Retail is experiencing a lot of pressure from all sides. Low margins, rising cost to manage supply chains, increasing demands from suppliers to pass over raw-material cost inflation, steadily increasing labor costs, and huge investments to match the latest competition are some of the constraints faced by the sector.
Meanwhile, the customer’s expectation has risen significantly as digital natives and disruptors alike up the ante for personalized service which in turn is based on an advanced cost structure. As retailers have a hard time adjusting, and even to survive, they increasingly turn to automation to address the concerns regarding thinning margins and more demanding customer expectations. However, automation is a new opportunity for all but digitally native brands, and hence the approach to it varies accordingly.
Cost Reduction
Due to many factors such as intense competition, investment in e-commerce, and rising wages, the pressure on retail margin is rising. This pressure is felt across the retail subsectors. While these challenges are not new, many retailers have already worn out their cost-reduction methods. Unable to pass on the rising cost to the customers in this cutthroat competitive environment, retailers are turning to automation for support and increase margins.
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A McKinsey & Company study has found that a regular grocery and hypermarket retailer experience a margin pressure of 100 to 150 basis points, whereas specialty apparel or department stores face up to 350 to 500 basis points.
A comprehensive automation initiative across the store, supply-chain, and other administrative functions can reduce costs and create 300 to 500 basis points of incremental profits. This can be reinvested to leverage growth opportunities.
Reconstructing Organizational Structure
Automation deconstructs the current organizational structure into an organization with fewer layers where each employee is in charge of a diverse set of responsibilities. Advanced analytics apprise retailers’ decisions at all levels of the value chain- from targeted pricing and promotions to smarter category management and localized assortment planning.
In-store technologies such as handheld devices and sensors are improving store processes. Robotic process automation is speeding up back-office functions. This can increase efficiency and effectiveness, reducing costs. Automation can also improve the efficiency of HR processes and provide leaders new insights about an effective people management strategy.
Deconstructing and reconstructing of organizational structure also means they no longer follow traditional career paths from stocker to department manager to store manager. Employees should now move laterally through many teams while acquiring leadership skills through outside training and executive exposure before moving on to leadership roles. Also, these teams are built around end-to-end accountability, with flexible resources that improve workflow. Empowered with real-time data, decision-making power is decentralized to encourage a bias to action.
Efficiency and Innovation is the Way to Survival
The retail industry is experiencing disruption—and reinvention—at unprecedented speed. The most prominent disruptor is Amazon, with its Amazon Go retail concept. It is a chain of convenience store which has started operations in the US. In the partially automated stores, customers can purchase products using a virtual cart and will be charged through their Amazon account. There is no waiting in line to check out and pay.
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The tech giant is not the sole disruptor. Facing disruption and thinning margins many retailers are turning to automation and artificial intelligence (AI) technologies at scale to enhance both the customer and employee experience. Retailers like Target and Walmart are heavily investing in robotic processes that save hours of their associates’ time. Walmart has also introduced virtual-reality headsets to train employees, as well as the FAST Unloader technology to automate backroom operations.
If recent trends are any indication, the sector will witness an accelerated pace of technology adoption. Retailers who straddle the fence face risk of getting outcompeted by aggressive, fast-moving, forward-thinking competitors.
Many merchants are integrating solutions such as Verbat Technologies’ ‘Pick and Pack ‘delivery system to increase vertical integration and third-party partnerships to speed up the supply chain. Such solutions simplify the process of logistics and operations enabling the merchants to be more nimble and adaptive to consumer trends while catering to the omnichannel customer experience.
With the balance of power shifting more to the consumer, our cross-channel platforms will help retailers to understand customer behavior and uncover newer opportunities while enhancing customer experience. Contact us, so that we can help your take your retail business to the next level!
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