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The Importance of a Digital-First Retail Approach

As online penetration grows, retailers' profits are shrinking — with the cost of serving customers anytime, anywhere, at any speed not bringing in enough topline growth to best monetize even existing investments in technology, systems, infrastructure, and people, let alone new investments, according to Digital-First Retail: Turning Profit Destruction into Customer and Shareholder Value, a new report from AlixPartners and World Retail Congress.


For example, the report — based on 50 public US retailers across several sectors including apparel, department stores, hardlines and specialty retail — found that while their average online penetration has skyrocketed from 9.4% in 2012 to 25.6% in 2022, their profitability (as measured by average EBITDA percentage) has declined in that same period, from 13.8% to just 8.3%.

As also identified by AlixPartners, customer preference for digital shopping is booming — with 86% of consumers researching a product online at least once in their purchase process. Such trends combine to create a major problem for retailers: higher costs (due to needed digital investments) and lower profits.

"It's clear that retailers can't keep operating the same way and expect different results when it comes to getting true ROI out of their investments," said David Bassuk, global leader of the retail practice at AlixPartners. "What we at AlixPartners call 'Digital-First Retail' isn't a program or initiative, it's a change in mindset — and in a retailer's organization — that places digital at the very core of a retailer's business model. And that's exactly where digital needs to be today."

As part of the report analysis, AlixPartners examined why retailers are struggling with digital efficiency and how they can shift from a traditional mindset to becoming a Digital-First Retail (DFR) leader. As such they identified that:

Retailers spend big but inefficiently on digital

Globally, retailers spent $181 billion on retail technology and digital improvements in 2022, according to Gartner. Despite this spending, additional AlixPartners research carried out among 150 global retailers has revealed that only 24% of retail executives think their company has above-average digital capabilities, and just 36% of executives think their digital teams have the capabilities to meet their companies' digital-strategy needs.

The research also revealed a growing disconnect in company-capability assessments between the line managers doing the work and the executives making the decisions.

Digital profitability is not understood

Digital profitability is not understood, and there is a lack of transparency and common KPIs.

AlixPartners research has revealed that 84% of retail executives believe online delivers cumulative value, but only 48% are measuring the true costs and benefits of an omnichannel approach. Without a robust means of measuring success, many companies are making digital investments that later prove ineffective. Misunderstanding profitability within and across all channels also prevents companies from correctly computing customer lifetime value.

DFR requires a big shift in investment, says the report, but retailers need to make those shifts if they hope to keep up with their own customers. And, often, it isn't about spending more but rather spending smarter, more holistically and more intentionally.

Retailers set to increase digital spending

AlixPartners identified that more than half (63%) of retailers expect to spend more on digital investments in 2023 compared with 2022. Given consumer preferences for digital, most don't have a choice — without a strong online experience, they stand to lose customers and market share to competitors.

However, the hope around future investments ignores history. Per AlixPartners' research, three-quarters (75%) of retail executives are confident they'll get a good return on their digital investments. However, nearly two-thirds (64%) doubt their existing digital tools from past investments can support a modern DFR business. This raises the question: if past investments have not met expectations, why is there such confidence that future investments will perform differently?

The report firmly states that DFR is the answer to how to profitably evolve — taking the positive attributes of successful digitally native retailers — including agility and adaptability — and adopting them for traditionally store-led enterprises.

"Most retailers are data-rich, but insight-poor, and most still have a product-centric mindset rather than a truly customer-centric one," said Matt Clark, EMEA leader of retail practice at AlixPartners. "Retailers must establish new KPIs with a Digital-First Retail lens to match their new operating model and operate with a DFR mentality, truly placing the customer first — to turn shrinking profits into customer and shareholder value."

Ian McGarrigle, chairman, World Retail Congress, said: "Coming out of three unprecedented years shaped by the pandemic, retail has gone from accommodating a massive acceleration of online sales to the detriment of stores, to a period of resurgence in store-based retailing and a slowing of online growth. But what is clear is that there is no status quo in this new reality."

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The Importance of a Digital-First Retail Approach

As online penetration grows, retailers' profits are shrinking — with the cost of serving customers anytime, anywhere, at any speed not bringing in enough topline growth to best monetize even existing investments in technology, systems, infrastructure, and people, let alone new investments, according to Digital-First Retail: Turning Profit Destruction into Customer and Shareholder Value, a new report from AlixPartners and World Retail Congress.


For example, the report — based on 50 public US retailers across several sectors including apparel, department stores, hardlines and specialty retail — found that while their average online penetration has skyrocketed from 9.4% in 2012 to 25.6% in 2022, their profitability (as measured by average EBITDA percentage) has declined in that same period, from 13.8% to just 8.3%.

As also identified by AlixPartners, customer preference for digital shopping is booming — with 86% of consumers researching a product online at least once in their purchase process. Such trends combine to create a major problem for retailers: higher costs (due to needed digital investments) and lower profits.

"It's clear that retailers can't keep operating the same way and expect different results when it comes to getting true ROI out of their investments," said David Bassuk, global leader of the retail practice at AlixPartners. "What we at AlixPartners call 'Digital-First Retail' isn't a program or initiative, it's a change in mindset — and in a retailer's organization — that places digital at the very core of a retailer's business model. And that's exactly where digital needs to be today."

