Transforming retail:
How to improve performance
with mobile and
digital innovations
A Deloitte Research Study
Retail’s future
Innovations in mobile and digital technologies are
moving at a pace that is leaving a trail of disruption in
their wake. Some retailers that are able to harness the
force of change wrought by mobile innovations will thrive;
the rest may be left behind. The store of the future may
provide a radically different shopping experience, weaving
mobile and digital technologies in their marketing, store
design, in-store customer experience and promotions.
Mobile and digital innovations can enable retailers to
know with clarity who their core customers are and to
build emotional relationships with them. Promotions are
now targeted and context-aware, using customers’ social
networks to build strong loyalties. Stores of the future
may break the casual connection between geographic
expansion and growth; small stores with extended online
inventories and virtual stores may become the giant-killers
of the future. Digital and mobile innovations will likely
allow retailers to grow profitably and flexibly without a
commensurate increase in real-estate assets.
Retailers are being pulled into the future by consumers
who are embracing smartphones for shopping (see
figure 1 and 2) and by players outside the industry who
are converging on the mobile platform to tap new business opportunities for growth. The onslaught of changes
introduced by mobile and digital innovations are leaving
some retailers wondering which technologies to pursue
and how they would contribute to overall business objectives and improve store performance.
This study identifies the levers that can move store performance and provides a framework for assessing new
technologies. At their best, digital and mobile innovations
can influence four broad levers of store performance:
enhancing the shopping experience, improving conversion rates, increasing revenue per customer and reducing
costs. A coherent strategy pertaining to digital and mobile
technology could avoid the ad-hoc adoption of expensive
technologies that may stymie future investments needed
to prepare retailers for subsequent waves of competition.
Figure 1. Smartphone ownership is growing rapidly
Any sufficiently advanced technology is
indistinguishable from magic.
October 2011
July 2011
– Arthur C. Clarke (Clarke’s Third law of prediction)
April 2011
January 2011
0%
10%
20%
30%
40%
Source: BIGresearch, CIA Survey; N=8585 (October 2011)
Figure 2. Comfortable paying with a smartphone
Not at all
Not very
Neutral
Somewhat
Very
0%
10%
20%
Source: BIGresearch, CIA Survey; N=149 (June 2011)
1
Transforming retail: How to improve performance with mobile and digital innovations
30%
40%
Trends in Retail Performance
Profitable retailers have adapted to changing marketing
environments, demographic and cultural shifts, and the
introduction of game-changing technologies. To understand how retail categories have performed over time, we
selected 626 retail companies from eight different retail
categories and compared their return on assets (ROA) from
1966 until 2006.
grocery, and specialty — underperformed compared to
the industry’s average ROA. For outperforming sectors,
the primary driver of performance is gross margin (both
in direction and magnitude). For outperforming sectors,
gross margin advantage is accompanied by higher investments in selling, general and administrative expenses
(SG&A) and an overall total asset turnover advantage. The
outperforming sectors tend to spend more on SG&A marketing, advertising and in-store experience - that may
have provided ample brand premium to charge higher
margins for their products compared to their underperforming counterparts.
During this 40-year period, the apparel, discount store,
drug store and home improvement retail categories outperformed the average industry ROA. (See figure 3.) Four
of the other retail categories — department, electronics,
Figure 3. ROA difference across different retail categories
Apparel retail
Discount stores
Drugs retail
Home Improvement
Department stores
Electronics
Grocery
Specialty
1966
1971
Dashed line represents industry average
1976
1981
Outperforming sectors
1986
1991
1996
2001
2006
Under-performing sectors
Source: Compustat data, Deloitte analysis
Transforming retail: How to improve performance with mobile and digital innovations
2
Retailers’ future profitability may depend on how effectively they are able to move the levers of performance.
The ability to generate higher revenue will depend on
how retailers are able to attract and retain loyal customers, provide convenience and value, and increase revenues
per customer.1 Retailers can also become more efficient by
utilizing appropriate technologies and practices to reduce
costs.
Improving performance with digital and
mobile innovations
Digital and mobile innovations can move the levers of
store performance by increasing revenues or decreasing
costs. They can also do both. For example, stores could
decrease marketing costs by using mobile advertising that
send fewer but more targeted messages to their core
customers compared to mass media and mass mailings.
