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Retail’s digital transformation

High-performing retailers embrace digitization, gain 10.5% YOY revenue growth

Office party A look past the headlines reveals that retail is thriving and growing. According to the National Retail Federation, overall U.S. retail sales since 2010 have grown faster than the U.S. economy, and middle market retail sales have grown faster than retail as a whole. Those retailers that have embraced digitization are doing best of all.

To better understand what drives this success, the National Center for the Middle Market (NCMM), which Grant Thornton sponsors, studied high-performing retailers across three categories—fast-moving consumer goods, specialty goods and food service. As a group, they boast 10.5% year-over-year annual revenue growth.

The study, conducted in October 2018, uncovered a story of digital transformation — a willingness to invest in digital to boost efficiencies, increase sales and enhance the customer experience. The flexibility of middle market retailers, including fewer sunk costs, allows them to select the technologies most effective for their business.

While retail thrives, retail tactics have changed: E-commerce has grown, catalogs have declined, some stores have become showrooms and malls have evolved into experiences. Omnichannel strategies focus on customers, wherever they are.

Like all transformations, this digital remake presents new challenges – change management, workforce education and capital requirements. The savviest retailers not only have met these challenges but have flourished in the new digital-first, omnichannel world.

Kevin Kelly, Grant Thornton’s National Retail Industry practice leader, confirmed findings that discerning retailers have done well. “I think retailers that have evolved or been digital from day one have an advantage,” he said. Likewise, “those retailers that have made an investment over the last couple of years in stores, technology, and the ability to use data effectively – integrating the digital with the physical – have developed strong customer relationships,” he said. “They have invested in ways that customers have a good experience shopping in-store and online.”

Digitized retailers outpaced other retailers in past 12 months. Overall growth for midmarket retailers that adopt digitization: 10.5%
Overall growth for midmarket retail segment: 5.9%
Overall growth for retail: 5.2%

Fast-growing middle market retailers: The groups profiled Fast-moving consumer goods:

  • Offer packaged foods and beverages, toiletries, over-the-counter drugs and other consumables

Specialty goods retailers:

  • Sell items such as clothing, jewelry and electronics

Food service retailers:

  • Offer food for eating on the premises or as take-out

Retail’s digital transformation Insight 1: Efficiency, sales and customer experience drive digital transformation for thriving middle market retailers. The retailers in the study focused on three mutually reinforcing goals:
  • Improved efficiency by streamlining key operations
  • More sales, online and off
  • A positive customer experience, online and off

Looking forward, fast-moving consumer goods and specialty goods retailers emphasize seamless transactions for customers. Food service retailers prioritize tracking metrics.

Current investments favor technologies that directly improve the customer experience. Food service retailers are adding tabletop tablets and in-store kiosks for easy ordering. Airport restaurants place tablets throughout terminals so that customers can quickly order meals, play games and check their flight status.

Fast-moving consumer goods retailers are also focusing on back-office technology—to better meet efficiency and metric-tracking goals.

Retail’s digital transformation Insight 2: The results of digital transformation are wide reaching, and they help improve the omnichannel experience. Retail’s digital transformation

Nine out of 10 retailers said digital transformation has been good for business; 54% say it has been exceedingly positive, helping retailers find and retain customers and employees, control costs, improve productivity and track inventory.

Furthermore, fast-growing retailers are investing in the in-store experience. Because 90% of all sales still originate in the store, this makes sound strategic sense.

They’re applying behavioral and transactional data collected from digital tools to inform inventory strategies, sales messages, in-store experiences and store location. They’re using social interests, content engagement, demand data and geolocation.

Said Kelly: “Those retailers that mine data, have a good online presence and a physical presence are well positioned to thrive.” He cited an online retailer of eyeglasses that grew by opening retail locations as showrooms. Other retailers have used a retail space as a place for customers to view and try on clothes before purchasing them.

“Retailers benefit from leveraging customer information through ecommerce sales to determine optimal locations for stores,” Kelly said. “They may also experience growth online when a store is opened in a particular market.”

