Ecommerce Digital Transformation: A Full Retail & Ecommerce Business Guide

The rapid advancements in ecommerce technology, such as artificial intelligence, internet of things, intelligent automation, and big data have opened up new avenues for ecommerce businesses. Yet, implementing these cutting-edge solutions demands a deep understanding of their capabilities, limitations, and integration with existing systems. Failure to do so can result in costly missteps and missed opportunities.

This comprehensive guide aims to equip retail and ecommerce businesses with the knowledge and insights necessary to navigate digital transformation successfully. From identifying key trends and technologies to overcoming common pitfalls and developing a future-proof strategy, this article will serve as a valuable resource for business leaders seeking to unlock the full potential of ecommerce in the digital age.

Digital transformation in retail & ecommerce refers to the strategic overhaul of traditional business operations in favor of digital technologies.

New software and tools replaced manual business operations. For example, think of the internet. Before, you had to communicate with customers via more analog means (think newspapers, billboards, and mail cards). But as more people jumped online, merchants found a new way to connect with their target audience.

Or consider hosted market platforms. Tech giants like Amazon, PayPal, and eBay created digital marketplaces. Merchants could now sell and ship to people from across the globe.

Even the change to digital payments had a profound impact on consumer behavior. New tools like Venmo, peer-to-peer transfers, and contactless card payments offered fast and simple ways to move money. Why use cumbersome cash or cheques? Digital money moves with less friction and cost than physical items.

In short, new technologies transform how businesses interact with the market. And they provided benefits, from convenience to efficiency.

As a result, everyone quickly shifted to capture these advantages. Ecommerce now accounts for 19% of all retail sales [1]. Experts state that worldwide ecommerce revenue will grow by an annual compound rate of 9.79%, and in 2024 should reach an overall user penetration of 36.6% [2].

Consumers are rapidly adapting to the new digital market conditions. It is likely that such digital transformation will only accelerate as it grows in popularity and overall acceptance.

But digital transformation is more than just some fancy new toys or tools. A novel online marketplace or business website is not just an “add-on” for merchants and consumers. These digital solutions alter the market landscape itself.

Think of eBay. The creation of the buy-and-sell platform changed the state of commerce in several ways. First, it democratized market access, as anyone could now be both buyer and seller. It also empowered small businesses who could post wares or services to untapped audiences. And maybe most importantly, it opened up an entire secondary market for physical items. A digital tool unlocked an entirely new form of value (one vastly superior to garage sales).

Now, when it comes to ecommerce, the same fundamental alterations occur. But this time, it unlocked a new commodity: data. Ecommerce tools are number-processing machines, and this ability to manage information makes data a valuable resource.

Think about customer satisfaction. Before, if you wanted to know if a customer was satisfied with the service, you had to ask them directly. But with customer behavior data, you receive detailed insights into customer preferences, buying habits, and pain points.

Personalization is another data-heavy use case. In the past, you had to make guesses about what customers wanted. But with data, you have sales numbers, demographic details, and purchase histories. It is far easier to target customer preferences with that information.

Or think about strategic decision-making. Before, you only had piles of paperwork about orders, deliveries, and pricing (all done by hand). But with data processing, you can cross-reference insights about performance and prices to measure things like consumer demand or market trends. That information leads to sound decisions that help you reach your business goals.

In short, digital transformation unlocked a new type of resource. The hidden value of data became apparent, and it gave a competitive advantage to early adopters. Those who embrace digital transformation with data-based insights become more efficient, locate new growth opportunities, and better serve the customer experience.

Here are some direct use cases that show how digital transformation and data fundamentally altered traditional commerce:

Omnichannel presence

Merchants can now sell through several different digital avenues. For example, customers can browse your online store. Or they can chat with customer service via social media. Maybe they contact you via email or SMS text message. And a chatbot can handle issue resolution.

These communication options are only available because of digital tools. Thanks to digital transformation, you are able to interact with consumers at multiple touchpoints. And consumers want that support — 71% of customers prefer different channels depending on context [3]. Customer satisfaction increases if consumers engage with a business throughout all levels of the customer journey [4].

Forecasting

Merchants can now accurately predict demand. For example, sales data can help you prepare the exact amount of product you need for high seasons and events (e.g. Christmas, Black Friday, etc.). You could change prices according to real-time inventory levels. Or you can use data to find ideal production schedules and better time deliveries. These advantages are only available when you have tools that assess historical data (once again, thanks to digital transformation). Reports show that AI-powered demand forecasting can reduce supply chain management errors by 20-50% [5]. And revenues can increase by 2-3% — simply because you make more informed decisions [6].

Dynamic pricing and payments

Merchants can now reach customers with alternative payment methods. For example, many ecommerce companies now offer discounts for those with loyalty accounts. Or you can offer subscriptions for add-ons to digital products (like Netflix or Amazon Prime). ‘Buy now-pay later’ now gives the consumer greater levels of purchasing power.

