1、While incumbents have upped their digital game,tech-first players are learning old-school retail.By Marc-Andr Kamel,Jolle de Montgolfier,Aaron Cheris,and Ruth LewisThe Future of Retail:The Age of ConvergenceCopyright 2022 Bain&Company,Inc.All rights reserved.1The Future of Retail:The Age of Converge

2、nceAt a Glance Traditional retailers and digital insurgents have become more evenly matched,and each is trying to learn from the other as they compete for an omnichannel advantage.Many retailers,including insurgents,will need more scale to fund the blending of physical and online channels,while dive

3、rsification will be vital as profit growth from traditional activities dries up.Tomorrows industry leaders will need to undergo a customer epiphany to extend their understanding of shoppers,while internally playing“talent Tetris”to overcome recruiting and retention challenges.Since the early days of

4、 the Internet,traditional retailers and digital insurgents have been battling for the same customers.Now,they are increasingly competing for the same talent,too.Big hitters lured from tech to a retail incumbent include Walmarts chief technology officer,a veteran of Google,Microsoft,and Amazon.Those

5、going in the opposite direction include a former Tesco mainstay now running Amazons physical stores and a senior executive at Australias Woolworths recruited to the Amazon Fresh grocery leadership team.The two-way flow of talent between some of the youngest and oldest names in the industry is a pote

6、nt sign of the convergence that will be one of the defining characteristics of retail over the next decade.On one side of the industry,that convergence is being powered by traditional retailers upping their digital game.Leaving behind their store-first roots,they are adding omnichannel capabilities

7、pioneered by tech-first retailers.At the same time,they are speeding up their decision making and increasing their spending on technology and innovation in a further bid to emulate disrupters.Conversely,digital natives are honing the classic retail capabilities patiently built up over decades by inc

8、umbent rivals.Many need these skills to run physical outlets amassed through acquisition(examples include Amazons purchase of Whole Foods Market and Alibabas takeover of Sun Art)or organic diversification(such as the London grocery store recently built by food delivery aggregator Deliveroo in partne

9、rship with Morrisons).Macroeconomic turbulence has also made it financially imperative to excel at retailing basics,online and offline.Against this backdrop of convergence,we think other boundaries in retail will continue to erode.Thats because profit pools are on the brink of an unprecedented shift

10、.Our analysis suggests that,between now and 2030,retailers will see only modest profit growth from traditional trade(meaning retail activities centered on the simple sale of goods procured from suppliers).Instead,the lions share of profit growth is likely to come from activity that reaches beyond tr

11、ade.2The Future of Retail:The Age of Convergence10%Notes:Traditional trade revenue includes traditional buying and selling,trade spend(e.g.,in grocery),rental of stores-within-stores,and wholesaling(e.g.,by retail brands that also sell through third-party channels);beyond trade revenue includes thir

12、d-party marketplace activity(counted as gross merchandise value),data monetization,monetizing assets with business-to-business customers,and consumer financial services;proportions have been roundedSources:S&P Capital IQ;Edge by Ascential;Euromonitor;GlobalData;Forrester;company annual reports;Bain

13、analysisRevenue by source in typical Western marketProfit by source in typical Western market20212030E90%Traditional trade50%50%Beyond trade20212030E90%10%Traditional trade65%Beyond trade35%CAGR202130ECAGR202130E2.7%34.7%9.7%2.7%25.4%6.5%Retail industryprofit margins6.0%7.8%Figure 1:By 2030,half of

14、retail profits could come from“beyond trade”diversification rather than the traditional selling that dominates todayThis value-creating diversification might take the form of more marketplaces that generate commissions by linking third-party sellers to customers.Retailers can also branch out in othe

15、r ways,such as through business-to-business services and products that extract fresh revenue from their existing assets,including logistics infrastructure,customer data,and underexploited advertising channels on apps and websites.Overall,we forecast that“beyond trade”activities will account for half

16、 of industry profits in 2030 in a typical Western market(see Figure 1).Converging business models and blurring profit boundaries will threaten some companies.But the industrys coming evolution will offer fresh opportunity amid the upheaval.Retailers have risen to a series of challenges since our 201

17、9 Future of Retail analysis(see the Bain Brief“The Future of Retail:Winning Models for a New Era”).Through their ingenuity,they helped keep society functioning during the Covid-19 pandemic,and they are now doing their utmost to ease a cost-of-living crisis caused by war and global macroeconomic turb

18、ulence.With the right strategic moves,executive teams can also chart a value-creating course through tomorrows flux.3The Future of Retail:The Age of ConvergenceNote:Global retail industry sales and e-commerce sales exclude sales taxSources:S&P Capital IQ;Euromonitor;company annual reportsGlobal reta

19、il industry sales growth by retailer type,201321E-commerce sales by retailer type,202189%$1T45%8%$800B33%$150B38%22%$140B62%$110B44%10%$100B21%22%$65B76%$45B53%$35B$3TMarketplace at its coreIncludes a marketplaceWithout a marketplaceTraditional retailers Marketplaces60%11%47%67%40%38%46%57%24%47%USC

