Digital superpowers are bringing new technologies into view at lightning speed, creating a structural shift in retail so profound, even large retailers need to act now if they’re to hold their own.In spite of seeing significant decline in store-based sales – for example, nearly one third of home appliances are already sold online in China – retailers have not grasped the inevitability of change or the urgency with which they need to take action.Alibaba’s “new retail” inroads, its alliance with China’s leading hypermarket chain Sun Art Group, and its recent acquisition of food delivery start-up ele.me, while long established brands like Toys R Us and The Limited are closing down, are a salient cry to retailers that they must take immediate action, or suffer badly if they don’t.A nuclear arms raceIn this climate, the digital superpowers are spending more than many retailers’ turnover on technology and infrastructure. Alibaba, Tencent and JD.com are investing massive amounts – over 100 times more than what an average retailer can spend – while also engaging in multiple ventures to build beachhead presence across a broad range of retail sectors.Some businesses, seeking to tackle the problem, are engaging in ‘spray and pray’ omnichannel strategies, misinterpreting omnichannel as everything, everywhere, for everyone. This approach overlooks the fact that consumers use channels in quite distinctive ways. Instead of being strategic and targeted, retailers have invested in making all channels deliver everything, which has led to material overspending and declining profit margins in many markets.The talent gap starts at the topLack of experience, strength and depth at boardroom level are preventing retail businesses from responding decisively enough. The majority of senior executives aren’t digital natives and often don’t know what great digital talent looks like, how to move at a digital pace, or where to recruit the expertise.Make a treaty with a superpowerThe critical mass of investment the digital superpowers make is so far beyond most retailers’ reach, access to their digital advances can only be achieved through smart partnership. Instead of trying to compete with digital investment, or spreading themselves too thin with omnichannel strategies, retailers need to think critically about the role platforms like Amazon, Google, Tmall or Wechat could play in their business model.Despite being the biggest retailer on the planet, WalMart became Google’s official partner for home shopping using Google Home voice technology. WalMart has also taken a 12% share in JD.com, China’s second largest B2C platform operator. At a smaller scale, many retailers continue to buy into tech players and platforms in the hope of transplanting digital expertise into their core business model - Carrefour’s recent acquisition of a stake in Showroom Privé is a good example. So is their recent alliance with JD.com for their China business.Difference as a defenceLast year, Alibaba generated USD25 billion in just one day over its famous single’s day event. When faced with such strike force, retailers need to ask themselves what makes them distinctive and defensible… and act on it fast! In a world where customer expectations of price, range and service have been fundamentally reset, genuine points of difference need to be sharper than ever.Targeted pain reliefThe good news is that big players can’t do everything well, particularly when it comes to specialist knowledge and helping consumers make well-researched decisions through product curation. It is more critical than ever for businesses to have a consistent ‘point of view’ they systematically project across their range, content and service. For non-commodity retailing, a deep understanding of target customers, differentiated product, sharp and informed content, and tailored customer journeys are a pre-requisite for success.Understanding the whole customer journey – from stimulation of need through to post-purchase service – is critical. Retailers who really understand the specific pain points that their customers experience and develop deliberate strategies to tackle them are in a better position to win against the giants.Sephora, for example, used in-store technology to capture individuals’ exact skin tone and create an intelligent match of appropriate products. China’s internet phenomenon, Three Squirrels, has turned a basic product, nuts, into a super-popular snack for millennials, and became the largest snack food retailer on Alibaba’s Tmall marketplace.A new hopeWhile this is a time of unique change in the retail industry, opportunity exists for those prepared to seize the moment and transform. Navigating the seismic shifts requires a fleetness that may not come naturally to some, but for those who “get it”, the rewards are tremendous.The writers are Pascal Martin, partner, Greater China, OC&C Strategy Consultants and James George, partner, London, OC&C Strategy Consultants.
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