Retail digital transformation in 2021

Retail digital transformation in 2021

February 11, 2021

Andrey Koptelov

Innovation Analyst

For retail, 2020 was the year of emergency response. Amid the health crisis, stay-in-place orders, and drastic consumer behavior changes, companies were forced to adopt years’ worth of innovations in a matter of months to stay in business.

This year promises to be different. The global economy has been slowly but surely pursuing the path of recovery and resilience since 2020, and the recent positive news about the vaccine has fueled an even stronger economic rebound. Beyond this, societies have more or less adjusted to the new normal, so the novel consumer sentiment took root and consumer spending across categories increased. 

Now, in a more certain landscape and with last year’s disruptions and emerging trends to reflect on, retailers can make informed decisions about retail software solutions to adopt and thus commit to more solid and future-proof digital transformation strategies.

What 2021 has in store for retail

First things first, it’s worth exploring how 2020 has altered consumer sentiment, behavior and needs to better understand the landscape retailers will have to navigate this year. Below is the succinct overview of the five major consumer trends that will shape the retail industry this year:

#1: Health concerns will govern consumers’ activities. Winter brought about a new spike in COVID-19 cases and gave rise to anxiety despite the positive news about the vaccine. Due to this, in 2021 consumers will harbor even higher safety demands regarding their in-store shopping, in-person payment and home delivery experiences.

#2: Shoppers are eager to try new things more than ever. Since the pandemic began, the majority of consumers tapped into new shopping behaviors and do not intend to stop these explorations in the near future. This is also one of the reasons for proliferation of innovative technologies like VR and computer vision in retail. On the downside, consumers are less willing to stay loyal to brands if they do not meet their requirements, and are more likely to switch retailers without a second thought.

New shopping behaviors during the pandemic

#3: Some newly-acquired consumer habits will stick even post-pandemic. As they got a taste for the variety of exciting and time-saving shopping, payment and delivery options, consumers of all generations will continue to rely on online retail even after the pandemic subsides.

Consumers expect to shop online more post-COVID-19

#4: Value for money remains the key purchasing driver. While price will play the biggest role in customers’ purchasing decisions amid the global economic uncertainty, factors like shopping convenience and the availability of embedded finance will also prove to be important considerations.

What's the most important factor in your choice of a physical shopping location

#5: Mobile will gain an unprecedented prominence in online and offline retail. Smartphone-based online sales (including purchases made via virtual stores) are to outpace desktop ones as more consumers grow to appreciate the convenience and excitement of today’s m-commerce, while mobile payments will soar due to their ease-of-use in offline retail.

Devices used for online shopping across generations

As one can see, this year consumers will have a persistent drive towards safety, novelty, digitization, and convenience, and investments into ecommerce architectures and solutions that deliver such experiences is a sure way for a retailer to stand out in the market while also promoting customer loyalty and building trust. Now, with the 2021 retail landscape explained and priorities outlined, let’s see what emerging retail tech fits the bill.

4 digital transformation paths to embark on in 2021

Social shopping

Not so long ago, brands viewed social networks merely as another marketing channel, effective for reaching out to their target audience with personalized product promotions. Still, if the customer did decide to buy, the purchase tended to take place outside the retailer’s social media account, most likely on their website or at a brick-and-mortar store.

But when consumers shifted to shopping online and began spending more time on social networks than ever due to the pandemic, it presented a unique chance for the platforms to step up their social commerce offer and allow brands to not only promote but also sell their products seamlessly through social media channels. As the largest social networks seized the opportunity without delay, 2020 saw a boom in social shopping developments.

Social commerce, with its community-like engagement, abundant social proof, and frictionless shopping, immediately struck a chord with consumers, particularly younger generations, who might feel isolated and longing for novelty and excitement. For retailers, facing uncertainty and financial strains, the benefit of social shopping lies in easier target audience outreach and authentic relationships that translate into higher conversion rates.