Because these messages are personalized and contextaware (suggests gift ideas for an upcoming anniversary),
the customers feel like the retailer “knows them” which
may lead to higher conversions to sale. Innovations can
fall into four buckets: their ability to enhance in-store
experience, how they can enable personalization or “mass
customization” of products and services, their facility to
lure shoppers to the store through creative and enticing promotions and their ability to enhance efficiency in
operations (see figure 4). While technological innovations
can enhance both customer-facing technologies (in-store
experience, mobile payment) and non-customer-facing
technologies (supply chain management), this report will
focus on customer-facing technologies.
3
Transforming retail: How to improve performance with mobile and digital innovations
Increasing revenues
Foot traffic is critical to retail and sets up the all-important impulse purchase. Retailers can attract more shoppers to their stores by improving the in-store shopping
experience or by providing customized products that
are tailored to meet consumers’ varied needs close to
mass-production prices. Customer experience may be a
key to growing the bottom line. Augmented reality, for
example, improves in-store experience by layering digital
information on top of a product when consumers scan it
with a smartphone. Augmented reality provides relevant
information such as product reviews and stories behind
a product and how it was made. The convenience and
seamless experience of accessing product information
with the swipe of a smartphone is a significant improvement from consumers having to look up individual
products on a mobile browser. Augmented reality could
empower consumers with relevant product information
and may lead to more frequent visits to retailers that
provide such an experience.
Mass customization through digital technologies like
facial recognition and body scanning can capture user
preferences and provide highly customized experiences,
recommendations and products at prices akin to massproduced goods. For example, a full-body scanning device at an apparel store can take multiple measurements
and recommend brands, styles and sizes that are closely
aligned to a consumer’s body proportions. Another version of this technology may create a digital avatar (based
on a consumer’s measurements) that tries on clothing in
different sizes without the customer having to physically
try on the clothes. Both of these approaches can significantly improve the hit-and-miss approach of trying on
clothes, thus enhancing the shopping experience.
Retailers can use smart promotions to increase revenues
and traffic in their stores. Retailers can broadcast locationaware offerings to nearby shoppers’ smartphones during
slow periods. Digital wallets significantly decrease the
barriers of entry to loyalty cards and allow retailers to
collect new insights about their customers’ preferences
and shopping behavior.2 Increasingly, retailers may be in
a position to manage and mine shopper data that would
help them develop more targeted and personalized offerings based on analytics, thereby converting promotions
into sales.
Decreasing costs
Digital and mobile innovations have the potential to
reduce costs by enabling more efficient operations. Retail
costs — including marketing, distribution, customer
service and sales — can be more effectively directed with
creative, relevant use of mobile and digital innovations.
Specifically, retailers are already reducing their marketing
costs by printing fewer circulars and “books” and offering
more targeted promotions on smartphones and over the
Internet.
Figure 4. Matching business strategy to innovation
Digital and mobile innovations
In-store
experience
Increase number of
customers
Increase revenues
Mass customization
•Celebrity designer videos can enhance
product value
•Augmented reality on mobile can
improves consumer experience
•Full-body scanning provides customized apparel recommendation
•Virtual fitting can improve customer
experience
•Special treatment based on social
influence
Increase revenue per
customer
Promotions
Reduce marketing
costs
Reduced costs
•App can draw customers to stores
during slow time
•App can offer local, limited-time deals
driving footfall
•Staff connected to stocked inventory
online
Reduce distribution
costs
•Smartphone app locates items on the
shelf
Reduce customer
service costs
Operations
•Eases checkout lines with mobile POS
•Mobile payments can increase speed
of transaction
Reduce sales
costs
•QR (Quick Response) code with product info can reduce staff time
Source: Ask & Golvin 20093, Deloitte analysis.
Transforming retail: How to improve performance with mobile and digital innovations
4
Sale associates armed with tablets can access a retailer’s
online and offline inventory, allowing customers to choose
from a wide range of products without requiring retailers
to assume the costs of holding large inventories in any
one store. “Clienteling” application on a tablet can also
enable sales associates to access customer profile and
shopping history to provide a more personalized experience. These technologies can reduce inventory costs while
expanding customers’ choices and simultaneously reducing stock-outs. Out-of-stock items can cost retailers nearly
half of a customer’s intended purchases.4 The same study
found that 70–75 percent of out-of-stocks are the result
of retail store practices, including restocking practices
where a product is in a store but not on a shelf. By making
inventory visible to customers, retailers can keep them
from shopping elsewhere. Even if a desired product is not
available in a store, it could be delivered to the customer’s
home or picked up at a more convenient location.
Brick-and-mortar retailers could give smartphone-equipped
customers direct access to both online and offline inventory, providing a better customer experience than their
online counterparts by offering free pick-up of orders at
stores and no-hassle returns and exchanges.
