By T. Leigh Buehler  |  10/30/2023

digital transformation in the retail industry

Over time, digital transformation in the retail industry has become necessary. The shift of the retail industry from brick-and-mortar stores to a digital landscape continues to evolve each year as new technology emerges. The digital space started as a simple option for retailers and is now a critical component of any retail business model.

Digital retail management ensures that a retailer’s online presence is effective and results-oriented. Understanding how digital retail management is shifting and evolving is crucial for businesses as physical stores continue to make way for more online interactions.

Omni-Channel Strategies

The days of brick-and-mortar stores versus online ecommerce businesses are over. I remember working as the backroom manager for a large women’s clothing store, and we could not accept any returns from the online version of our store because it was a separate business. Our store would do whatever it could – including shipping an item from one store to another store – to prevent the customer from ordering online.

But now, consumers can find the seamless integrations of all channels – in-store, mobile, online, and social media. An omni-channel approach ensures consumers can have a consistent experience whenever they interact with a retailer’s brand. 

There are many benefits to using omni-channel strategies. They include:

  • Consistent experience
  • Integrated inventory
  • Unified customer profiles
  • Personalized engagement
  • Cross-channel capabilities
  • Feedback integration

Consistent Experience

If a customer shops online from a home computer or through a mobile device, the shopping experience is unified, even if they are shopping from catalogs or in stores. Overall, company branding is consistent, prices are consistent, sales are consistent, products are consistent, and return policies are consistent across all platforms so shoppers do not get mixed messages about what the business will allow them to do or not do.

Integrated Inventory

Integrated inventory is one of my favorite features of modern omni-channel retail; it involves the ability for stock levels to be updated in real time across all channels. If a product is sold out in a nearby store, a customer can find it online or through a store finder on the company website. This strategy enables retailers to optimize operations and improve the user experience.

Unified Customer Profiles

With unified customer profiles, businesses in the retail sector have a 360-degree view of a customer’s interactions with their business. For instance, retail stores can look at a customer's purchase history, preferences, and feedback on all channels. Many brick-and-mortar stores can even pull up a customer’s online preferences profile to help with product suggestions and past purchases. For consumers, the convenience is unparalleled.

Personalized Engagement

When retailers integrate their customer data, they can create stronger personalized promotions for consumers. They can also make customer recommendations based on past preferences and shopping behavior.

Whole Foods, for instance, has a wonderful product recommendation feature on their online shopping portal. If an item you’ve purchased in-store is available for grocery pickup, this retailer will show that information to you.

Similarly, if an item you purchased in the past from inside the store is unavailable, Whole Foods will suggest a viable alternative. That alternative is usually a pretty great replacement option.

Cross-Channel Capabilities

For retailers, allowing customers to “buy online, pick up in-store” (BOPIS) or “buy online, return in-store” (BORIS) embodies omni-channel abilities. It also blurs the lines between shopping online and in-store for a business.

One of the greatest retail developments to come out of the COVID-19 pandemic was the development of retailers’ BOPIS options. Digital technologies quickly caught up to consumers’ needs during the pandemic. Consequently, businesses in the retail sector saw how consumers responded to BOPIS options with overwhelming support since they could utilize multiple channels as needed and enjoy an improved customer experience.

Feedback Integration

Online reviews about a business can influence an in-store display based on feedback from another marketing channel and vice versa. If an e-commerce customer is online discussing product selections with a chatbot, the messages are recorded and the feedback is stored. This information, in turn, then influences what products are offered across all channels.

Data-Driven Decision Making in the Retail Industry

Big data is gold in digital retail. Every click, purchase, or cart abandonment tells companies a useful story. Retailers can use this data to understand customer behavior, optimize inventory levels, and forecast future trends, a strategy that is more likely to work better than traditional methods.

Data-driven decision-making (DDDM) is all about a business making strategic decisions based on big data analysis. The ways that DDDM is used in digital retail include:

  • Customer insights
  • Inventory management and forecasting
  • Price optimization

 Customer Insights

By analyzing big data with consumers' purchase histories, click rates, browsing patterns, and feedback, companies can understand customer shopping behaviors, their preferences, and even their pain points. Once retailers know this data, they can then segment their customers and offer a more personalized experience to each consumer.