These forms of payment and exchange are only available thanks to ecommerce. And consumers want multiple ways to pay — nine in ten Americans now use some form of digital payment [7]. Payments through mobile apps already account for nearly half of global ecommerce payments [8]. Consumers like the convenience novel payment options provide, and that helps drive revenues.

Marketing

Merchants now have far more avenues to market products. And those marketing campaigns are now personalized. For example, you can build a promotion targeted at a specific demographic that shops at your online store. Or send offers to the email addresses of priority clients. You can also send follow-up sales or ads to customers based on previous online purchases. And consumers can use augmented reality to "try" products in a digital world before buying.

This type of interest-based marketing is only available via digital tools and digital transformation. And it works — 95% of respondents rated their personalization strategies as somewhat or very successful [9]. Merchants noted improved customer conversion and retention as key benefits of personalized strategies [10]. And about 50% of U.S. respondents said they would stop using a brand if it did not personalize their customer experience [11].

Security

Merchants now maintain very different security postures. For example, you can now protect digital accounts with high-quality biometrics. Encryption protects consumer data. Monitoring tools track physical and digital assets, limiting both digital and real-world theft.

These security tools are available only because of digital transformation. And consumers want this type of protection. 74% of respondents stated fraud prevention as a top consideration before opening a financial account [12]. And two-thirds of consumers state they will switch providers due to a fraud experience [13]. The better you protect your consumers, the healthier your business.

Without a doubt, digital transformation offers a multitude of benefits for both merchants and consumers. The advantages of convenience, speed, and accessibility set the stage for a shift into a new era of commerce.

But such a fundamental change is not easy. Innovation is disruptive — there are always struggles as everyone adapts to the new landscape. Several barriers still impede continued digital transformation for many merchants:

Data privacy

Data now holds immense value. But that introduces numerous questions about confidentiality and privacy. Who owns the data? Who stores it? Who is at fault if data is stolen or corrupted? Does the use of data require consent? Is tracking users ethical? Due to safety concerns and consumer rights, these issues involve strict government regulations. Arranging the legal use of data is a costly task the ecommerce industry continues to grapple with.

Complexity

With the infrastructure in place, companies developed thousands of new tools and technologies. Think of all the possibilities digital transformation uncovered: artificial intelligence (AI); machine-learning; cloud services; payment gateways; customer relationship software (CRM). Each of these tools has a helpful purpose, but they also make running a business far more complex.

A brick-and-mortar store is hard enough, but now you must also code, bug test, encrypt, add firewalls, etc. The industry continues to grapple with ways to make user-friendly and simple digital tools in the face of this complexity.

Investment

Nothing comes for free. Digital transformation requires significant upfront resources. Some merchants will need entirely new systems which add up the cost of employee training. There are also new costs associated with IT maintenance and updates. Fancy tools will come with a high price tag — and that may deter merchants and affect adoption rates.

Technical debt

Some merchants won’t be able to keep up. Simply put, the pace of digital transformation is rapid. Small outlets that have limited resources and technical know-how may fall behind. And the more they fall behind, the harder it is to change. That technical debt can grow so large that it threatens business health and sustainability. The ecommerce industry will need to address the growing digital divide with accessibility.

Security

Novel technology also empowers criminals. The shift to ecommerce gives tech-savvy fraudsters new avenues to enact their schemes. It is no longer just about shoplifting or night-time break-ins. Now you must prepare for things like phishing schemes, data breaches, account hacks, and password stuffing. Your ecommerce business is digitally exposed. The industry faces a grand challenge defending against sophisticated digital fraud.

Resistance to change

Lastly, digital transformation introduces a cultural shift. Employees, stakeholders, and consumers may resist such changes. Humans are creatures of routine, and the learning curve involved with new technologies can scare away populations. The ecommerce industry must invest in education campaigns and change management.

With the pace of digital transformation, every merchant must stay abreast of the latest ecommerce trends. You need to know where the industry is going if you hope to plan and invest your resources wisely. Early adopters also earn an outright competitive advantage, as someone with the latest technology and business model often best meets consumer expectations.

With these factors in mind, here are some current ecommerce trends:

Artificial intelligence

The market size for artificial intelligence reached $241 billion in 2023 and experts predict the market will grow to $738 billion by 2030 at a compound annual growth rate of nearly 16% [14].

Simply put, AI and machine learning are here to stay. And it has numerous applications in ecommerce. Algorithms drive product recommendations. AI-powered virtual assistants provide life-like conversations that mirror human language. And smart tools can revolutionize supply chain management. We have only just begun to unlock the potential of AI and machine learning.