It would be, however, unwise to label this sales channel as a fad. Due to its ease-of-use and appeal to the young social media-savvy generations, social commerce promises to proliferate and become a dominant online sales channel in the years ahead. This makes 2021 the perfect time for a brand that’s intending to stay ahead of the curve to venture into social commerce.

Today, social selling opportunities abound for large brands and SMB retailers alike. On the one hand, there is Facebook Shops, launched early in the pandemic as an initiative for supporting small businesses, allowing companies to easily set up an online store on Facebook or Instagram and start selling their products through posts, stories, and live streams. Other intuitive and low-effort social selling options are available on Pinterest and, recently, TikTok, which partnered with the ecommerce platform Shopify to integrate a high-end digital commerce experience into their platform.

Snapchat’s shoppable show The Drop, on the other hand, is the prime example of an elaborate social selling campaign launched by luxury designer brands in summer 2020. Each episode focused on the collaboration between a designer and a guest celebrity creating a limited-edition streetwear item that viewers can purchase directly from the screen as they watch.

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Mobile apps

Retail mobile applications are hardly new, but since the beginning of the pandemic, m-commerce has significantly grown in popularity and so far shows no sign of losing momentum. Needless to say, developing a mobile channel is an absolute must in the current circumstances, but how can a brand garner the attention of a consumer as discerning as the modern one? The following emerging technologies are making waves right now and can become a solid market differentiator for retailers’ mobile apps.

Augmented reality

One considerable shortcoming of m-commerce is its lack of tangibility that we humans need badly to make a purchasing decision and feel satisfied with the shopping process, but until recently most brands had had little incentive to provide it. In 2020, however, when the quality of digital customer experience became critical for commercial survival, companies turned to the best technology for breathing life into online shopping—augmented reality.

Today, AR features can be found in the mobile apps of mass-market and luxury fashion brands, beauty and jewelry retailers, and even houseware, sporting goods, and toys merchants. Allowing customers to virtually try on clothes, shoes, and makeup looks or preview how furniture will look like in their room, AR bridges the online and in-store shopping experiences and makes the previously monotone process of product discovery and assessment more engaging. Down the line, this element of excitement, according to Shopify’s findings, translates into a 94% higher conversion rate, which makes all money and effort investments into AR more than worthwhile.

Voice shopping

Another m-commerce trend the pandemic gave rise to is voice-assisted commerce. When the world went into the lockdown, consumers found they no longer needed to adjust their shopping activities to their working schedule but instead could make purchases throughout the day. Voice assistants offered to take the convenience of buying anytime, anywhere up a notch, allowing their owners to shop while doing something else, be it work, house chores, or leisure.

As a result, last year the share of voice-assisted purchases grew by 45% compared to 2019, with 14% of them made while the buyer was doing the dishes, 12% as they were watching TV, and 11%—during cooking, found PYMNTS in collaboration with Visa in their How Will We Pay in 2020 study. What is more, as a voice commerce tool, mobile virtual assistants appear to edge out smart speakers because the latter has no screen and does not allow to see the purchase. All this, coupled with the growing appreciation for the speed and convenience of voice commerce, offers a viable growth avenue for retail brands’ mobile apps.

Carrefour, a French supermarket chain, is a trailblazer in this field. In the summer of 2020, the company launched a voice-based grocery shopping service developed in cooperation with Google. Compatible with mobile phones and smart speakers, the service enables customers to search items in Carrefour’s online store, add them to the shopping cart, pay for the order, and schedule its delivery via voice commands.

Brick-and-mortar retail apps

Throughout the last year, shoppers took care to avoid malls and supermarkets but flocked to the mobile apps of their favorite offline businesses instead. The dramatic growth in application downloads and in-app purchases in 2020, particularly during the lockdown months, was reported not only by big-box retailers but also by independent brands. This indicates that customers are ready to stay loyal to proven businesses as long as they meet their newly formed expectations.

In-app revenue and downloads

In-app ordering and payment together with scheduling a home delivery or a contactless pickup became the essential features of brick-and-mortar mobile apps. To render the experience safe for shoppers who do venture in-store, retailers should also equip their apps with no-touch options, such as scan-pay-and-go payments, in-app loyalty programs, and contactless self-service and wayfinding.