20、hinaUKSouthKoreaJapanGermany FranceIndiaBrazilFigure 2:Online marketplace operators such as Amazon,Alibaba,and Walmart captured about 60%of global retail sales growth between 2013 and 2021Convergence will be funded by scaleThe age of convergence is dawning partly because incumbents and tech-first re

21、tailers have become more evenly matched in the wake of Covid-19.Prior to the pandemic,the overall momentum was with digital natives.Amid store overcapacity,many traditional retailers were struggling to adapt to the rise of e-commerce,competition from discounters,and waves of innovation.At the same t

22、ime,ecosystem players such as Amazon,Alibaba,and JD.com were gaining share,partly by supporting their retail offering with profit generated by their extensive nonretail activities.Covid-19 accelerated bankruptcies at surprisingly few store-first retailers.More striking was the number of incumbent re

23、tailers that gained a second wind.Some were in categories that experienced stronger demand in the pandemic,such as grocery.Others moved with the speed of digital natives to extend their existing omnichannel capabilities,adopt nimbler ways of working,and strengthen both sales and profit.Ecosystem pla

24、yers and online marketplaces continued their relentless march during the pandemic.Our analysis shows that they captured about 60%of global retail growth between 2013 and 2021,solidifying a dominant position in key markets(see Figure 2).4The Future of Retail:The Age of Convergence10%Notes:Traditional

25、 retailers comprise grocery/mass/club retailers,apparel and department stores,specialty retailers,and food service;digital natives comprise horizontaland vertical marketplaces,and delivery apps(including multipurpose“super apps”);proportions have been roundedSources:S&P Capital IQ;Edge by Ascential;

26、Euromonitor;GlobalData;Forrester;company annual reports;Bain analysisIndustry revenue breakdown in typical Western marketIndustry profit breakdown in typical Western market20212030E 20212030ECAGR202130ECAGR202130E5.6%29.5%9.7%4.0%14.8%6.5%85%Traditional retailers 65%35%Digital natives15%90%Tradition

27、al retailers65%35%Digital nativesFigure 3:Digital natives are poised to account for a greater share of retail industry profits,partly because many of those that make a loss today wont surviveHowever,the drastic shift in sentiment about tech stocks in 2022 has put ecosystem players under more pressur

28、e to generate profits,rather than relying on stellar revenue growth to enthuse investors.Tighter funding in tech is already having an even bigger impact outside ecosystems,threatening the existence of some innovative digital newcomers that had been competing hard with incumbents.Easy access to capit

29、al had masked the fact that these businesses were subscale and lacked a proper profit engine.The failure of the weakest of these ambitious lossmakers,along with a greater focus on retailing basics at stronger players,should help improve the overall profitability of digital-native retailers,offsettin

30、g the impact of the tougher funding environment and higher customer acquisition costs(see Figure 3).So,the playing field has been leveled to some extent,with incumbents emerging from the pandemic in stronger shape than many might have predicted,and tech-first retailers facing a few headwinds after y

31、ears of mostly enjoying tailwinds.This equalization should allow executive teams(and investors)to see more clearly the imbalances that remain,most notably in scale.In our 2019 Future of Retail analysis,we said retailers would above all need a different type of scale to thrive,one that matched local

32、market power with the absolute scale to fund IT spending.5The Future of Retail:The Age of ConvergenceThats even more true in a converging industry.Incumbent retailers still face the challenge of somehow matching the vast sums tech-first players are investing in digital tools,data analytics,and other

33、 technology.Now,digital natives are also riding two horses at once,continuing to pour money into tech while funding a new push into physical retailing(and a more asset-heavy balance sheet).Only scale can pay for transformations like these,by allowing companies to raise capital more easily,invest mor

34、e in the business(both in terms of capital expenditure and price-cutting),and amortize assets across a larger base.Across the industry,expect more scale-enhancing deals in the vein of US grocer Krogers recent$24.6 billion agreement to acquire rival Albertsons.Its a given that tomorrows industry lead

35、ers will have an elevated purpose and greater sustainability.How tomorrows industry leaders will winHow will retailers master the age of convergence?Its a given that tomorrows industry leaders will have an elevated purpose and greater sustainability.In addition to building scale through mergers and

36、acquisitions or organic growth,they will continuously recharge their business by realizing cost reductions every year(which will amount to a cultural change for many tech-led companies).Incumbents and first-wave digital natives will also“tech up”by upgrading legacy infrastructure;by using technology

37、,data,and automation to improve and accelerate decision making;by increasing spending on innovation;and by gauging whether,when,and how much to invest in new digital opportunities such as nonfungible tokens and the metaverse.Beyond that,we think winners will do the following:Undergo a customer epiph