Inventory Management and Forecasting

Retailers can also optimize their inventory levels through DDDM. They analyze sales data, seasonality reports, and trends to understand their potential inventory needs. This product management strategy helps to reduce carrying costs (holding on to excess inventory or deadstock) and out-of-stock (missed profits) scenarios.

I once served one year as a store manager for a popular body care company before sophisticated DDDM technology was in existence. The company launched its Christmas gift line, and it flopped hard.

Customers bought a few gifts, but the number of purchases were not at all as to what was expected based on previous years. The “super cute” gift bag was outdated and a trend from the previous holiday season. While customers wanted the products inside of the gift bag, they were not interested in paying extra for the bag because it was no longer trendy.

Data helps to improve retail management. Using historical data, retailers can predict future sales, market trends, or customer behaviors with greater accuracy.

Price Optimization

Retailers can create dynamic pricing strategies developed from real-time demand, competitor pricing, and inventory levels. This information helps them maximize profitability as they do not overprice or underprice products. By using mathematical analysis, retailers can determine how customers may respond to various prices through their different channels.

Enhanced Personalization in the Retail Industry

In the digital retail world, one size no longer fits all and today’s customers expect a more personalized shopping experience. Platforms outfitted with artificial intelligence (AI) and machine learning (ML) offer personalized product recommendations for customers.

These recommendations allow each shopping moment to feel like a curated experience. Enhanced personalization also helps with email campaigns, targeted promotions according to customer demographics, AI-powered product recommendations, and loyalty programs. This personalization leads to increased conversion rates for the company.

Enhanced personalization in digital retail includes:

  • Individualized recommendations: Over time, machine learning models refine product recommendations for customers to increase their accuracy. The models comb through browsing behavior, preferences, and purchase history.
  • Personalized marketing and email campaigns: Targeted marketing campaigns with product promotions, content, or discounts can be tailored to individual user interests. This tactic helps to target marketing dollars toward customers who are more likely to purchase company products.
  • Dynamic pricing: Retailers can offer products at different prices to customers, depending on their browsing history or purchase patterns.
  • Chatbots and personal assistants: AI models engage customers in personalized conversations that can answer questions about products or policies. They can even help guide customers through the purchase process.
  • Size and style preferences: One of my favorite features of Amazon is recommending clothing sizes, based on previous purchases and customer reviews. So if an item tends to run large, Amazon may suggest that I buy a smaller size. This type of useful feature helps to make the online purchasing process go more smoothly, allowing customers to trust the product they purchased will work out.
  • Retargeting: Companies can retarget consumers with display ads based on customers’ past interactions. If customers browse online for winter coats, for example, they could see more ads for winter coats on other websites or social media.

Digital Transformation of Inventory Management

One of the greatest innovations in the retail industry is digitizing inventory management systems. Digital inventory systems now have optimal stock levels and ensure timely replenishments. These systems help to prevent “out of stock” situations that can result in lost sales for brick-and-mortar stories and online retailers.

The majority of my retail experience revolves around managing inventory. From working with high-end fashion retailers to local, small businesses, it always amazes me how unorganized an inventory system can be.

Now with the switch to new technologies, managing inventory is easier but the cost of these systems can be too much for smaller companies. However, digital inventory systems bring the benefits of:

  • Real-time monitoring – Inventory stock levels can be tracked in real time with digital systems. This monitoring helps reduce the chances of stockouts or overstocking in backrooms and warehouses.
  • Integrated systems – Digital inventory systems now integrate with point-of-sale systems (POS), e-commerce platforms, and supply chain partners. Stock counts are synchronized across all channels, creating more accurate inventory counts and improving operational efficiency.
  • Demand forecasting – Digital systems use sales data and market trends in their predictive analytics to predict future demands on products in online marketplaces. This way, retailers can plan their stock levels more accurately to capture the maximum number of sales without causing an overstock or stockouts.
  • Automated reordering – Computer systems now can automatically reorder stock when it drops too low. These systems help to keep product availability consistent without manual intervention.
  • Reduced human errors – Human errors are the biggest contributor to inventory problems. While humans still must input certain data, metrics, and details, most of the technology is run by AI and ML. Minimizing manual entry by business employees reduces stock discrepancies.
  • Data analytics – Advanced analytics highlights slow-moving products and can suggest timely promotions or markdowns. These analytical tools also identify best-selling products and when they need restocking or upscaling.
  • Centralized information – Digital systems provide a dashboard to managers and stakeholders. Centralized dashboards allow individuals to quickly evaluate inventory levels, reorder statuses, and sales rates.
  • Mobile integration – Have you ever been in a store and asked an associate to see if the item you wanted was in the back storeroom? Mobile integration can allow a sales associate to pull out a tablet or smartphone, use apps to look up inventory levels, and tell you with accuracy which stores have that item in stock.
  • Radio Frequency Identification (RFID) technology – Radio-frequency identification technology allows for the precise tracking of items in real time, which is incredibly useful for large retailers and for tracking high-value goods. I once helped a major retailer convert its stock system to RFID technology, and this single step revolutionized their systems for every store across the country. It was incredible to watch it all unfold and the accuracy it supplied to individual stores, not to mention the labor hours it saved!
  • Supplier collaboration – One of the most important components of a digital inventory system is the ability to collaborate with suppliers along the supply chain. Some digital platforms allow for direct integration, streamlining the restocking process. They improve communication between suppliers, warehouse management, and vendors on product availability and potential delays.

