"We are living in a new world, an exponential world where technology, data, [and] AI are growing exponentially and creating a world that is never been before. So, what we see happening is all this processing power, being combined with exponentially growing data, exponentially growing AI, to create what I think of as innovation flywheel, and it is this that is powering up all these new capabilities we see flooding into the retail industry by the month, by the week, almost by the day," said Gary Hawkins, CEO of the Center for Advancing Retail & Technology and author of Bionic Retail: How to Thrive in an Exponential World.
Traditional retailers face a 'growing risk of system failures' due to legacy tech
Major retailers have rolled out digital transformation strategies to reduce business costs and improve the customer experience by offering various digital shopping options. However, many retailers struggle to deliver on digital transformation strategies due to expensive and outdated IT infrastructure — also known as digital debt — which is preventing the widespread implementation of new technologies like AI and automation, Hawkins explained.
“Traditional retailers have ... fairly significant existing system technology debt. Systems that have not been kept updated to the latest releases, other things that were sort of jury-rigged simply to get them in the market or get them moving quickly. So, there is a growing risk of system failures, breaches [and] other things that come along with that,” he said.
As data needs evolved, many retailers developed a “number of point-to-point integrations” to connect various data silos, allowing employees to gain access to data from outside their initial department, Hawkins explained. Over time, these integrations complicated the IT system and made it harder for retailers to make widespread changes, he added.
“Marketing all of a sudden realizes that ... [they] need some data that distribution has or a piece of data that operations has. And so, they call on the IT department to build these point-to-point integrations between these different siloed systems, and what is developed over time is — to be blunt — a giant hairball. And the key point here is that as retail organizations grow, complexity is growing. And with that added complexity, we see decreasing efficiency.”
This technology debt is not only a risk to retailers' businesses, but it is also "preventing deployment of new capabilities" that can improve the shopping experience, Hawkins noted.
Outdated IT infrastructures can prevent retailers from offering click-and-collect or other grocery pickup options and maintain proper inventory management since various data streams are siloed. Subpar Wi-Fi in their store — or no Wi-Fi at all — might prevent the implementations of “augmented worker technology," including autonomous inventory robots, he added.
Retailers using this data-silo approach are also diminishing AI’s potential for innovating the retail landscape, Hawkins said.
“What we see happening is AI is being added to those siloed applications, and the result of that is retailers getting some benefit from adding artificial intelligence to those capabilities, but the real transformation happens as traditional retail can move to a unified data foundation, bring all their data together, making it available across the enterprise, so that they too, can deploy new AI capabilities far faster, far easier, and realize the benefit of all that," Hawkins added.
Walmart embraces 'platform thinking' to grow business
To deliver on digital transformation goals, retailers will also need to rethink their business from being a place to purchase products to being a platform that solves consumer needs, said Tom Furphy, CEO of Consumer Equity Partners and former VP of consumables and AmazonFresh for Amazon.
“It really does require a rewiring and a mindset change for retailers to get behind this notion of platform thinking. [Retailers] really need to think of themselves as a platform — very different than they thought about themselves traditionally. This is not a trivial transition, but I do think it is an imperative,” Furphy said.
“Too often we see retailers after years of really good intentions and a lot of great work with these unending product roadmaps, intertwined systems, dependent processes [and] massive technical debt, and it just really hampered retailers, in general, to be able to innovate as fast as they as they could or should,” he added.
Walmart is a retailer that was able to transition to that platform approach, but it did require substantial investments and commitment from leadership, Furphy explained. As part of its overall digital transformation strategy, Walmart acquired e-commerce company Jet.com in 2016, and three years later, hired Amazon and Google veteran Suresh Kumar for the role of global CTO.
Today, Walmart not only offers various digital ordering and delivery options, but the retailer also deploys generative AI tools to its product search to help consumers find products more easily.