Thus, amid the uncertain times for brick-and-mortar retailers, mobile apps became instrumental in quickly retooling their operations and meeting customers’ increased demands for convenience and safety. In 2021, with the end of the pandemic nowhere in sight, mobile apps will continue to be powerful market differentiators and customer loyalty drivers for retailers large and small.

Alternative payment methods

In 2021, both cash and card payments are becoming unpopular. The shift to online commerce compelled consumers to change their habits and pivot to digital payment channels, while also encouraging shoppers to broaden their horizons. Though the tried-and-true bank transfer understandably was the most preferred payment option in 2020, as per the World Payments Report 2020 by Capgemini, more innovative payment technologies also gained recognition across customer segments, shifting from being “gimmicks” to “must-haves” in less than a year.

Contactless payments proved a boon to customers who had to or still preferred to shop in-person. Near-field communication, the underlying no-touch payment technology, facilitates interaction between the terminal and the bank card or smart device over a short distance, so the possibility of contracting the virus from a contaminated surface is removed. Today, 59% of consumers globally prefer contactless to other payment methods, according to Dynata, and 34% plan adopting it shortly, which cements this method’s position as the future of in-person transactions.

Long-neglected, QR codes are also on the rise, finally recognized as another hygiene-promoting payment method. Easily scanned with the default camera app, QR code payment schemes prove particularly frictionless for shoppers. What is more, compared to the NFC technology, QR has low adoption costs, which makes it an attractive option for small businesses or retailers lacking card payment infrastructure.

Mobile wallets are another previously overlooked payment technology that soared in the pandemic world for both online and offline transactions. Requiring only several taps to make a purchase but heavily secured with encryption and additional authentication at the same time, the technology appeals to the modern mobile-first and safety-conscious consumer. According to Capgemini’s report cited above, 35% of respondents who owned a card added it to a digital wallet in 2020 and were pleased with its convenience and speed, which puts merchants not offering an e-wallet payment option at high risk of losing customers and sales in 2021.

Fraud prevention

The rise of fraud came as the major downside of the explosive growth of ecommerce. The increased volume of digital transactions, the advent of new payment and delivery methods, and customers being frequently neglectful about their new accounts’ proper protection—the online retail landscape has never been a weaker target for attacks.

To make matters worse, fraudsters are increasingly relying on sophisticated scripts that emulate human behavior instead of launching high-volume attacks, and thus can pass traditional verification procedures without raising suspicions. Under these circumstances, the share of elaborate fraud methods, such as account takeover and interception, chargeback and triangulation fraud, have grown significantly.

As a result, last year the US mid-size and large merchants saw a 43-48% increase in the average number of successful fraud attempts since 2019, according to the 2020 True Cost of Fraud study by LexisNexis. The value of a fraudulent operation has also gone up by 7.3%, with $1 of fraud now costing ecommerce retailers $3.36.

Average number of total fraud attempts per month

To safeguard their business against the heightened threat without creating additional friction, retailers are setting out on enhancing their fraud detection mechanisms in 2021.

At the moment, machine learning in retail is sought after as the most viable technology for thwarting human-emulating fraud scripts. Assessing transactions in real time against historical data and numerous criteria, the algorithms can accurately detect anomalous activities that indicate a fraud attempt and timely halt them. What makes machine learning in ecommerce an even more invaluable tool to fight fraud is that the software continuously teaches itself and thus can identify even new and obscure scam schemes.

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Closing thoughts

The events of 2020 have marked a major turning point for retail, fast-forwarding the industry’s innovations. Now, when there is no need for urgent recovery efforts and speedy rollouts, businesses can step back to assess the shifts in customer behavior and recent retail tech advancements (like the emergence of the MACH architecture) and work out a more long-term digital transformation strategy. Consumers’ quest for convenient and mobile-first experiences as well as their concerns about health and cybersecurity have shaped the retail landscape for years to come, and solutions that deliver on these needs prove most worthwhile to adopt today.