An Executive Briefing from Microsoft and Publicis Sapient | Middle East and Africa
In partnership, Microsoft and Publicis Sapient help organizations become digitally enabled, transforming the way they work and better serving their end customers. Our global strategic alliance brings together leading-edge cloud technologies with specialist digital-first consulting services to help you thrive amid fast-changing market conditions. Within the Middle East and Africa (MEA), Publicis Sapient is headquartered in Dubai. Our team of industry experts and consultants has significant experience in retail, as well as financial services, media and telecommunications, travel, and the public sector.
Drawing on Microsoft’s broad portfolio of integrated technology capabilities, we help businesses create additional value by driving growth, increasing operational agility, and creating better experiences for customers.
This executive briefing explores the impact that the COVID-19 outbreak is having on retailers and consumer packaged goods (CPG) firms across the Middle East and Africa. We consider how social distancing and enforced closures have accelerated digital transformation across the sector, and how new business models are emerging in response to changing customer demands and shopping behavior.
The impact of the COVID-19 pandemic has been felt across all countries and all aspects of life. In business, nowhere has the impact been more visible than the retail sector. Shop closures, physical distancing enforcement, contactless payments, protective screens, and barriers were quickly implemented to reduce contagion. As lockdown measures ease, the retail sector is now considering how to implement a safe and sustainable operating model for the longer term.
Consumer anxiety about returning to shopping malls and hypermarkets is set to remain high—not just in the immediate term as the virus is contained, but permanently, due to wariness of future outbreaks. Shopping habits have changed rapidly, and a return to pre-COVID norms is unlikely.
Retailers are seeking new ways to reopen and operate to prevent financial collapse. They face reduced footfall, the need to make physical changes to store layouts, manage new sanitization protocols, and adopt strategies to keep employees safe. All of this leads to higher operating costs, reduced income, and lower revenue—putting pressure on their ability to pay rents, maintain their workforce, and carry enough inventory.
Furthermore, COVID-19 has escalated the growth of merchandise returns and exchanges. This was already costing the industry over $1 trillion worldwide at the end of 2019, with every returned product resulting in an estimated loss of 5 to 8 margin points, even if it could be resold. During the pandemic, many retailers closed their physical stores and were only able to sell online, but they stopped taking or were unable to process returns. As stores begin to reopen, they now face a huge backlog of returns, similar in volume to the post-holiday period. The industry is looking at potentially $200 billion of returns in the first 30–60 days of reopening, without the boon of pre-holiday sales, at a time of huge financial strain.
The retail sector has been under pressure to change for many years. Since the first book was sold on Amazon in 1995, online retail has challenged the traditional shopping experience. Customers have been introduced to the convenience of buying from home, and physical retailers have responded and evolved their offerings to stay relevant. The sector has widely embraced e-commerce, and with enabling technology becoming more accessible, omnichannel shopping is now commonplace—even for the most traditional retailers.
That said, e-commerce sales only accounted for 14.1 percent of all retail sales worldwide in 2019. Brick-and-mortar shopping remains the dominant channel, which is why even digital-native retailers have been establishing a physical presence (such as Amazon Go) and moving to a blended retail model.
The COVID-19 pandemic is the biggest impetus for retail transformation the sector has ever seen. Digitization is no longer just about giving customers a more convenient shopping option; it is becoming a fundamental tool to address an unforeseen set of challenges in a radically different retail landscape.
Across the sector, rapid change is happening in response to the new reality of retail. From individual stores and mall operators to giant CPG firms, many new business models are emerging. Products and services are evolving, and these changes may be permanent as new consumer behavior becomes habit. Successful retailers will be those that acquire stores and brands that adapt best, and those that quickly divest from areas and markets that fail to respond. There is a clear strategic transformation across the sector as retailers accelerate their path to the ‘next normal’. Technology is helping to drive this change across every type of shopping experience.
Experiences that require close interaction between staff and customers, such as personal shopping appointments or buying high-cost jewellery, require a new focus on exclusivity. High-end stores are moving further to ‘by appointment only’ interactions, limiting social contact and allowing time to clean goods and spaces between appointments. This ‘premiumization’ is an opportunity for brands to differentiate their offering. Online booking for these high-touch experiences also gives retailers the means to continue customer conversations after the appointment, nurturing high-value sales, promoting other goods and services, and building loyalty.
