CommentSponsored Articles

Why buying into digital transformation makes good business sense for retailers

While retailers across the UK have started to emerge from the crisis caused by the pandemic, there’s no doubt that further challenges and uncertainties still lie ahead. With consumer behaviours likely to have changed for good, David North, a digital and software sector specialist at R&D tax relief consultancy ForrestBrown, explains why digital transformation will be the key to success for retail businesses – and highlights how R&D tax relief can help.

It’s an understatement to say that COVID-19 – and the restrictions imposed on businesses as a result of it – have triggered change within the retail sector.

Over 15,000 shops and 188,000 retail jobs were lost in the first twelve months of the pandemic, and 2020 has since been confirmed as ‘the worst year for the UK High Street in more than 25 years’.

While this paints a pretty bleak picture for the retail sector, it would be unreasonable for COVID-19 to be blamed for everything. Rising operating costs, increased competition from online retailers and changing expectations from consumers have been a thorn in the side of traditional and typically slower-moving bricks-and-mortar businesses for at least a decade now, and the pandemic was simply the final nail in the coffin for many of them.

The introduction of ‘stay at home’ guidance from the UK government, in addition to the blanket closure of ‘non-essential’ shops and businesses, essentially forced consumers onto online platforms for much of last two years – and shopping behaviours have been irrecovably changed as a result since.

Indeed, the Online Nation 2021 report from UK communications regulator Ofcom has found that the pandemic accelerated the UK’s shift towards online shopping – with sales rising by almost 50% year-on-year. This dramatically increased level of traffic has crashed websites, impacted delivery times and ultimately highlighted the need for businesses to update existing systems or processes – and put digital transformation higher on the agenda. This shift is echoed by John Lewis’ Pippa Wicks stating at a recent Retail Week Live conference that ‘…the store and online are becoming one,’ having seen a growth in online sales from 40% to 60% of the total at John Lewis.

While undertaking such projects at a time of great uncertainty might feel slightly overwhelming, the consequences of inaction are fundamentally more alarming. The pandemic has changed the way in which we shop – and retailers with a physical presence need to move fast if they’re to keep up to pace.

Why digital transformation isn’t digital-first

It would be easy to assume that digital transformation is about adopting a digital-first approach to retail. However, this isn’t the case at all.

The launch of several Amazon Fresh stores in London last year, where customers can pick up their goods and leave without having to visit a till, will tell you that the high street isn’t dead as many critics claim – it’s just evolving with added technology.

Of course, with the pandemic – and the effects it’s having on the sector – ever-present, this ‘added technology’ has an important role to play. Retailers now need to be omnichannel if they’re to continue catering to their customers’ individual needs, and the introduction of new technology can help them along the way.

When it comes to digital transformation, it’s all about knowing your customer – making it easier, cheaper and faster for them to purchase your products. Successful projects can also help retailers to deliver speed and efficiency, minimise human error and maximise choice combinations that encourage upselling too.

There’s no ‘one size fits all’ approach to implementing digital transformation in retail, and projects can take many forms. For some businesses, this might mean making online links through to stores as customers venture back into shops, while others may need to adapt and upgrade their fulfilment offerings to include click and collect, curbside pick-up and ship from store.

Depending on the business and its key audience, there’s also an opportunity to introduce new technology, whether it’s Scan, Pay & Go or digital signage in-store, or virtual fitting rooms or personalisation online.

There’s lots to consider, but the important thing to remember is that digital transformation can differentiate a business from its competitors – and help them to better understand their customers too. After all, if retailers can make it easier for people to browse online, purchase products and have the option to do it seamlessly online or in-store, then they’re more likely to pick up repeat business.

R&D in the retail sector

As many businesses will know, there are a vast number of areas that can be called upon to support retail. These include e-commerce, warehousing, logistics, EPOS, ERP, cybersecurity, fraud prevention, backoffice operations, AI and machine learning, Data Science, IoT, augmented reality, social media and marketing. Each of these will typically use different technologies, processes and systems.

The consequence of this is that when retailers begin to scale up, the complexity of operating the business increases, and its efficiency lessens. Given that there is now an expectation for retailers to be linked up wherever the touchpoint is – whether that be in-store, online, or via delivery, collection, and marketing – retailers need to streamline and automate their operations if they’re to deliver faster, cheaper and better service.

Inevitably, there are technical challenges in overcoming this, and digital transformation projects can be large and quite complex to achieve. However, there is support available in the shape of the R&D tax relief incentive. First introduced by the Government two decades ago as a means to fuel growth and innovation, the incentive can help businesses to develop bespoke solutions to the challenges they’re facing by providing them with the confidence to take risks along the way.

Many people think that R&D projects need to include cutting edge technology or create entirely new products, but more often than not, that isn’t the case. If a business is seeking to resolve technical challenges, where there isn’t a known solution that they can make use of, then the work they’re doing could qualify for R&D tax relief.

For example, it could be that a business has to work with existing technology and systems in ways they were not designed to be used as it begins to scale and pursue new goals. Improving, extending or integrating existing systems is often technically challenging, and there may well be no ‘off the shelf’ way for businesses to achieve this, so it therefore requires R&D.

Alternatively, it might be that the retailer is attempting to implement personalisation technologies – which give them the ability to know their customer better, target them with more tailored information, and ultimately improve customer experience – and they need to develop a bespoke process in order to do so. The possibilities truly are vast.

While it would be easy to try and solve every issue at once, it’s always sensible to take a more cautious and measured approach when approaching digital transformation projects, as building solid foundations that support scalability will save a headache in the long-run.

In the last eighteen months, plenty of businesses have been required to rapidly adapt as the pandemic took hold – and there’s a good chance that they could be eligible. That’s not only to apply for the incentive, but also for back-pay for any projects undertaken, as R&D tax relief can be claimed for up to two years after the event.

Time for change

At a time when retail giants Arcadia Group, Cath Kidston, and Debenhams – amongst others – have left the high street, it’s a stark reminder that businesses within the sector need to be adaptable when mapping their path for the future, regardless of their size. If decision makers devise a plan for digital transformation, or anything else for that matter, they should be prepared for it to change, as none of us truly know what the next twelve months holds.

That said, retailers shouldn’t let uncertainty get in the way of taking a risk on something new. The retail sector will not return to the way it was pre-pandemic, and customer expectations have only escalated in the time since. With that in mind, retailers need to look at COVID-19 – and digital transformation – as an opportunity to better understand their customers and futureproof their business.

Back to top button