Data also informs staffing plans. Employee engagement can be tracked based on technology usage. For example, do staff complete training modules? Video analytics and heat mapping allow stores to track which areas receive the most traffic and which items receive the most attention.

Retail’s digital transformation Insight 3: The retail workforce is shifting from emphasizing low-wage workers to prioritizing highly skilled talent with tech capabilities. As retailers emphasize efficiency, customer experience and digital transformation, they seek more skilled staff, especially those with technology capabilities, and most are willing to pay more for the right talent. These skills are most critical in inventory control positions and most valued by fast-moving consumer goods and specialty consumer goods.

Businesses are willing to pay competitive wages and benefits to attract and keep the right people and to invest in training and developing their employees, particularly specialty goods and food service retailers. High-performance retailers feel more pressure to raise wages – and are much more likely to offer career paths.

This concern with attraction and retention suggests why only about a third of retailers have any pressing concerns about minimum wage increases. Indeed, among specially goods retailers, 37% say that an increase in the minimum wage will have a positive impact on their businesses.

Retail’s digital transformation

Retail’s digital transformation Insight 4: Digital integration of the supply chain is increasingly important. Too little inventory frustrates customers. Too much ties up working capital and prompts markdowns.

No wonder 83% of the retailers surveyed say a robust supply chain is critical to growth. Yet 43% say that managing inventory and the supply chain is a challenge – one they intend to surmount.

Retailers are increasingly adopting — or asking suppliers to adopt — technologies such as stand-alone software or platform components to streamline the supply chain, inventory and shipping channels. These solutions are especially useful for retailers with multiple suppliers and complex inventory control (in-store, warehouse, third-party and supplier-managed).

Fast-growing retailers also lead in using online behavioral and transactional data to shape inventory and supply chain decisions. (See Insight 2 earlier.)

Retailers will also need more technologically skilled people. According to the National Retail Federation, total retail supply chain and logistics job openings have grown exponentially since 2012. While most participants did not face current hiring challenges, that could change with the economy.

Retail’s digital transformation

Retail’s digital transformation Insight 5: Digital transformation introduces its own set of challenges. While retailers surveyed embraced technology, 65% say they adopt only enough technology to keep up with competitors – that includes retailers growing at 15%+ annually.

Price may explain this incrementalism. Fifty-eight percent of companies say the costs of implementing new technologies outweigh the benefits. New technology also creates challenges for retailers to protect their information, including customer information.

Digital transformation: Balancing the benefits with the budget The success of study participants attests to the fact that the smart use of technology delivers results. Because they are more agile than their larger peers, middle market retailers are in a better position to adopt new technologies. Of course, not every technology delivers and not every option is right for you. The decision to adopt must be shaped by company goals, the competitive situation, the challenges the new technology will create (training, security) and the relevant cost-benefit analysis.

As they continue to add capabilities, and deliver an enhanced, omnichannel experience, digitally savvy businesses may be poised for even greater levels of growth.

Kelly confirmed that vision. “Customers shop in multiple channels. Retailers that excel in providing their merchandise – and their overall customer experience – in a truly integrated omnichannel manner will continue to experience growth and capture market share.”

Are you ready for digital transformation?
  1. Starting point: How well can you define the consumer journey across channels? Are systems truly integrated?
  2. Customer-facing: Do your systems provide a fast, easy and seamless consumer experience?
  3. Back-end: Does your system provide fast and accurate data and insight that improves the employee experience?
  4. Talent: Do your employees and partners have the technology, digital expertise and digital-first thinking skills they need?
  5. Culture: How willing are your employees to adopt technology and digital processes? How willing is your leadership to invest in them?
  6. Omnichannel: Are you delivering a seamless, customer-focused omnichannel experience versus a store-only or e-commerce-only experience?

The NCMM is the leading source of knowledge, leadership and innovative research focused on the U.S. middle market economy. Grant Thornton is a sponsor of the NCMM. Others collaborating on this study were The Ohio State University, Sun Trust, Cisco and CBUS Retail.


Kevin Kelly Kevin Kelly
Grant Thornton’s National Retail Industry practice leader
T +1 212 624 5270