What: A $1T has been spent over the last 5 years in digital commerce.

Why it is important:  While online penetration grows, retailer’s profits shrink, as the CAC and cost of serving customers is growing. This inefficiency in spending should be reversed for retailers to survive.

This Retail Viewpoint article discusses the challenges and potential solutions for digital-first retail.

The key points are:

1. Despite significant investment in digital commerce, retailers often see their profits shrink as online penetration grows. The cost of serving customers in a flexible and timely manner isn't balanced by sufficient topline growth.
2. Many retailers lack efficiency in their digital spend, leading to subpar results. There's a gap in the perception of digital capabilities between executives and line managers, indicating a need for better collaboration and alignment on digital strategies.
3. A lack of understanding of digital profit and the true costs and benefits of an omnichannel approach hampers decision-making. Only 48% of retail executives are measuring these elements accurately.
4. Retailers continue to increase digital spend without ensuring a positive return on investment (ROI). There's a tendency to prioritize short-term profits over long-term decisions, leading to recurring issues with digital efficiency.
5. The solution may lie in a digital-first retail (DFR) approach. Here, digital becomes the core of the business model, shifting focus from product to customer and conventional metrics to digital-first benchmarks.
6. DFR rests on four pillars:

o    Customer: Leveraging customer data to inform decisions and grow customer lifetime value.

o    Omnichannel journey: Creating a seamless, personalized experience across all platforms.

o    Product and promotion: Balancing the drive for online traffic and margin.

o    Network and fulfillment: Prioritizing free shipping over speed, and finding ways to reduce return rates and reverse logistics costs.

1. Implementing a digital-first operating model requires data-driven decision making, automation, and new KPIs that align with the digital-first focus.

In conclusion, if retailers don't adapt their business model towards a digital-first approach, they risk being part of the next wave of failed digital transformations.

Turning profit destruction into customer and shareholder value