What: Online retail with stores, or stores-based retail with a website? In any case, nowadays four-wall profitability fails to calculate the true value of brick-and-mortar locations.

Why it is important: The rapid growth of online shopping forced retailers to scale omnichannel operations very quickly and with a priority on service over cost. E-commerce accounted for 19.1% of total retail sales in 2021, up from 15.5% in 2019. In an AlixPartners survey of more than 100 retail executives, almost 80% said they expected their online penetration to increase in 2022 relative to 2021. Whether at 15% or 40% or more, every retailer must reassess its operating model in light of this expected growth as we have reached a tipping point.

Profitability has been challenged because most retailers were forced into making significant, expensive and immediate omnichannel improvements. Now, me-centric consumers are all-powerful and dictate the nature of their relationship with companies. This means that any retailer hoping to thrive must take a new perspective into its operating model – including processes, organization, and technology.

Being a digital-first retailer does not mean being a digital-only retailer. A digital-first retailer will never look at its stores the same. Every store belonging to a digital-first retailer is a node in the network with a completely different set of costs and benefits. These may include benefits from faster omnichannel delivery, rebuys of online returns, and the billboard effect of a physical location, among others.

Being a digital-first retailer also does not have to mean prioritizing one channel over another. Instead, it’s a shift in mindset that resets how the organization thinks about everything. In practice, this means changing conventional KPIs for every part of the business into digital-first benchmarks. For merchants and planners, this may mean taking customer acquisition and loyalty into account in assortment decisions. For the supply chain, it’s the difference between simply prioritizing cost per unit to including customer lifetime value in order management system algorithms.

This reassessment can be broken down into four broad but connected areas:

• Customer: How are you tracking and growing your most profitable customers and channels?
• Experience: Do you provide a meaningful, frictionless, and personalized experience at every touchpoint?
• Offering: Is your operating model designed to curate relevant products, pricing, and services to the consumer?
• Fulfillment: Are you maximizing your store network, distribution centers, and inventory placement for profitable digital growth?

Retailers should be prepared to rethink its operating model in a way that caters to how today’s customer typically first experiences a brand: digitally. While increased operational costs reflect an immediate need for correction, the risks of not meeting consumers where they’re going are much larger and can be much more detrimental.

Are you a digital-first retailer?