketing officer of White Castle.

White Castle’s loyalty club, which allowed customers to save favorite locations and items, sign up for mobile alerts on special offers, and earn reward points, is a particular challenge “because of the low cost of each restaurant visit and the high cost of maintaining a program,” says Bartley. “So there’s a lot of learning to be done.”

There is no single path for every retailer pursuing a digital transformation. Here, experts point to the most prevalent potholes, and ways some companies are avoiding them:

Blunder 1: Cultivating internal turf wars

In 2012, Gartner predicted that within five years, CMOs would control more corporate IT dollars than CIOs.

Riding shotgun with that prediction was a broad characterization of a tense relationship between CMOs and CIOs.

For her part, Bartley says she works comfortably with White Castle’s IT group, but “a lot of companies start from a position that there’s natural antagonism between business departments,” she says. “That’s a bad assumption to work from.”

Turf wars may be the single biggest transformation-killing trap into which a retailer can fall.

“In a large retail organization, the CIO, CMO, and chief digital officer (CDO) are critical for creating a more uniform execution strategy,” says Sahir Anand, principal analyst at business technology advisory firm EKN Research. “Without these three roles working together, it’s just not possible.”

Anand says companies suffer from a natural tendency to elevate one department or another based on which is bringing in the biggest sales percentage or increase in revenue.

When one group has preferential treatment, it has less incentive to share data and to work cooperatively with other departments. That’s a huge impediment to business goals such as creating a unified customer experience across multiple physical and digital channels.

Blunder 2: Believing you’re omnichannel when you’re only multichannel

Today’s consumers often access multiple channels interchangeably while considering and purchasing products.

Defining a business as omnichannel, perhaps the retail industry’s current holy grail, means creating a seamless customer experience.

More specifically, it means having a consistent, integrated experience across all channels. That way customers can seamlessly switch back and forth to whichever channel is most convenient at any time during their shopping and buying experience.

Whether window shopping or browsing the mobile app, customers of an omnichannel retailer should find consistent branding and product information, from pricing to availability.

Not to confuse that experience with multichannel. That is when a retailer sells through stores, a website, and a mobile application. Then, connecting those channels with only a thin veneer of look-and-feel.

Managing those businesses separately is fine, so long as the company accounts for the interplay between them.

“I think it’s dangerous to look at this as, ‘They’re an online customer. And they’re a mobile customer,’” Paul Coby, CIO of United Kingdom-based department store chain John Lewis, said in a Cisco sponsored report about stores in the digital age. “They’re all our customers.”

Omnichannel customers are “far more valuable” than single-channel customers, Anand says. Putting together solid omnichannel connections is hard work, he says, but the payoff is concrete.

The benefits, he says, include: “a much bigger basket, more loyal customers, and margin gains you would otherwise not hope to see.”

Connecting all channels requires a holistic view of accurate data. This includes customer and behavioral data, and data from devices and sensors. Anand calls it the fundamental challenge of digital transformation in retail.

Having accurate inventory data is critical, says Leslie Hand, vice president at IDC Retail Insights. “If [your site] said you have it in the store, and you don’t, it’s like a slap in the face,” she says. “The customer reaction is, ‘I’m not coming back here.’”

Hand says most retailers today “are far away from being good at managing in-store inventory, which puts a crimp in being omnichannel.”

“We’ve seen retailers struggling with out-of-stock rates as high as 30 percent on orders that they’ve promised to their customers,” she continues.

Big retailers such as Target are promising consumers better results as they work to tackle this challenge. Through a test program designed to reduce home delivery windows, the company is using radio frequency identification (RFID) technology to gain an accurate view of its inventory in any given location.

“As guests respond to a faster and firmer delivery commitment,” Target CEO Brian Cornell said when unveiling the program on a call with stock market analysts, the company will see “increases in digital conversion rates.”

Blunder 3: Throwing screens and displays at the problem

One common retail response to the digital rush is to equip employees with more handheld devices. Also adding more informational-screen displays in stores seems to be some retailer’s quick fix to digital. It’s as if more screens make a company a more capable digital retailer.

Supplying people with iPads could be a worthwhile project—if the right data, content, and applications are in place.

Retailers such as Macy’s are smart to resist the temptation to multiply screens before getting their backend systems in order, Hand says.

“[Macy’s gets] the essence of becoming a digital retailer. They’re a big, complex organization that started by reorganizing themselves to get a better handle on the consumer, and then to execute better and seamlessly across those channels,” she says.

“The journey is far from over, and they haven’t deployed mobile devices to every employee, but they’re doing it in an information-out way, starting with getting the data and processes right, rather than throwing devices and screens at everything.”

Blunder 4: Underestimating the importance of user experience and design

Great design is another lynchpin of successful digital products, services, applications, or channels. All aspects of user experience are critical. That means from look and feel to simplicity and reliability.

For example, developing a system that enables customers in a fitting room to electronically request additional items to try on.

Hand says New York-based fashion retailer Rebecca Minkoff worked with a glass vendor to create a mirror that doubles as a resilient and responsive touch screen surface.

The system scans RFID tags attached to the items customers are already trying on to suggest new ones.

Since its opening in 2014, Minkoff’s flagship store in New York reportedly has sold clothing at triple the expected rate.

A strong focus on user experience and design is “totally in line with the goal of creating the right experience, regardless of what the digital format is,” Hand says.

Whether a customer is interacting with a mobile application or a dressing-room touch screen, the consumer has to be able to accomplish most tasks “in one or two clicks,” she says. Front-end work must align correctly with back-end systems, data, and processes.

Blunder 5: Isolating the innovation team

Retailers delaying digital projects miss out on value creation—a predicted $506 billion worldwide through 2018. This is based on an economic model recently created by Cisco that incorporates 34 retail use cases. (See the details in “A Roadmap to Digital Value in the Retail Industry.”)

That’s a huge incentive to pursue new digital projects.

Well-established companies, Hand says, commonly create multidisciplinary “innovation teams” to brainstorm new projects. These teams, not subject to demands for instant payoff, can think more freely, but they shouldn’t be given too much independence.

“If that team isn’t connected to day-to-day operations, it’s like a science project,” she says.

“You can say, ‘I’m testing a technology,’” she says, when you’re actually “working in a vacuum,” not aware of real-world constraints that may make a project impractical.

“In some cases, retailers are making full-scale commitments without fully understanding all the implications of a given project.”

Hand cites a recent visit to a store that had in-store kiosks—only to be greeted by a boot-up screen instead of a working system.

That kind of failure can be avoided by setting up the innovation team with consistent input from daily operations folks, then stress-testing their work with small-scale pilots, she says.

Derek Slater has written about business and technology for more than 20 years and is based in San Francisco.