Retail Digital Transformation: Can AI Save the Brick-and-Mortar Store?

In this Industry Report:

• 27% increase in Social Media projects means omnichannel leads retail’s digital transformation
• Data collection: More companies request CRM projects to pair physical and digital orders
• Retail Digital Transformation: Companies see a 50% increase in order value thanks to visual search
• Digital stands with brick-and-mortar: 70% of consumers have bought online after seeing a product in-store

Twelve years have passed since Marc Andreesen claimed that software would eat the world. In 2023, it has become more than evident, particularly with digital transformation in retail. The latest research from Gartner says that more than 50% of all consumer spending will be done online this year, and almost 60% of it will be done through mobile devices.

For the typical brick-and-mortar store, it’s normal to see why the shift towards digital purchases has almost supposed a threat to business in its own right.

However, an interesting trend has been spotted: while e-commerce has boomed and become almost a given for many stores, retail has become more of an experience for the customer, who gets to be immersed in the brand and the values it embraces. And that experience has only been possible thanks to technology and digital transformation.

Could it be that the same technology that first seemed to threaten the success of traditional stores has come to its rescue? Let’s find out.

27% increase in Social Media projects means omnichannel leads retail’s digital transformation

Research suggests that having an omnichannel strategy is crucial for brick-and-mortar stores to survive. According to a survey by Salesforce, 76% of consumers expect a consistent experience across channels.

In line with omnichannel implementation, we noticed that among the 1,410 Retail projects that were posted on Sortlist in the last four years, Social Media was the most in-demand expertise (15%), followed by Digital Strategy (12.27%) and Advertising (11.21%).

More specifically, 2022 saw an increase of 27% in Social Media projects for the Retail industry, compared to 2021.

In terms of omnichannel features, retailers are now using inventory management systems and order management systems that provide real-time visibility of inventory across all channels.

The question then becomes… What happens when customers don’t get that consistent omnichannel experience?

Data has found that 65% of customers expressed frustration over inconsistent experiences or information presented across channels.

Perhaps more alarmingly, half of customers will switch to a competitor after just one bad experience, and 80% will leave after multiple bad experiences.

Upselling

Retailers have implemented in-store pickup and returns for e-commerce purchases, driving foot traffic to brick-and-mortar locations and providing opportunities for upselling in-store.

Click-and-collect demonstrates that having an online store increases in-store sales. According to a study by the International Council of Shopping Centers, 67% of customers who pick up an e-commerce order in-store make an additional purchase while they are there.

An example of how upselling is aided by digital transformation in retail takes the shape of purchase incentives. In other words, giving customers enough motivation to want to spend more in stores.

Supermarkets like Checkers or Pick n Pay with its Stikeez campaign have used purchase incentives effectively by gamifying their loyalty programme. By spending a certain amount per shop, customers receive a reward. For Pick n Pay alone, this strategy increased profits by 8.5% in six months.

Data collection: More companies request CRM projects to pair physical and digital orders

The use of the QR code, especially during the pandemic era of 2020 and 2021, is a perfect example of how the retail sector adapted using technology. In 2022, dynamic QR codes generated by users accumulated a total of 6,825,842 scans from global users—a 433% increase from 2021.

Chains like Decathlon are also reshaping the customer experience inside its walls. On scanning a product barcode or QR code, Decathlon customers can add products to their cart and complete their journey by paying digitally through the app. QR codes are also used to incentivise users to leave a Google review.

Additionally, shoppers can choose whether to have their receipts sent to their email and forego paper altogether, thus allowing Decathlon to grow its email database and use a new channel for retargeting and specific promotions.

The emergence of big data has also allowed retailers to offer personalised experiences to customers. A report by Accenture found that 56% of consumers are more likely to buy from a retailer that recognises them by name, recommends options based on past purchases, or knows their purchase history. Similarly, digital transformation in retail has helped them analyse customer behaviour and recommend products based on their preferences.

Retail projects at Sortlist show that businesses are quick to invest in digital transformation and better customer management. For instance, the implementation of a customer relationship management (CRM) software adds an extra layer of human interaction and personalisation that tracks every point of interaction, purchase behaviour, and personal information. By individualising customers, businesses can properly follow through every buyer’s journey to marksman precision.

One such project at Sortlist requested the design of a CRM strategy, with a budget of approximately 30,000 euros.

Other Retail projects become more complex as customers’ purchasing journeys expand and the need for tracking them grows with possibility. As more stores are incorporating online purchase systems as part of their omnichannel strategy, access to data becomes easier… but without a proper CRM in place, it can also easily become overwhelming.

Suddenly, the need for a seamless integration between the physical and the digital becomes paramount.

A project from the Netherlands described the need for a website design that paired both physical and digital orders more precisely. Specifically, it requested a website that was user-friendly for both the customer and the non-expert employee to manage. Inventory and points of sale (POS) had to be seamless between the physical store and the online site, with Amazon and Bol (the Netherlands’ e-commerce giant) integration. Finally, it also needed the implementation of proper content management and CRM features (such as newsletters, loyalty points system, and blog entries).

Evidently, the tendency for digital transformation in the retail industry and the availability of more detailed data about customers allow retailers to experiment and execute new strategies that are aided by technology.

Retail Digital Transformation: Companies see a 50% increase in order value thanks to visual search

Picture this: you stumble upon a picture of Beyoncé wearing a mesmerising green dress in the street, and you want something similar. Typing “beyonce green dress street” in Google will not exactly find you the exact match.

