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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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The Latest

As businesses increasingly rely on high-performance applications to deliver seamless user experiences, the demand for fast, reliable, and scalable data storage systems has never been greater. Redis — an open-source, in-memory data structure store — has emerged as a popular choice for use cases ranging from caching to real-time analytics. But with great performance comes the need for vigilant monitoring ...

Kubernetes was not initially designed with AI's vast resource variability in mind, and the rapid rise of AI has exposed Kubernetes limitations, particularly when it comes to cost and resource efficiency. Indeed, AI workloads differ from traditional applications in that they require a staggering amount and variety of compute resources, and their consumption is far less consistent than traditional workloads ... Considering the speed of AI innovation, teams cannot afford to be bogged down by these constant infrastructure concerns. A solution is needed ...

AI is the catalyst for significant investment in data teams as enterprises require higher-quality data to power their AI applications, according to the State of Analytics Engineering Report from dbt Labs ...

Misaligned architecture can lead to business consequences, with 93% of respondents reporting negative outcomes such as service disruptions, high operational costs and security challenges ...

A Gartner analyst recently suggested that GenAI tools could create 25% time savings for network operational teams. Where might these time savings come from? How are GenAI tools helping NetOps teams today, and what other tasks might they take on in the future as models continue improving? In general, these savings come from automating or streamlining manual NetOps tasks ...

IT and line-of-business teams are increasingly aligned in their efforts to close the data gap and drive greater collaboration to alleviate IT bottlenecks and offload growing demands on IT teams, according to The 2025 Automation Benchmark Report: Insights from IT Leaders on Enterprise Automation & the Future of AI-Driven Businesses from Jitterbit ...

A large majority (86%) of data management and AI decision makers cite protecting data privacy as a top concern, with 76% of respondents citing ROI on data privacy and AI initiatives across their organization, according to a new Harris Poll from Collibra ...

According to Gartner, Inc. the following six trends will shape the future of cloud over the next four years, ultimately resulting in new ways of working that are digital in nature and transformative in impact ...

2020 was the equivalent of a wedding with a top-shelf open bar. As businesses scrambled to adjust to remote work, digital transformation accelerated at breakneck speed. New software categories emerged overnight. Tech stacks ballooned with all sorts of SaaS apps solving ALL the problems — often with little oversight or long-term integration planning, and yes frequently a lot of duplicated functionality ... But now the music's faded. The lights are on. Everyone from the CIO to the CFO is checking the bill. Welcome to the Great SaaS Hangover ...

Regardless of OpenShift being a scalable and flexible software, it can be a pain to monitor since complete visibility into the underlying operations is not guaranteed ... To effectively monitor an OpenShift environment, IT administrators should focus on these five key elements and their associated metrics ...