Agata Samojlowicz looks at how digital technologies are transforming retail, and how Innovate UK is helping businesses in the sector to benefit
It is now 17 years since Amazon came to the UK, heralding the first wave of e-commerce websites. For the first few years, of course, online retail was better known for its high-profile failures than its success stories, as heavily backed businesses filed for bankruptcy and struggled with the problems of logistics and fulfilment. Despite these birth pangs, it has grown rapidly ever since. Internet shopping in this country exceeded £100bn in 2014, with figures from Ofcom suggesting that, per person, business-to-consumer e-commerce is higher in the UK than anywhere else in the world. Such growth has helped the retail sector to become, on some measures, the largest in the UK, employing some 4.3 million people.
As Tom Fiddian observed in a recent article, this is the case even in those retail sectors that were once thought to be resistant to the internet. Tom points out that “many were doubtful as to whether the fashion retail experience could ever be successfully replicated on screen, but today as many as 70% of internet users buy clothing online.”
In the course of all this, much has been learned – from the failures as well as the successes. Some of the findings have been surprising. The advent of e-commerce was meant to herald drastic price reductions, as retailers ditched costly High Street premises in favour of warehouses. In fact, as Jonathan Wright, business journalist at Internet Retailing argues, it is not so much price but rather the overall 'customer experience that is becoming the key differentiator for online retailers'.
While retail prices have come under pressure, particularly in the case of digitized content such as music and film, it would seem that price is simply one factor among many that consumers consider. Amazon, for instance, has well over 20% of the online market share for electronic goods and entertainment products, even though in many instances the same products can be found cheaper online. Despite competitors, search engines and price comparison sites just a click away, consumers favour Amazon, presumably on the basis of its brand and reputation for convenience and reliability.
For this reason, as the industry has grown so online retailers have sought numerous strategies other than price competiveness to gain market share. As a result, the last ten years have seen significant investment and technological development in the sector: e-business software and logistics management systems, cyber security and server infrastructure, data analytics algorithms, applications for mobile devices, online advertising and social media marketing. More recently, there has been increased deployment of beacons, sensors and Internet of Things devices, as in-store and online retail have come closer together.
However, a critical source of competitive advantage lies not just in what is running ‘behind the screen’, but rather in ensuring that the quality of the customer experience is as high as possible. This requires using the insights gleaned from the generation and analysis of data, and applying it to engage more effectively with customers, creating well-designed, highly personalised retail services. Data analysis and e-business systems will need to be allied to expertise in user-centred methodologies, graphical interface design and audio-visual production. As a recent report by the KTN on the fashion retail industry put it, “fashion businesses need to remain focused on the customer journey, the quality of digital interactions and using the technology to achieving a more immersive experience with the brand.”
It is for this reason that Innovate UK is launching a major new funding competition to help businesses to do just this. Through Enhancing user experience in retail, Innovate UK will be providing up to £4m in projects focused on the user experience in retail. Critically, these will be collaborative R+D projects, providing a chance for retailers and brands to work with technology companies, computer scientists and also businesses and researchers working in fields such as creative media, animation and interactive design. As the e-commerce market continues to grow and retailers embrace digital transformation across all channels, including physical stores, so UK businesses will have the opportunity to innovate and develop services that will bring commercial benefits and improve customer experiences.
Agata Samojlowicz (@agata_sam) is Lead Technologist - Online Commerce at Innovate UK