Imagine now you could search for similar dresses using the same image you found of Beyoncé. Imagine telling Google, or some other platform, to just look at the image and find you the dresses. With AI integrated in retail, it’s more than possible. It’s already here.

With visual search, artificial intelligence is transforming the way we shop. Retailers are using AI-powered visual search to enable customers to find products by uploading images instead of text-based searches. A report by Credible Markets Analytics found that the visual search market is expected to reach $28,470 million by 2027, with an annual growth rate of over 17% from 2022 to 2030.

Today, visuals are more important to customers than keywords or other forms of filtering. Google has found that consumers that use visual search “are more likely to add products to their basket and buy them than those using a traditional keyword search.”

It would make sense, as 74% of consumers find text-based keyword searches inefficient in helping them find the right product online.

Google’s own Lens platform is perhaps one of the industry’s most well-known, a technology that not only uses the original image to find similar images, but also identifies objects in the original image to inform its results. In 2021, Google Lens was used approximately three billion times per month.

And needless to say, the value that visual search features can give to businesses online is accounted for. E-commerce sites with visual search functionality experience a 30% increase in conversion rates and a 50% boost in average order value.

In Philadelphia, the Home Depot franchise has set up a visual search pilot program in several kiosks that can scan, identify, and illustrate exactly where in the store to find a certain product. This allows customers seeking, for example, a replacement screw or bolt to place the part in the kiosk to find out which aisle and where in that aisle to find the part.

Digital stands with brick-and-mortar: 70% of consumers have bought online after seeing a product in-store

The talk used to be that, indeed, “software would eat the world.” But in retail, e-commerce arrived to complement the physical shopping experience, rather than supplant it.

Inventory management

E-commerce has enabled retailers to track their inventory across multiple sales channels, including in-store, online, and mobile, helping them optimise their inventory levels and avoid stockouts.

Walmart uses an AI-powered system called Eden to manage inventory across stores. By using machine learning algorithms, Eden can predict demand, optimise inventory levels, and reduce waste. With AI, Walmart has been able to reduce out-of-stock incidents by 30%, while also reducing overstocking and waste.

Similarly, retail giant Zara uses data and an AI-powered inventory management system to predict demand and optimise inventory levels. Their system uses data from sales, customer feedback, and social media trends.

As a matter of fact, 37% of sellers who manage inventory in-house say stocking issues, such as overstocking, overselling items, restocking popular items, and supply chain issues, are their biggest inventory challenges. But an inventory management system for ecommerce helps tackle those challenges and save money, as it can give businesses better inventory control and more accurate stock data.

Showrooming

Interestingly, a trend that has emerged in response to e-commerce is “showrooming,” where customers visit physical stores to see and touch products before making a purchase online. As a result, some retailers have redesigned their stores to focus more on the in-store experience and less on selling products.

In particular, stores are looking to make their physical locations more “social media friendly” or “Instagrammable”—after all, 83% of Instagram users discover new products on that platform. It’s part of a bigger trend to showcase brand identity and motivate customers to live the authentic brand experience.

A 2018 study conducted by UK e-commerce agency PushOn says that 70% of consumers have seen a product in-store and then made the final purchase online.

A great example of a retailer that carries showrooming to perfection is IKEA, whose stores include specific displays or sets featuring selected products from the store’s inventory to help shoppers picture how a certain item, like a couch, will look with a coffee table. In London, IKEA has opened smaller order and collection points where customers can visit the store to view display products, before ordering on their mobiles or through the self-service digital terminals.

Still, even if showrooming helps their digital strategy, IKEA still attributes almost 90% of its sales worldwide to its traditional stores.

The showrooming trend is often seen in retailers of bigger, high-price items like furniture and vehicles, as customers want to make sure what they are investing in without taking it home at first. However, showrooming can also provide an exceptional personalised experience for retailers of less bulky items. The luxury retailer Nordstrom has seven Nordstrom Local showrooms in New York and California offering shoppers express alterations on their clothes, gift-wrapping, free styling help, and charity drop-offs for gently-used clothing, among other things.

Fulfilment centres

Today’s customer demands greater agility and speed from retailers, beyond what traditional distribution centres could deliver in the past.

In this regard, we’ve seen how the brick-and-mortar store also serves a distribution purpose in the e-commerce world: many retailers have also redesigned their stores to serve as fulfilment centres for online orders.

Giant retail players such as Target, Walmart, and Best Buy are using their less productive and excess store space as a competitive advantage to fulfil e-commerce orders from stores. Using stores as fulfilment centres allows retailers to ship from locations closer to shoppers, which in turn drives down delivery times and cost.

Alternative business models

In a similar fashion to store redesign for distribution, retailers are also working on physical designs that have a smaller physical footprint in response to the rise of e-commerce.

For example, Macy’s has implemented a “Macy’s Backstage” program where off-price products are sold in smaller, standalone stores with a more streamlined design.

This allows Macy’s to reduce its physical footprint and focus on providing a more curated and personalised shopping experience.

Physical sales aren’t dead

The percentage of online sales versus brick-and-mortar sales is an indicator that traditional store sales have by no means fallen behind. In the first quarter of 2023, e-commerce accounted for 15% of total retail sales in the U.S.

While it represents an increase of 3% from the previous quarter, the number makes it clear that, rather than putting up a fight with brick and mortar, it should tag alongside it.

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