Top 7 trends in retail digital transformation and innovation for 2021

As a result of the ongoing COVID-19 pandemic, digital transformation is accelerating at unprecedented speeds across the global retail industry, requiring retailers to build adaptable, composable business models to scale in disruptive environments. The crisis has also made clear the importance of technology to the industry: According to the Gartner 2021 CIO Survey, nearly two-thirds of retail CIOs believe their relationships with their CEOs have been strengthened during the past year, as CIOs have helped guide their businesses through significant disruption.

This year, capitalizing on the momentum of transformational activities — especially in physical locations — will be critical to building and maintaining the flexibility that is demanded of doing business today. For the foreseeable future, changes in consumer behavior will have a greater impact on value in retail than any other single factor.

To provide excellent customer experiences and, in turn, solidify customer trust, here are seven key trends that Gartner has identified to inform retail technology investments and other strategic decisions moving forward.

1. Touchless interactions

“Touchless” experiences are “safe,” physical-contact-free interactions across the customer’s entire shopping process. It is now an embedded expectation among consumers for retailers to include sanitization processes in their operations along with convenient and hygienic ways to research, purchase and consume goods. Touchless interactions extend beyond contactless payments to include touchless capabilities across all major customer processes, for instance scan and go, virtual experiences and more.

Touchless experiences must deliver a level of personalization that makes customers feel that retailers are really being loyal to them through taking the trouble to understand their needs and desires to deliver satisfying customer experiences.

2. Fulfillment execution

Fulfillment execution enables excellence in fulfillment operations across the retailer’s physical and digital assets through real-time analysis and reconfiguration of inventory, labor and processes. In turn, optimized inventory, unified commerce experiences and increased customer satisfaction are all made possible, which then contribute to profitability for the business.

This trend has become a top retailer priority, driven by the significant rise in e-commerce and increasing consumer demand for unified commerce experiences. Retailers are already working to remodel physical locations by reducing selling footprints and increasing on-site fulfillment and curbside capabilities. This is to prepare for the post-pandemic demands of greater online purchasing with the timely acquisition of goods.

3. Algorithmic merchandising optimization

Inventory is typically a retailer’s largest single expense. Escalating operational costs driven by shifting customer expectations are driving a renewed focus on merchandise assortment and pricing accuracy. No longer can retailers afford to spread inventory evenly across all store locations. Retailers must leverage algorithmic approaches to increase precision when planning assortments, pricing and promotions, and the resulting inventory investments across all touchpoints.

Algorithmic merchandising optimization enables retailers to more precisely determine items that need to be displayed and stocked, as well as how they should be priced and promoted to maximize sales, margin, inventory and customer satisfaction across touchpoints. A key element of improved merchandising performance and intelligent decision-making is the use of sophisticated data and analytics tools. In fact, the 2021 Gartner CIO Survey shows that 63% of retailers expect to spend more on business intelligence/data analytics, and 35% on artificial intelligence.

4. Associated enablement and effectiveness

A great customer experience hinges on a great associate experience, and this makes retail store associates key competitive differentiators. To that end, frontline workers must become one of a retailer’s most significant investments.

After years of underinvestment, many retailers are now playing catch-up by placing associate efficiency and enablement at the top of retail strategies in 2021. A third of retail respondents to Gartner’s 2021 CIO Survey indicate plans to increase spending on digital workplaces.

The ability to flexibly perform work duties, optimize costs and deliver excellent customer experience is now more critical than ever. Investments in retail digital workplaces — particularly those in physical store environments — have been shown to grow sales and increase profits, creating significant competitive advantage over time.

5. Collaborative ecosystems

Significant changes in customer behavior and purchase patterns driven by the COVID-19 crisis have exposed weaknesses in traditional retail business models. Engaging in a collaborative ecosystem through partnerships with other retailers, technology platforms, marketplaces or other innovative partners will enable retailers to extend existing business capabilities, support new business models, offer new products and services, and ultimately satisfy evolving customer needs.

6. Cost optimization

Cost optimization is a business-focused, continuous discipline that works to drive spending and cost reduction while maximizing business value. It has become an increasingly important imperative to manage the extreme economic uncertainty that the pandemic brought and is now a major pillar in many retailers’ “reopening playbooks” and operating models.

When developing cost optimization strategies, Gartner recommends considering these four critical elements: fulfillment execution, merchandising optimization, labor efficiency and organizational transparency. Short and medium-term fixed cost measures will prove unsustainable in the long-run.

7. Values-driven consumption

Customers expect retailers to act with honesty, integrity and transparency, delivering products, services and experiences based on consumers’ values. Today, the coronavirus pandemic has forced an anxious society – including businesses – to reevaluate and reprioritize their values.

Meeting value-based demands will require tight alignment among the internal players in the various functions and channels as well as building and maintaining solid relationships with the external stakeholders. Retailers will need to invest in constant vigilance to understand their customers’ changing expectations and adjust their sourcing and governance policies accordingly.

Gartner contributors: Miriam Burt, Max Hammond, Robert Hetu, Hanna Karki and Sandeep Unni.