Searching for sales associates to help locate products and
answer questions can be a frustrating experience for shoppers. Retailers could address this frustration by designing a
mobile application to help customers navigate stores more
efficiently and locate specific products on their shopping
lists. This could make life easier for shoppers and reduce
customer service costs for retailers by decreasing the number of sales associates required to support a store.
By using smart technologies, retailers can use augmented
reality, QR codes and near field communication (NFC) to
make relevant product information readily available to
customers, thereby reducing staff time spent answering
product-related questions.
5
Transforming retail: How to improve performance with mobile and digital innovations
Mobile payment pilots suggest that contactless payment
can cut average transaction time for cash payments in half,
and they could be at least five times faster for card payments that require signatures.5 Thanks to faster contactless mobile payments, retailers can reduce the number of
check-out counters and associated sales staff while processing the same number of transactions. Mobile point-ofsale (POS) terminals enabled with NFC can allow retailers
to reduce the required number of checkout counters and
increase their ability to process transactions by allowing
customers to make purchases directly with sales associates
rather than waiting in a checkout line. Furthermore, the
retail space freed up from reducing checkout counters can
be harnessed for more productive functions.
Along with operational benefits, mobile payments and
mobile POS terminals can improve the customer experience by reducing wait times and simplifying coupon redemption at the point-of-sale. Typically, a customer would
clip coupons from a retailer’s advertisement at home and
bring them along on a shopping trip. Mobile wallets allow
consumers to download relevant coupons on their smartphones, receive promotions in real-time and keep otherwise unwieldy coupons readily available. At the point-ofsale, relevant coupons would be automatically retrieved
from a mobile wallet and redeemed, saving considerable
hassle at the register. Digital receipts can also be sent to a
mobile wallet, saving retailers costs incurred from printing
receipts while providing convenience to customers.
Assessing customer expectations
Understanding customers’ desires for in-store experience
is a critical element of brick-and-mortar profitability. Expectations vary according to the type of store a customer
enters. For example, customers in apparel stores may value
creative displays, appealing lighting, ambient music, and
interesting decorations that create an attractive perusing
experience. Grocery store customers, on the other hand,
may have a more utilitarian outlook. They typically enter
a store with the intention of ticking items off a shopping
list as they systematically scurry from one aisle to the next.
Therefore, fashion-savvy staff at a grocery store is as helpful as efficient aisles in an apparel store.
These considerations extend to other levers of store
performance like mass customization, promotions and operations; retailers that understand their customers’ needs
and the relative importance of different levers may be in
a position to differentiate themselves from their competition. A framework to assess the relative importance of different performance levers can help retailers think through
their digital and mobile strategies (see figure 5) and select
the most relevant digital and mobile innovations. For each
lever of performance (in-store experience, mass customization, promotions and operations) specific services
— expert opinion, personalized recommendations, etc.
— are highlighted. Each retail category is assessed across
nine services that roll-up to the levers of performance.
Figure 5. A framework for assessing customer expectations from different retail categories
In-store experience
Retail
categories
Expert
opinion
Store
experience
Navigability
Mass
customization
Promotions
Operations
Personalized
recommendation
Offers Price Bundling
Product
Speed information
Apparel
Department store
Discount store
Club
Drug store
Grocery
Home
improvement
Non-apparel
specialty
Electronics
Very important
Least important
Source: Deloitte analysis
Transforming retail: How to improve performance with mobile and digital innovations
6
Are you ready?
An assessment of a retailer’s current preparedness and
vision for the future may provide a reality check on where
they stand with the four levers of store performance:
in-store experience, mass customization, promotions and
operations. A majority of retailers (65 percent) are just
meeting or below the expectation for in-store experience
(see figure 6). A unique and differentiated in-store experience can provide retailers with a significant competitive
advantage. The current baseline on in-store experience
provides retailers with an opportunity to stand out from
their competition by considering digital and mobile innovations that can provide a significantly improved shopping
experience for their customers.
The current focus on differentiation does not adequately
account for augmented reality, mobile wallet, mobile
checkout, social commerce and navigation, which are
likely to be important elements when measuring store
performance in the near future (see figure 7). To be profitable in the future, retailers may need to reevaluate their
digital and mobile strategies, and the customer expectation framework in figure 5 may be a good starting point.
Figure 6. How well do you think your company is
currently delivering its stated in-store customer
experience?