Automation

Retail automation accounts for a market value of $15 billion. In addition, reports estimate that the market will more than double by 2030 [15]. And for good reason — automation is crucial for ecommerce merchants who want to optimize their business. Robots can now manage order fulfillment. Email tools can respond to thousands of consumer actions, such as cart abandonment or order placements. Workflow tools can handle all routine and day-to-day administration tasks. We will likely see the use cases as the automated tools skyrocket.

Internet of things

Revenue for the internet of things (IoT) market reached 1.3 trillion in 2023, and experts also project a CAGR of 12.57%, resulting in values of over 2 trillion by 2028 [16].

The use cases of IoT in ecommerce are numerous. Smart shelves with sensors will improve inventory management. Self-serve kiosks can offer a shift to an interactive customer experience. And smart mobile devices can give context-specific data about customer behavior. IoT devices create close proximity to the customer (you wear, carry, or place these in your pocket or home), so the potential opportunities for online retailers will only expand as consumers further adopt IoT options.

Social commerce

The social commerce market is expected to grow by a whopping 30.8%. That will lead to a sales value of $8.5 trillion by 2030 [17]. Such cross-platform access is valuable to merchants because of its reach. For example, shoppable posts on social media platforms can make for digital impulse buying. Live events turn digital engagement into real-life sales. Plus, you have direct access to the attention of targeted users via social media. As new social channels grow, expect a fruitful marriage with ecommerce.

Order fulfillment

Shipping volume amounted to 161 billion parcels in 2022. That amount is expected to grow by a CAGR of 59% [18]. Shipping, supply chains, and delivery now take center stage as ecommerce businesses attempt to deliver physical products. And consumers expect fast and rapid deliveries. Those who solve last-mile delivery problems and offer same-day shipping earn a future competitive advantage.

Virtualization

The extended reality (XR) reached just under $30 Billion in value as of 2022. That market is expected to rise to over $100 billion by 2026 [19]. And many ecommerce retailers are finding exceptional use cases for such tools. Furniture stores can offer 360-degree digital walkthroughs of showrooms. Fashion retailers offer virtual fitting rooms. And superimposed images from headsets can offer detailed product specs to consumers. It is a new field ripe with possible use cases.

Clearly, digital transformation offers you unparalleled opportunities. But how do you start? Novel technologies are complex. There are so many technical issues to consider, from development to system integrations to data compliance.

To address these challenges, consider EPAM as your technical partner. We provide full-cycle software engineering and consulting, supporting retailers in the midst of their digital transformation journey. For example, we can build the features you need, ranging from order processing to payment gateways. We can advise on your security profile, keeping your products from fraudsters who hope to exploit digital vulnerabilities. We can also help you safely store and use collected data.

Your resources are best focused on business-critical functions and your unique business goals. Allow our team to handle the integration of novel tech and provide digital business consulting as needed. That's how you embrace digital transformation without sacrificing business efficiency.

Digital transformation in ecommerce altered how we shop, sell, and buy. We replaced outdated business models with new technology — tools that offer speed, convenience, and accessibility. That opened up a range of opportunities (as well as challenges and pitfalls).

Luckily, you can manage these many challenges. With the support of a technical partner, you address any technical debt or integration issues. And now is the time to act. The pace of innovation is not slowing down, and you do not want to be left behind.

Those who do take action will earn a greater market share. With digital technologies, ecommerce businesses can understand customer needs better, anticipate preferences, and provide tailored solutions and services. Start your digital transformation process today.

1. E-commerce as percentage of total retail sales worldwide from 2021 to 2027 (Statista)
2. eCommerce - Worldwide (Statista)
3. State of the Connected Customer Report 2023 (Salesforce)
4. How Are Customer Touch Points Changing? (Salesforce)
5. AI-driven operations forecasting in data-light environments (McKinsey & Company)
6. Demand forecasting: background and barriers to adopt AI/ML-based approaches (Amazon)
7. Consumer trends in digital payments (McKinsey & Company)
8. Transaction value and market share of payment methods in total e-commerce transaction value worldwide in 2023, with a forecast for 2027 (Statista)
9. Success rates of personalization strategies according to marketers worldwide (Statista)
10. Leading benefits of a successful personalization strategy according to marketers worldwide (Statista)
11. Share of consumers who said they were likely to stop using a brand if it did not personalize their customer experience in selected countries worldwide (Statista)
12. 2022 Consumer Survey: Fraud, Security and Customer Behavior (FICO)
13. Two-thirds of consumers will switch providers due to fraud experience or for better safeguards (PR Newswire)
14. Artificial Intelligence - Worldwide (Statista)
15. Global retail automation market size in 2021, with a forecast from 2022 to 2030 (Statista)
16. Internet of Things - Worldwide (Statista)
17. Value of social commerce sales worldwide from 2022 to 2030 (Statista)
18. Global parcel shipping volume between 2013 and 2027 (Statista)
19. Extended reality (XR) market size worldwide from 2021 to 2026 (Statista)