- In the USA alone, retailers that currently generate a third of total industry profits are threatened with takeover or even insolvency
- Winners build their own ecosystem or dominate through market power and favorable prices
- Regional champions and product specialists can also hold their own
Changing consumer habits and digitalization have fundamentally changed the rules in retail. Until now, local market leaders in particular have been able to achieve respectable profit margins. However, in the face of competition from online giants such as Amazon or Alibaba, size, market leadership or operational excellence alone are no longer enough. Traditional retailers today have to offer their customers more: a distinctive product range, cross-channel services and an appealing brand. In addition, there is a constant pressure to innovate, especially in IT.
In the US, for example, retailers that currently still account for around 30 percent of industry profits there are threatened with takeover in the coming years, with some even facing insolvency. "The retail industry is struggling with major problems in terms of growth, innovation and the use of customer data," explains Bain Partner Miltiadis Athanassiou, who heads the Consumer Goods and Retail practice group in Germany, Austria and Switzerland. And even the industry giants are at risk if they continue to adapt to change so slowly.
Online retailers' lead is growing
The financial markets have long since reacted to the precarious situation. Contrary to the trend in other sectors, retail valuations have been falling for some time. The ratio of enterprise value to turnover has fallen by 4% annually for most retail groups since 2015.
In addition, the gap to online retailers is widening. Each of the world's ten largest retail groups is expected to invest an average of 100 billion US dollars less in IT than Amazon over the next five years.
However, the competitive environment is also challenging for newcomers. "Young, innovative companies often attract a lot of attention, but their business models usually lack scalability and profitability," says Athanassiou. "These substantial weaknesses are often masked by high investments and impressive market capitalization."
Consistent action is needed
The study describes five types of retailer who, with the right measures, are successful even in an era of new consumer habits and digital changes:
- Ecosystem playerBrowse, inform, chat, play and buy. Anyone who offers customers such a comprehensive consumer experience in one place has a largely secure future. Such a one-stop store system grows not least through the integration of other sellers, who thus gain access to potential customers, but also to services such as logistics, marketing, data analysis or payment mechanisms.
- Market leaderIndustry giants that dominate their markets with sufficient capital and high market shares can further expand their leading position if they are fast and innovative. To do this, they need to make above-average investments in their IT, their stores and their online presence.
- Discounter: Low-cost retailers have good prospects if, like Aldi, Lidl or Primark, they offer a satisfactory shopping experience despite low prices. These companies need to expand into new regions, reduce their costs and innovatively expand their range.
- HitchhikerThe small group of retailers that are characterized by an unusual store design or very special products can hold their own despite their lack of size. To do so, they use the infrastructure, logistics, IT or data analysis capabilities of large partners. They maintain their independence through first-class product development and excellent marketing.
- Regional pearlsEven retailers that are only represented in a specific region can survive in their niche. If they continue to rely on excellent staff and outstanding customer service, they will be able to stand up to the global giants, even if they expand their local offerings.
Speed is the trump card
Regardless of the business model, every retailer should prepare for further disruptions in the market, consolidate their own position and expand it with the help of innovations.
Customer wishes must have priority in all sales channels. Investment in IT and data analysis must be emphasized, but savings can be made in other areas. For example, more technological support means that less manpower is required in areas such as product range composition, pricing or warehousing.
Last but not least, the development of new products or IT systems must be accelerated through agile working in cross-divisional teams. "No retailer, no matter how successful, can rest on its laurels," emphasizes Bain expert Athanassiou. "On the contrary: many need to become even faster if they want to maintain and improve their competitive position." (pte)