Most retail stores operate a low-touch model, where customers do not require much time or attention from staff. They can browse products and pay quickly at a cashier point or self-checkout with minimal human interaction. However, these experiences will likely change. Shoppers may feel less inclined to handle products that others have touched. More floor space will be needed for social distancing, and both customers and staff will want more contactless payment options. Low-touch shopping will move further towards ‘no touch’.
This will continue to see a blending of physical and online retail, with more stores moving to a click-and-collect model. Customers get the convenience and safety of browsing products online, with the assurance that goods will be there when they arrive in store. It keeps products off the shop floor, reducing the need for cleaning, and removes physical contact from the payment process.
In-store experiences are likely to be enhanced further using technologies such as facial recognition, which could bring elements of personalized online shopping to the real world—matching people as they enter a store to their online profile, and sending them personalized offers or communications to their mobile devices. Combined with RFID chips and in-store sensors, customers could bypass tills completely, with payment taken automatically when they exit the store.
As low touch gravitates towards no touch, we’ll see more contactless and frictionless retail stores. The future of Point of Sale (POS) systems will evolve rapidly away from physical tills and registers towards POS actions pushed to a customer’s smartphone, using services like Google Pay and Apple Pay. This will reduce contact, traditional queueing, and physical in-store checkout. Retailers may need to prepackage and price up more goods in advance, reducing physical handling and requiring a more robust approach to back-end inventory management.
A virtual experience refers not just to an e-commerce transaction via an online shop, but all the experiential aspects people enjoy from a physical shopping trip. Mall operators, for example, are exploring how to create a virtual experience that provides something extra to customers—beyond what each individual shop or brand offers via their own digital channels.
Malls are becoming virtual marketplaces: spaces where customers can try on clothes in a digital fitting room, access curated shopping suggestions with items filtered for the right size, best price, and best availability across all of the mall’s stores, and book exclusive events and parties, catered for digitally by different shops, outlets, and entertainment providers.
Amid the widespread disruption to distribution and resale channels caused by COVID-19, many CPG firms have seized the opportunity to build direct relationships with customers. During the early phases of lockdown, there was high demand from consumers for essential goods and items. CPG companies such as Kraft Heinz and PepsiCo have responded by launching their own e-commerce channels and direct-to-consumer (DTC) innovations.
This represents not just another form of retail disruption—such as the popular subscription services for everyday items that cut out the cost of buying through a middleman—but a diversification of the CPG business model. Companies that expand their DTC model can offer authentic and personalized e-commerce brand experiences that are secure, measurable, and scalable, for times when demand is erratic and normal distribution channels are disrupted.
A DTC approach provides CPGs with valuable data, which can shape their operational strategies moving forward. For example, real-time performance from marketing campaigns can help optimize trade and advertising spend, while predictive analytics on consumer needs, wants, and preferences can shape future product decisions.
Following the increased uptake of online sales during COVID-19, which is set to continue in the new landscape, retailers are exploring how to optimize their returns processes. There has been a huge backlog of returns as stores have reopened, and volumes are likely to remain high as shopping behavior changes permanently. Concerns around future infection will make people less inclined to try on clothes in dressing rooms.
Retailers that optimize returns from online sales are therefore more likely to survive and flourish. Data reveals that 62% of retailers who are growing faster than average have put time and resources into improving their returns processes, whereas only 39% of below-average performers have made this investment.
As retailers innovate and digitize to bring new business models to life, they will also need a fresh approach to how they operate to secure long-term, sustainable success.
As retailers and mall operators offer more virtual shopping experiences, such as digital fitting rooms, it will be important to make these as widely accessible as possible to the public, with a low barrier to entry. Augmented shopping experiences should not require customers to have costly or cumbersome hardware—they should be easy for all users to engage with, across a range of devices and platforms.
