Digital Transformation Dooms Slow-Moving, Budget-Strapped Retailers

Steady growth has been a hallmark in retailing for nearly a decade and 2017 was no exception. However, it was also a year with a record number of bankruptcies and store closings. This forced business media to struggle to find reasons for the anomaly and devise the “retail apocalypse” myth, which obscured the truth.

Here’s a look at exclusive findings in the 2018 RIS/Gartner Retail Technology Study that sheds light on data-based reasons behind the gyrations in 2017 and what they mean for 2018 and beyond.

Rising Tide Does Not Lift All Ships

Retail revenue grew 4.2% in 2017, according to the U.S. Department of Commerce, which sounds like good news, but only 23% of respondents in the RIS/Gartner study met or surpassed this level of growth.

This means 77% of retailers did not achieve the average gain recorded for the overall industry. They either went backwards, stayed the same (which is essentially going backwards in retailing today), or registered a sub-par increase (which indicates they were unable to capitalize when shoppers were spending record amounts of money).

Overall, nearly three out of 10 retailers (28%) either lost revenue last year or closed their books with no increase.

Despite this lackluster performance, or maybe because of it, study data finds 2018 IT budgets are set to climb by an average of 4% year over year, which is up from last year’s 3.5%.

In terms of numbers of retailers planning an increase in their 2018 IT budgets, nearly seven out of 10 plan an increase, which sounds like a big number but is actually down from 88% last year.

This leads to a major finding in the study – although fewer retailers are increasing their IT budgets, the increases are larger in 2018. This supports the notion that retail is bifurcating into leader and laggard groups that are differentiated by revenue growth and progress toward digital transformation.

Leaders vs. Laggards

Important lessons can be drawn by examining study data that compares retail leaders, those that increased revenue 5% or higher in 2017, and laggards, those that lost revenue or remained flat year over year.

One good example of the difference is that retail leaders are major proponents of analytic tools and strategies while laggards are not. The data shows that nearly twice as many leaders (184%) identify analytics as a key strategy over the next 18 months compared to laggards.

This is a crucial differentiator, because smart investments in analytic tools and capabilities are proven methods for achieving a better understanding of consumer behavior to drive sales and loyalty. Analytic tools can also tighten forecasts and improve productivity in ways that reduce expenses. The incremental improvements produced by analytic tools for national or large regional organizations can add up to big gains.

Another example is the ability to convert brick-and-mortar stores into growth channels. Retail winners have either solved this problem or are currently working toward a solution.  Study data finds that nearly twice as many retail laggards (192%) say optimizing stores as a growth channel is a major obstacle they need to work on over the next 18 months.

Finally, more than twice as many retail laggards (224%) identify retiring legacy systems as a major problem to resolve in the next 18 months.

The fact that this problem ranks so high is evidence that most (if not all) laggards have delayed critical technology upgrades and are using out-of-date software, hardware and network systems. This can have a crippling effect on an organization’s ability to operate efficiently and add new capabilities that match or leap ahead of their competitors.

Digital Transformation Wake-Up Call

Retail leaders, according to study data, are those who are investing in advanced analytics, optimizing stores, and retiring legacy systems, which puts them in a strong position to move forward with a digital transformation program and achieve the goal of redefining traditional retail boundaries.

Laggards have delayed starting critical enhancements, killed projects underway, relied on inefficient work-arounds, and opted to become followers instead of innovators.

For retailers still standing in 2018, these findings represents a warning shot fired across the bow, a wake-up call that signals the time to act is now, i.e. to fix broken processes, replace legacy technologies, remove choke points, invest in advanced capabilities, test new concepts, and explore emerging innovations.

Delaying projects, making postponements, taking half steps, doing work-arounds, and following in proven footsteps – those days are over. We saw what happened to Toys R Us, The Limited, Payless, Rue21, Gymboree and others that closed hundreds of stores.

Retailers that hear an alarm bell ringing in the distance should recognize that it just might be their last chance to answer the digital transformation wake-up call.

To download the complete study with a complete set of charts highlighting 85 technologies and more than 400 data points, click here.