Off track
2%
Slightly below
expectations
24%
Meets
expectations
39%
27%
Very well
Outstanding
No opinion
5%
2%
Source: NRF/Deloitte Survey, Deloitte analysis
7
Transforming retail: How to improve performance with mobile and digital innovations
Consumer adoption of mobile innovations is following a
trajectory that is unprecedented for any technology in the
past. The retail industry may be well-served by tapping
into the higher levels of awareness that technology and
telecom companies have of the frenetic evolution of mobile
technologies and services.
Conclusions
Retailers faced with the frenetic pace of change wrought
by digital and mobile innovations may plunge into the
current ferment and emerge with technology implementations that are not aligned with their business strategies.
It is easier to create a product page on Facebook or
develop a mobile app than it is to develop an integrated
digital and mobile strategy. Such a strategy can leverage
innovations to drive store performance and provide customers a seamless, multi-channel experience.
Retailers that are able to work across industry boundaries
and partner with relevant players in the fast-evolving mobile ecosystem may prevail in the marketplace of the future.
Figure 7. How will your company differentiate your stated in-store customer experience from your competitors?
73%
In-store experience
51%
71%
Multi-channel integration
54%
68%
Service quality
56%
68%
Product offering
51%
54%
Mobility (Smartphone/table shopping enablement)
49%
54%
Convenience (store layout/design, ease of finding)
39%
51%
Social commerce
41%
44%
Store location (ease of access to consumer)
32%
41%
39%
Mobile checkout (store associate able to perform)
41%
Price offering
27%
34%
34%
Customer segmentation
5+ years from now
32%
Kiosks or other “in aisle” technology
27%
17%
Mobile wallet
27%
15%
Augmented reality (combining real and virtual)
27%
10%
Not yet created or imagined
32%
7%
Self-service payment
Do not know how my company will differentiate itself
3-5 years from now
22%
2%
12%
Source: NRF/Deloitte Survey 2011, Deloitte analysis
Transforming retail: How to improve performance with mobile and digital innovations
8
Endnotes
1
Joel Evans, Retailing in perspective: the past is a prologue
to the future, The International Review of Retail, Distribution and Consumer Research, Vol. 21, No. 1, February
2011, 1–31.
Divakar Goswami, Cell me the money: Unlocking the
value in the mobile payment ecosystem, Deloitte Research report, February 2011.
2
Julie Ask and Charles Golvin, The POST Method: A systematic approach to mobile strategy, Forrester, April 9,
2009.
3
Thomas Gruen, Daniel Corsten and Sundar Bharadwaj,
Retail out of stocks: A worldwide examination of extent,
causes, and consumer responses, University of Colorado,
Colorado Springs, May 19, 2002.
4
Craig Conklin, NFC and the mobile payment initiative,
January 17, 2011, accessed online: http://craigconkling.
blogspot.com/2011/01/nfc-and-mobile-payment-initiative-4.html
5
9
Transforming retail: How to improve performance with mobile and digital innovations
Authors
Phil Asmundson
Vice Chairman, U.S. Media and Telecommunications
Leader
Deloitte USA LLP
Tel: +1 203 708 4860
Email: [email protected]
Alison Paul
Vice Chairman, U.S. Retail & Distribution Leader
Deloitte Consulting LLP
Tel: +1 312 486 4457
Email: [email protected]
Divakar Goswami
Executive Manager
Deloitte Research
Deloitte Support Services India Private Limited
Tel: +1 615 718 5910
Email: [email protected]
About Deloitte Research
Deloitte Research, a part of Deloitte Services LP, identifies,
analyzes, and explains the major issues driving today’s
business dynamics and shaping tomorrow’s global
marketplace. From provocative points of view about
strategy and organizational change to straight talk about
economics, regulation and technology, Deloitte Research
delivers innovative, practical insights companies can use
to improve their bottom-line performance. Operating
through a network of dedicated research professionals,
senior consulting practitioners of the various member
firms of Deloitte Touche Tohmatsu, academics and technology specialists, Deloitte Research exhibits deep industry
knowledge, functional understanding, and commitment to thought leadership. In boardrooms and business
journals, Deloitte Research is known for bringing new
perspective to real-world concerns.
Tiffany Mawhinney
Retail Senior Specialist
Deloitte USA LLP
Tel: +1 404 631 2088
Email: [email protected]
Transforming retail: How to improve performance with mobile and digital innovations
10
This publication contains general information only and Deloitte Services LP is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other
professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your
business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Services LP its affiliates and related
entities shall not be responsible for any loss sustained by any person who relies on this publication.
As used in this document, ‘Deloitte’ means Deloitte LLP (and its subsidiaries). Please see deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its
subsidiaries.
Copyright © 2012 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited