Traditional retailers – Paradigm shift

To compete efficiently against digital native retailers, traditional retailers want to take advantage of their physical network and consumer proximity, but their current operating model is a major obstacle for them:

• Separated operations between online and offline business such as warehouse management, pricing & promotion, marketing and CRM;
• Dedicated e-commerce organization and teams; and
• Different IT infrastructure and applications’ ecosystem.

Although some bridges between e-commerce and physical stores have been set up over the years in order to reduce the barriers between online and offline (e.g. click-and-collect or ship-from-store ), the model shows its limit against the expansion of digital native retailers. The network of physical stores could have been an opportunity against Amazon-like retailers but legacy siloed organizations hinder traditional retailers' full potential.

In this context, we’ve been developing a comprehensive approach to transform Retailers' Operating Model including processes, organization, governance, logistic network and associated Digital/ IT systems and core platforms . We believe in a new operating model, leveraging physical stores in a “phygital” way, more customer centric and with ability to extend / offer new services.

The shift of the paradigm in the traditional operating model requires rethinking of the whole model end-to-end based on a solid Retail platform as an efficient technology foundation for digital capabilities.

Specific to technology, many traditional retailers have under invested in their technology for years. The consequence is an information system:

• Scattered around hundreds of bespoke applications, interfaced by several thousands of interfaces with many of them not in real time;
• Not consistently architected, which means a high duplication and inconsistency of data and business logic; and
• Running frequently on old technologies (e.g. AS400 servers), from the 80’s not fit to open architecture and web services.

To handle the new operating model, the IT backbone architecture must be sales channel agnostic & designed for integration with external parties enabling:

1. One single set of master data repositories used by all applications / sales channels to ensure data consistency at a minimum business cost;
2. Plugging of new applications with a minimum set of constraints and cost;
3. A process orchestration to configure and run cross applications business processes;
4. Availability of the full (online & offline) client history to the sale agents for personalizing the interaction with customer; and
5. Full visibility of inventory to better serve clients.

In recent years, to address these challenges, the Retailers’ Executives and IT managers have been adopting different IT strategies of renovation or bulk replacement:

• Either renovate/fix progressively the legacy core retail platform; or
• replace the legacy core retail system composed of multiple bespoke applications by a large market software, very often an ERP.

Both strategies have had disappointing business outcomes:

• Very long journey to get an IT backbone ready and very high one-off cost as the approach generates a lot of rework;
• Low or limited business agility and risky for the business; and
• Complex to roll out when the number of stores is high.

We have had several experiences where we successfully tried an innovative alternative to implement the new retail operating model without transforming the full stack of legacy retail core platform. We have been able to quickly provide data consistency and capabilities, user interface integration and seamless connectivity of third parties and partners. With such a strategy we have been able to decouple legacy applications, to replace them step by step minimizing business risks and disruptions and to provide fast and tangible results.

I would be delighted to have further discussions and exchange lessons learned, if you have similar experiences.