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Big retailers: stellar delay in digitization

Luca Catzola, Venture Partner P101 | March 2nd, 2016

Italian large retailers have an enormous potential but are afraid of the digital revolution. They shun omnichannel strategy, missing sales for tens of billions of Euros. Other industries, such as tourism and electronics, have seized the digital challenge – so much so that in 2015 tourism’s “digital shopping bag” has reached a total value of € 7.7 billion and that of consumer electronics was valued € 2.2 billion. On the contrary, the digital market of large retailers has yet to be discovered.

Why can’t the world of traditional retail trade keep up with digital innovation? What are the elements preventing the proper integration of skills between these two realms, which basically have the same goal, i.e., to make profit?

Most of the times, it’s a mix of contributing factors that impair innovation in the name of short-term strategies and returns. The persistence of such practices comes from the internal structure of large retailers, characterized by the presence of old school managers. They are still tied to 6/12-months incentive programs that do not foster the construction of broader, more complex but certainly more effective and enduring projects. Add to this a continuous and strenuous struggle in defence of (very narrow) segment margins and the fear that any external element would make prices drop further, resulting in an even more unfavourable combination of margins.

What is more, the industry is characterized by a generalized lack of digital skills. This has led to underestimate the crucial role of the web in the decision making process of customers, not just when they shop online, but also when they buy from brick and mortar stores.

In the food industry, for example, which is characterized by smaller margins, high competition, low unit value multiple purchases and long distribution, most retailers are still focussing on back-end investment, aimed at the integration with suppliers and a more effective stock management.

As a result, there’s a dangerous and widespread digital delay that involves almost all players in the retail industry. However, there’s also a bright side to it: Italy’s digital delay represents an opportunity for those who have the courage to add an item to their P&L (Profit and Loss Statement) and finally develop an omnichannel strategy.

Indeed, the digital market is growing fast: in 2015 there has been a surge in m-commerce, that is, transactions carried out on smartphones and tablets, so much so that Italy has leaped to second place in Europe, right after Germany. According to the Zanox Mobile Performance Barometer 2015, from January 2015 all months have set new records, with 1.5 million mobile transactions and an average growth rate of 53%.

The influence of the digital world on the retail industry is absolutely undeniable. We Are Social has just released a study that draws a picture of the shopping habits of the Italian population and how these are influenced by technology. If, one the one hand, “only” 48% of them shop online, on the other, 56% of the Italian population search the web for information about products before purchasing them, and 53% have visited an online store in the last 30 days. Comparing this with data from 12 months ago, we see that people are increasingly getting in touch with the things they need or want at any time through mobile services. These actions do not necessarily result in them buying the things: that is why retailers should create a content development and distribution strategy that can work at every stage of the purchasing process, in order to get to know (and recognize) consumers even after their very first exposure.