Global consulting firm AlixPartners and World Retail Congress have released a new report titled "Digital-First Retail: Turning Profit Destruction into Customer and Shareholder Value." The report reveals that the profitability of retailers has been decreasing as online penetration grows. It also highlights that retailers need a complete shift in mindset, operating model, capabilities, processes, tools, and KPIs to serve tech-savvy customers.
The report shows that while the online penetration of 50 public US retailers increased from 9.4% in 2012 to 25.6% in 2022, profitability (as measured by average EBITDA percentage) decreased from 13.8% to 8.3% in that same period. The report identifies that customer preference for digital shopping is increasing, with 86% of consumers researching a product online at least once in their purchase process, which creates a major problem for retailers due to higher costs (due to needed digital investments) and lower profits. The report suggests a "Digital-First Retail" approach, which means placing digital at the very core of a retailer's business model, as part of the solution.
The report analyses why retailers struggle with digital efficiency and how they can become a Digital-First Retail (DFR) leader. The report suggests a shift in investment towards smarter, more holistic, and more intentional digital investments to keep up with customers. The report highlights the growing disconnect in company-capability assessments between the line managers doing the work and the executives making the decisions, and the lack of transparency and common KPIs. The report suggests new KPIs with a DFR lens to match the new operating model and operate with a DFR mentality, which truly places the customer first to turn shrinking profits into customer and shareholder value./p>