38、any.The customer will increasingly shape decisions,not the channel.Thats a key light-bulb moment for tomorrows retailers.Knowing how consumers behave in your store or on your website wont be enough.Retailers will instead need a holistic understanding of how people live,work,shop,and amuse themselves

39、,partly gained through integrating external data from social media and other sources.They will look at customers not just as consumers but as renters,repairers,and reusers,too,as the push for sustainability gains momentum.A true customer epiphany can lead to a robust and sticky consumer ecosystem wh

40、ile opening the door to hyperpersonalization,a true source of differentiation.6The Future of Retail:The Age of ConvergenceAt the same time,channel-centric metrics such as sales per square foot/meter need to be supplemented(or supplanted)by the likes of catchment area economics,customer lifetime valu

41、e,customer/member retention,and Net Promoter Scoresm.Winners will know where and when to meet consumers,in new environments such as the metaverse as well as more familiar channels and occasions.They will also base other decisions,such as prioritization of IT investments,on customer impact.The future

42、 is omnichannel,and retailers will have to push the boundaries of whats possible to stand out.Excel at omnichannel 3.0.The future is omnichannel,and retailers will have to push the boundaries of whats possible to stand out.That means coming to grips with web3 digital innovations and applications suc

43、h as blockchains and the metaverse.These promise huge advances,such as full digitalization and transparency of interactions across channels,as well as the seamless integration of payments.But executive teams cant just throw money at every“next big thing”on the horizon;resource constraints mean they

44、need to ruthlessly prioritize the most promising omni 3.0 bets around the most relevant use cases,such as customer engagement,experience,and loyalty.Crucially,they also need to fix structural issues that have dogged the sector ever since physical and digital channels started to blur into one,such as

45、 weaknesses in fulfillment and pricing.But the profit dilution caused by the migration of sales online should ease in some respects.Delivery costs should become less punishing,aided by the introduction of technological innovations such as drones and autonomous vehicles.Fewer online orders will be se

46、nt straight back because they dont fit or match expectations,thanks to advances in areas such as virtual reality product previews or perfect sizing and fitting.Grow beyond trade.With the profit pool from traditional buying and selling unlikely to grow,retailers will have to find new sources of value

47、 creation.They can take inspiration from Amazon,which has used profits thrown off by its AWS cloud-computing platform to bankroll its expansion in retail while also building a powerful online advertising business.The need to diversify is only getting more intense because of shoppings online migratio

48、n,as web sales tend to be less profitable,while todays rising costs add further urgency.Retailers can respond by seizing growth opportunities in retail media(which offers enviable margins and a chance for grocers to leverage supplier relationships),data monetization,and other digitally enabled reven

49、ue streams.7The Future of Retail:The Age of ConvergenceBuilding on their customer epiphany,retailers can gain further resilience by creating or extending consumer or business-to-business ecosystems,accessing adjacent profit pools in the process.Likewise,expansion in circular markets can offset the d

50、ecline in some traditional consumption that will be caused by the growing focus on sustainability.Growth beyond trade is an emerging theme in investor presentations;execution is now imperativeand that will require a strong enough core business to use as a base.Play talent Tetris.Tech-led innovators

51、remain talent magnets.Thats particularly true in retail,where digital disrupters are 10 times more likely to find it easy to attract and retain tech-savvy talent than retailers at the earliest stage of digital transformation,according to Bain research.Most retailers must play a tricky game of“talent

52、 Tetris”to become the employer of choice in tighter labor markets that have made frontline recruitment a conundrum.Winners will respond quickly when innovation makes some jobs more value-accretive than others,all the while investing heavily in technology and automation.Most retailers must play a tri

53、cky game of“talent Tetris”to become the employer of choice in tighter labor markets that have made frontline recruitment a conundrum.Walmart,for instance,is removing hard-to-fill frontline activities through automation and data-led operational refinements;the savings go toward better frontline pay a

54、nd the retraining of redeployed staff.Other masters of talent Tetris will stand out in their own way.For example,some discount super-markets have built a reputation for giving teams a lot of responsibility and attractive compensation.Start with the unvarnished truthTo rise to the challenges of a new

55、 era and choose where to invest first,executive teams need an illusion-free understanding of their starting point.The solution is not going to be the same for every retailer.Executive teams can ask themselves a series of targeted questions to get to this unvarnished truth and begin to devise a path

56、forward that fits their companys circumstances.They include:Are we subscale,and how can we gain scale?How can we secure a share of the“beyond trade”profit pool?8The Future of Retail:The Age of Convergence Is our core business strong enough(and our operating model flexible enough)to support such dive

57、rsification?How do we go beyond customer segmentation and instead target and personalize in a way that earns the loyalty and advocacy of our customers?Convergence will require further cultural change on both sides of retail.Traditional retailers must keep asking:What can we learn from tech-first riv

58、als?And digital natives still have work to do to emulate the core retail prowess of incumbents.At a time of great economic challenge around the world,its another big item in the in tray for executive teams.But the converged future of retail also presents huge long-term opportunities that can be gras

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