In the new retail landscape, it will be harder for businesses to survive by operating in isolation. To reimagine their business models and provide the blended, frictionless experiences that customers now demand, retailers need to tap into a broader partner ecosystem and build unlikely collaborations. Working together, exchanging expertise, and sharing knowledge will be crucial to creating agile, innovative operating models that drive success in a changing landscape.
For example, individual retail stores could embrace the new digital marketplaces being developed by mall operators, rather than trying to survive via their own e-commerce stores alone. They could also work collaboratively with fellow businesses to access government relief schemes and packages to support their local economy. CPG companies can form partnerships for home delivery, subscription services, ‘Buy Online, Pick Up In-Store (BOPIS)’, and secure, unattended collection via smart vending cabinets.
As governments seek more ways to protect their GDP and boost employment levels, they are encouraging investment in more local supply chains. Rather than continuing to rely on global sourcing, which COVID-19 has shown to be extremely vulnerable, many countries are focusing on increasing domestic resiliency, particularly for essential goods. For example, the United Arab Emirates, which typically imports 90% of its food provisions, has started to localize food production with a pilot project harvesting rice in the emirate of Sharjah.
For retailers, this could mean rethinking their suppliers and contract terms to ensure they have a fallback position if they need to source more locally in the future.
As consumer demand for sustainable products, packaging, and production processes continues to grow, retailers will also need to find ways to infuse sustainability into their offerings. This will require a more digitized approach to developing and launching new products, and the ability to quickly adopt innovations in renewable products and packaging.
2020 has seen a huge shift in the transformational culture within retail. Faced with a new set of risks to their existence—such as falling revenues, declining footfall, and new hygiene protocols—retailers are having to make significant changes, significantly quickly.
Retailers now need a digital shopping platform that can scale to support high volumes, mixed baskets, different delivery options, and a range of pick-up locations. Success will also require a robust and visible supply chain that minimizes last-mile disruptions, along with access to real-time data and advanced analytics, so that you can make critical decisions such as whether to build or buy.
It's more critical than ever to identify and incorporate digital solutions into your retail environment. For example, you should allow customers to scan and shop using mobile applications wherever possible. Giving staff digital solutions to check product details and stock levels from the shop floor in real time will boost customer service too.
Focus on designing and scaling your IT organization so that it can own these new digital imperatives. An effective response to the post-COVID urgency requires an emphasis on small, immediate projects, as opposed to long-term strategic programs. For example, now’s the time to take control of critical warehousing, unpredictable demand, backlogged goods, and supply chain—as well as offer customers more contactless shipping, payment, and collection options. All of which will be driven heavily by IT.
The initiatives mentioned above will require a robust, flexible, and scalable infrastructure to ensure success. Cloud is the best way forward, as it offers the maximum flexibility to scale up and down and adjust to changing customer demands. A cloud-based infrastructure also allows you to fail forward and quickly try new solutions. As long as you can quantify the impact of failures and learn constructively from them, it’s a low-risk way to experiment and innovate.
Tap into the range of resources, expertise, and guidance available to help you operate in the new landscape. For example, Microsoft has created a comprehensive guide for employees, drawn from our first-hand experience of adapting to work during the COVID-19 outbreak, which is available for you to tailor for your own organization.
Dynamics 365 Customer Service is available free for six months to help retailers provide consistent levels of personalized support, even while working remotely, using omnichannel capabilities. Microsoft Teams is also available free for six months to help your people collaborate remotely, communicate in real time, and stay productive in a safe and secure environment.
Together, Microsoft and Publicis Sapient have vast experience in the retail sector, helping shops, suppliers, malls, and CPG firms adapt to changing market conditions. Combining expertise in Azure cloud technology with bespoke design and implementation capabilities, our partnership is now guiding retailers on a whole new journey.
We'll help identify the key transformation priorities for your business to meet the increasing customer demand for frictionless, zero-touch shopping. By analyzing your current operations, identifying gaps, and providing recommendations for improvement, we'll help you build a roadmap to an optimized future state. This could include advanced e-commerce capabilities (like augmented dressing rooms), more convenient in-store options (such as contact-free, mobile checkout), and personalized blended experiences that deliver the best of both physical and online shopping.
To schedule your workshop, please contact:
publicis sapient | Microsoft