As part of the report analysis, AlixPartners examined why retailers are struggling with digital efficiency and how they can shift from a traditional mindset to becoming a Digital-First Retail (DFR) leader. As such they identified that:

Retailers spend big but inefficiently on digital

Globally, retailers spent $181 billion on retail technology and digital improvements in 2022, according to Gartner. Despite this spending, additional AlixPartners research carried out among 150 global retailers has revealed that only 24% of retail executives think their company has above-average digital capabilities, and just 36% of executives think their digital teams have the capabilities to meet their companies' digital-strategy needs.

The research also revealed a growing disconnect in company-capability assessments between the line managers doing the work and the executives making the decisions.

Digital profitability is not understood

Digital profitability is not understood, and there is a lack of transparency and common KPIs.

AlixPartners research has revealed that 84% of retail executives believe online delivers cumulative value, but only 48% are measuring the true costs and benefits of an omnichannel approach. Without a robust means of measuring success, many companies are making digital investments that later prove ineffective. Misunderstanding profitability within and across all channels also prevents companies from correctly computing customer lifetime value.

DFR requires a big shift in investment, says the report, but retailers need to make those shifts if they hope to keep up with their own customers. And, often, it isn't about spending more but rather spending smarter, more holistically and more intentionally.

Retailers set to increase digital spending

AlixPartners identified that more than half (63%) of retailers expect to spend more on digital investments in 2023 compared with 2022. Given consumer preferences for digital, most don't have a choice — without a strong online experience, they stand to lose customers and market share to competitors.

However, the hope around future investments ignores history. Per AlixPartners' research, three-quarters (75%) of retail executives are confident they'll get a good return on their digital investments. However, nearly two-thirds (64%) doubt their existing digital tools from past investments can support a modern DFR business. This raises the question: if past investments have not met expectations, why is there such confidence that future investments will perform differently?

The report firmly states that DFR is the answer to how to profitably evolve — taking the positive attributes of successful digitally native retailers — including agility and adaptability — and adopting them for traditionally store-led enterprises.

"Most retailers are data-rich, but insight-poor, and most still have a product-centric mindset rather than a truly customer-centric one," said Matt Clark, EMEA leader of retail practice at AlixPartners. "Retailers must establish new KPIs with a Digital-First Retail lens to match their new operating model and operate with a DFR mentality, truly placing the customer first — to turn shrinking profits into customer and shareholder value."

Ian McGarrigle, chairman, World Retail Congress, said: "Coming out of three unprecedented years shaped by the pandemic, retail has gone from accommodating a massive acceleration of online sales to the detriment of stores, to a period of resurgence in store-based retailing and a slowing of online growth. But what is clear is that there is no status quo in this new reality."

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According to Auvik's 2025 IT Trends Report, 60% of IT professionals feel at least moderately burned out on the job, with 43% stating that their workload is contributing to work stress. At the same time, many IT professionals are naming AI and machine learning as key areas they'd most like to upskill ...

Businesses that face downtime or outages risk financial and reputational damage, as well as reducing partner, shareholder, and customer trust. One of the major challenges that enterprises face is implementing a robust business continuity plan. What's the solution? The answer may lie in disaster recovery tactics such as truly immutable storage and regular disaster recovery testing ...

IT spending is expected to jump nearly 10% in 2025, and organizations are now facing pressure to manage costs without slowing down critical functions like observability. To meet the challenge, leaders are turning to smarter, more cost effective business strategies. Enter stage right: OpenTelemetry, the missing piece of the puzzle that is no longer just an option but rather a strategic advantage ...

Amidst the threat of cyberhacks and data breaches, companies install several security measures to keep their business safely afloat. These measures aim to protect businesses, employees, and crucial data. Yet, employees perceive them as burdensome. Frustrated with complex logins, slow access, and constant security checks, workers decide to completely bypass all security set-ups ...

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Cloudbrink's Personal SASE services provide last-mile acceleration and reduction in latency

In MEAN TIME TO INSIGHT Episode 13, Shamus McGillicuddy, VP of Research, Network Infrastructure and Operations, at EMA discusses hybrid multi-cloud networking strategy ... 

In high-traffic environments, the sheer volume and unpredictable nature of network incidents can quickly overwhelm even the most skilled teams, hindering their ability to react swiftly and effectively, potentially impacting service availability and overall business performance. This is where closed-loop remediation comes into the picture: an IT management concept designed to address the escalating complexity of modern networks ...

In 2025, enterprise workflows are undergoing a seismic shift. Propelled by breakthroughs in generative AI (GenAI), large language models (LLMs), and natural language processing (NLP), a new paradigm is emerging — agentic AI. This technology is not just automating tasks; it's reimagining how organizations make decisions, engage customers, and operate at scale ...

In the early days of the cloud revolution, business leaders perceived cloud services as a means of sidelining IT organizations. IT was too slow, too expensive, or incapable of supporting new technologies. With a team of developers, line of business managers could deploy new applications and services in the cloud. IT has been fighting to retake control ever since. Today, IT is back in the driver's seat, according to new research by Enterprise Management Associates (EMA) ...

In today's fast-paced and increasingly complex network environments, Network Operations Centers (NOCs) are the backbone of ensuring continuous uptime, smooth service delivery, and rapid issue resolution. However, the challenges faced by NOC teams are only growing. In a recent study, 78% state network complexity has grown significantly over the last few years while 84% regularly learn about network issues from users. It is imperative we adopt a new approach to managing today's network experiences ...

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