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Retailers Must Adopt a Technology-First Strategy to Survive

We’ve all heard the analogy of the boiling frog: when a frog is put into a pot of boiling water, it will instantly jump out. However, when the frog is immersed into a pot of lukewarm water that is slowly brought to a boil, the frog doesn’t sense any danger and ultimately perishes.

There’s an analogy here to what is happening in retail, as retailer leaders have become increasing immersed in technology-driven innovation over the past decade. Retailers are being slowly pulled along with technology’s evolution without feeling any sense of impending doom. Yet we’ve passed an inflection point and the water is beginning to boil.

The Battle to Create Retail’s Future

The retail industry has surpassed the tipping point on Kurzweil’s law of accelerating returns, which states that the rate of technological process and innovation tends to accelerate exponentially over time. We’re beginning to experience a world where AI systems are faster and smarter than their human creators.

It’s already happening, as AI-powered marketing systems digest vast amounts of data on each individual shopper, develop a unique strategy to grow value and engagement, and generate true 1:1 promotions and pricing to achieve each strategy — all in an automated process that takes minutes for millions of shoppers at scale. No army of humans can do this.

There’s a problem, though: the pace of change, especially technological change, is growing much faster outside the retail organization than inside it. And as that gap grows larger, traditional retailers are feeling increasing pain.

Traditional retailers believe that technology is impacting retail. However, I believe that something fundamentally different is occurring: retail is metamorphosizing into a technology business.

There’s a battle underway to create the future of retail — not just change it one step at a time, but radically overhaul the way shopping is experienced. A handful of retailers — companies such as Amazon, Walmart and Kroger — have joined that battle and are considerably ahead of their competitors in creating retail’s future. How can others keep up?

More than Digital Transformation

Traditional retailers may believe they’re in good shape, pointing to the investments they are making in new technology and innovation. According to research by FMI (Food Marketing Institute), supermarket retailers in 2022 spent more than $13 billion in technology and are projected to increase those investments in subsequent years.

That sounds good. However, much of that spending is replacing or rebuilding core systems that should have been updated years ago. And compare that $13 billion investment to Amazon, which invested over $72 billion in technology R&D the same year.

Several years ago, the MIT Sloan Review released a report on digital transformation in collaboration with Deloitte, explaining that companies early in the transformation process focus on using technology to solve discrete business problems. Many retailers are at this stage. We saw this early in the pandemic, as retailers quickly implemented new ecommerce and fulfillment capabilities.

Retailers then began to focus on improving operational efficiencies and the shopper experience to support the company’s strategy. This is all well and good, but it’s not enough to compete with the Amazons and Walmarts of the world. To truly succeed, retailers must realize that technology itself is opening the door to new business strategies. And embracing a technology-first strategy is the key to a retailer’s success and even survival.

Tech-First Thinking

Technology-first thinking refers to a mindset where technology is considered the primary driver or enabler of innovation, problem-solving and business strategy. It involves placing technology at the forefront of decision-making processes and considering its potential and capabilities ahead of other factors.

In a technology-first approach, retailers prioritize the exploration and adoption of new technologies as a means to achieve their business objectives. Then they actively seek out technological advancements, emerging trends and disruptive innovations to gain a competitive advantage and create value for their customers. Tech-first companies actively create their future.

The characteristics of a tech-first company include the following:

  • Aggressive adoption of new technology. Businesses that put technology first are always on the lookout for innovative solutions and are willing to try something new. For retailers, this means constantly examining how technology can improve their business and the way they serve their customers.

  • Prioritization of technology solutions. To solve business problems and meet customer demands, tech-first retailers have a simple goal: to find cutting-edge technology that will help them streamline operations, cut costs and create new goods and services.

  • A culture of innovation. A technology-first mentality fosters a culture of innovation by challenging everyone in the retail organization to envision new ways in which technology can improve either the customer experience or operations. This cultural shift supports trying new things, taking calculated risks and gaining insight from setbacks.

  • Relentless focus on the customer. Tech-fueled innovation must be largely focused on the shopper, improving the shopper experience and creating new products and services to meet customer needs.

  • Dedication to continuous improvement. Retailers that adopt technology-first thinking are dedicated to constant improvement. They devote significant resources to monitoring the market for new developments and changing customer expectations.

Two Paths to Creating a Retailer’s Future

To create their own future, retailers must simultaneously think along two paths: maintaining a competitive stance relative to competitors while innovating to differentiate, and always looking to see where they can create competitive advantage. New technologies enable significant shifts in costs, shopping experiences and marketing efficiency and performance, and forward-thinking retailers are changing the status quo in return.

Walmart provides a classic example of this. In 2022, Walmart deployed Symbiotic’s automation platform in all of its distribution centers, greatly improving efficiency. The real kicker, though, is the strategic advantage it provides. Walmart’s inventory sits within 10 miles of 90% of the U.S. population; by the end of 2026, 55% of its fulfillment distribution center volume will move through automated facilities. As a result, the company claims that unit cost averages will fall by about 20%.

Innovation is the Only Way to Respond

Retailers such as Walmart, Target, Amazon, Kroger and Albertsons understand the importance of innovation. However, other retailers have an opportunity to rise to meet the challenge — and the only path forward is innovation.

Tech-first thinking can enable retailers to fundamentally rethink their business strategy. They can either slowly boil in the face of danger and ultimately become extinct or realize the dangers of resisting cultural change and chart an entirely different path forward. The opportunities are great; the choice is theirs.


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