• by Jack Loechner , Staff Writer @mp_research, December 19, 2018

According to a recent report from McKinsey and Company, for retailers, the cloud can do much more than reduce the cost of computing and data storage. To maximize value from the cloud, retailers need to prioritize workflows that can best benefit from it. The report shares six opportunities for leveraging the cloud as a catalyst for accelerating delivery of business results.

Retail today is in the midst of an exciting revolution in which power has shifted from the retailer to the consumer, says the report. Consumers are influencing product trends through reviews and social media, doing extensive product research online, and expecting a seamless omnichannel experience across all touchpoints. To stay competitive, retailers face tremendous pressure to deliver new business capabilities faster. 

Cloud adoption in retail

Interviews with more than 30 business and technology leaders, along with the findings from a global survey of 40 CIOs and IT decision makers across multiple retail formats have revealed that adoption of the cloud has not been uniform across retail subsectors or functions, says the report.   

Currently, nearly one-quarter of industry workloads are in the public cloud, but retailers expect that to rise to one-third in 2020. Pure-play retailers, especially the digital natives that started with a “cloud-first” approach, are taking advantage of the cloud’s ability to scale as needed.

How retail can get value from the cloud

The report suggests that retailers take a journey or workflow approach to leveraging the cloud. Rather than migrating applications en masse or randomly, they should identify their highest-impact workflows and move them first. These workflows and their corresponding applications share two key criteria: 

• They are ideally suited to leverage advanced cloud capabilities such as big data, artificial intelligence/machine learning (AI/ML), application-programming-interface (API) platforms 
• And developer tools, and they will drive maximum value for customers.

Six opportunities for impact

The analysis of retail workflows suggests that there are six that are common across all retail subsectors and could improve performance and consumer experience if they were migrated to the cloud. 

Three are front-end workflows that require real-time decision making: pricing and margin management, website and recommendation-engine personalization, and loyalty-program management. The remaining three are back-end workflows: real-time inventory visibility, omnichannel order fulfillment, and inventory optimization.

1. Pricing and margin management

Pricing is a critical consideration for consumers and one of the chief merchant’s most data-heavy responsibilities. It has implications for gross margin and sell-through rate and is also likely to impact transaction time. Merchants need to stay aware of competitors’ prices, analyze sales history with high granularity (often at the store level), predict repricing opportunities, analyze margin and sales implications, and translate the results of these analyses into pricing in stores and on the website. 

Unfortunately, for most merchants this process is mostly manual. Data are frequently distributed across multiple channels with no single source of truth, making insight generation extremely cumbersome and time consuming. Cloud data platforms can ingest multiple sources of data and prepare them for analysis. This can save an enormous amount of time for data specialists and free them to focus on modeling. 

2. Website and recommendation-engine personalization

Personalization allows CMOs to ensure that the right products are shown to the right customers. The CMOs whom we interviewed emphasized that personalization has a direct correlation to incremental revenue and increased conversion rate. 

Technology leaders in retail organizations are only beginning to realize the value of cloud- based data clean-up and manipulation tools that can stitch together multiple data sources.

3. Loyalty-program management

Company CMOs are increasingly charged not only with acquiring new customers, but with retaining loyal customers, who often make more-frequent valuable purchases and have a higher lifetime value than new customers. 

The cloud can integrate multiple data sources to enable a unified view of consumers across transactions and channels (in-store, mobile, web, and even social media). 

4. Real-time inventory view

Real-time inventory view is one of the foundational capabilities for successful omnichannel retail. When a customer buys online and opts to pick up in-store, 

• the e-commerce channel might show availability at the store, but the item might not actually be there. 
• The POS and inventory systems might not have updated in real time
• The item could be in the store but not in the expected location, 

Cloud data platforms could construct a real-time single source of truth for inventory levels across all channels and all users, both customers and employees, by connecting into data pipelines and unifying all data sources.

5. Omnichannel order fulfillment

One of the key advantages that traditional retailers enjoy over their online counterparts is their extensive store network. E-commerce leaders at traditional retailers want to leverage these store networks to fulfill customer orders faster and reduce delivery costs. But removing an item from a store to fulfill an online order could damage sales and profits for the store, especially if the item’s profit margin is better at the store than in other channels. 

Cloud platforms could come to the aid of e-commerce leaders through ML-based analytics platforms, which reduce the need to hire best-in-class data scientists and engineers or to have substantial on-premise computing and storage capacity. 

6. Inventory optimization

Merchants face significant challenges in managing the numerous variables involved in inventory management. The lack of accurate forecasts, limited automated solutions for consumer-packaged-goods (CPG) promotions, seasonality of products, and unexpected consumer trends are just some of the possible failure points that can jeopardize inventory management. 

Merchants, analytics, and CIOs should work hand-in-hand to leverage cloud infrastructure and analytics platforms to build both predictive and prescriptive inventory-forecasting engines to meet the challenges of optimizing inventory management. When used in conjunction with cloud-based APIs for supplier promotion, these engines can improve the accuracy of forecasts and increase the predictability of inventory levels.

What the cloud journey could look like

Adopting the cloud is a transformative journey, and we suggest five guidelines for success:

• Define capabilities first.  
• Collaborate closely across business and technology. 
• Define the security and data governance model. 
• Design lightweight processes. 
• Consider organization and talent. 

In conclusion, the cloud can accelerate retailers’ ability to offer new capabilities to their consumers and employees in a more nimble, scalable, and cost-effective manner.