Will the digital revolution in retail fail due to funding gaps?

According to a recent survey, “Digital Agenda 2020”, 45 percent of retail companies in Germany, Austria and Switzerland consider funding gaps the biggest obstacle on the way to the digital transformation of their businesses.

Concurrently, the speed of innovation is putting the industry under pressure. As a consequence of the digital revolution, a completely new competitive situation is expected by 2018. This is even more relevant since the competitive marketplace has already changed significantly in the last 10 years by players like Amazon, Zalando & Co. Online retail business is growing by 12%, while traditional retailing is only growing by 0.2%.

Survey respondents said cost pressures in retail companies are creating significantly more unresolved investment issues related to digital transformation than in other areas of business. Slightly less than one-third of telecommunication and IT providers, and nearly one quarter of financial service providers and insurance companies, are affected by a funding squeeze that impairs or delays transformation.

Established retailers are competing against online retailers, which could be seen as IT companies with fulfillment capabilities supported by 3rd parties (DHL, Hermes). They have lived the digital journey, while traditional retailing is just now forming their strategies.

Seventy-seven percent of retail enterprises have taken the first step to developing their own digital strategies or have actually planned to prepare an agenda. However, the financial issues should be given top priority at once – otherwise there will be a significant impact, including the loss of market share. It is alarming that retail enterprises feel so discouraged by unresolved budget issues related to digital transformation.

The retail professionals surveyed say that cooperation with external partners helps lead the way out of the cost trap. Almost one-third of respondents considers it reasonable to find a partner to share in the investment risks. Further, every second retail company considers the knowledge of specialized external partners strategically beneficial to their digital reorganization.

Digitalization is not the only big topic retailers have to manage these days. They also have to find innovations to address aging societies; deal with cultural changes that retailing 4.0 will bring into organizations; and the battle for the best talents to manage digitalization and other retail business drivers.

Especially in Germany, it seems retailers are adapting new concepts and technologies very late. They also miss the opportunity to modernize their applications and processes when it’s applicable. Doing so today will require an enormous effort, in time and budget, and force a battle for limited resources.

Cross yours fingers retailers will rapidly overcome funding gaps in order to not fall further behind in the digital revolution.

Axel Albrecht is Client Relationship Executive at CSC in Central and Eastern Europe. He joined CSC in August 2016 in the Diversified Industry Vertical to position the entire CSC solution portfolio to clients in the retail industry. Before CSC he hold multiple account and business development management roles in retail business.


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