Using a Mobile-Centric Approach

According to Statista, over 6.7 million people around the world own smartphones and that number is expected to grow to 7.7 million by 2028. For retailers to capture shoppers who want to use their smartphones, their sales platforms need to be optimized and mobile-centric.

Customer experience is enhanced through mobile payment options, easy navigation, and responsive design, which drive sales and loyalty. Retail websites should be designed in a way that they automatically adjust to accommodate different screen sizes (responsive design), whether customers use a desktop monitor or a mobile phone for shopping.

Responsive design also includes streamlined menus and touch-friendly design elements. These technologies ensure that browsing and shopping are easy on a mobile device.

Retailers use mobile apps that can provide exclusive deals, loyalty programs, and other features to customers. They can also send notifications directly to a customer’s mobile device that lets the customer know about order statuses, sales, and even restocks.

Some apps even have barcode or quick response (QR) code scanning capability. This capacity allows for product information, reviews, and price comparisons. Some apps have augmented reality (AR) features that can allow customers to visualize furniture in their homes or do virtual try-ons of clothing and accessories. Chat features in mobile apps provide instant customer support, assisting customers at every step of the buying process as needed.

Statista also reports that as of 2022, 2.8 billion people used mobile wallets like Apple Pay®, Samsung Pay®, or Google Wallet®, which allow for faster and more secure checkouts. Some mobile devices have one-click checkouts and can remember payment details for hassle-free orders.

However, a mobile-centric approach would not be complete without social media integration. Many people use social media on their mobile devices. Seamless integration allows users to share products, reviews, or wish lists, which in turn drives additional customer engagement and traffic to a retail business.

A mobile-centric approach is now critical for retailers to stay competitive in the digital retail landscape. The convenience it gives the modern-day shopper is unmatched.

retail digital transformation

Analyzing buying behavior has become a traditional element of digital commerce.
Digital Transformation in the Retail Industry and Business Models Will Continue to Evolve

Digital transformation in the retail industry and business models will continue to evolve. It is a fun and fascinating time for retailers, but it is also a difficult time to decipher which technology best fits the company’s business strategy. Being able to implement the latest technologies and understanding customer behavior are essential, and a retail management degree can impart useful knowledge to interested students.

However, the importance of delivering value, building trust, and offering easy access to products for consumers will always be at the heart of any retail strategy, and digital transformation initiatives in the retail industry need to remember this fact. Implementing digital technology for technology’s sake will do nothing if it does not bring value to consumers in real life. When retail leaders can blend technology with a genuine commitment to its consumers, then they are more likely to thrive in today’s modern digital retail world.

American Public University offers several business management degrees. For more information, be sure to visit our other webpages.

Apple Pay is a registered trademark of Apple, Inc.
Samsung Pay is a registered trademark of Samsung Electronics Co., Ltd.

Google Wallet is a registered trademark of Google, Inc.

About the Author
T. Leigh Buehler
T. Leigh Buehler is an assistant professor who teaches retail management courses at the University. She is also a course consultant, social media specialist, and curriculum design team leader. Her academic credentials include a B.A. in history and sociology from Texas A&M University, an MBA in business administration from the University of Phoenix, and a master’s degree in American history, along with numerous certifications in digital marketing.

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