The digital landscape has undoubtedly been impacted over the past two years, especially within the retail industry. Retail companies were forced to accelerate their digital capabilities and now face the challenge of optimizing and refining their digital practices to scale. The expectation is that e-commerce will continue to command a greater share of retail going forward, but more work is needed to increase profitability.
Publicis Sapient and Salesforce partnered with Ipsos, the third-largest research and insight company in the world, to conduct the Global Retail Decision-Makers survey. This study was designed to understand what retailers are prioritizing regarding e-commerce investments, what steps they are taking to improve e-commerce profitability, and more. Ipsos surveyed approximately 300 Retail Decision-Makers based in seven markets: United States, United Kingdom, Germany, Denmark, Norway, Sweden, and Australia.
Identifying ways to be more profitable with e-commerce is essential in the shift towards digital.
There is a near-consensus among Retail Decision-Makers that the COVID-19 pandemic has forever changed the nature of retail. 85% hold this view overall, with a significant difference between brick-and-mortar operations and e-commerce-only retailers. There is even greater agreement that e-commerce will continue to grow, regardless of what pandemic twists and turns lie ahead (96% overall).
In line with expectations for e-commerce growth, 82% of Retail Decision-Makers anticipate their e-commerce revenue improving in the next year. However, expectations for e-commerce profit are not as high; just over 73% expect increases in the coming year.
Some of the weakest expectations for e-commerce profits come from the grocery sector (61% expect improvement), pharmacy/corner shops (57%), retailers with less than $500M in annual revenue (60%), and Nordic retailers (59%). Notably, there is less of an e-commerce profit gap in the US (84% expect revenue to improve, while 80% say the same of e-commerce profits).
E-commerce business struggles to achieve profitability; 1 in 4 say e-commerce is NOT profitable.
Many Retail Decision-Makers acknowledge e-commerce profitability challenges. Among those who have both e-commerce and brick-and-mortar operations, nearly half (46%) say that e-commerce is less profitable than in-store business. Almost 37% overall agree that their e-commerce business is not meeting profitability targets, while 27% say e-commerce is hurting overall profitability, and 25% say e-commerce is not profitable at all.
E-commerce-only Retail Decision-Makers are roughly twice as likely as those with brick-and-mortar locations to agree that e-commerce is hurting profitability metrics and is not currently profitable. The largest-revenue companies ($5B+) are above average in saying that e-commerce is less profitable than their brick-and-mortar operations. Australia-based Retail Decision-Makers tend to over-index on profitability challenges.
By subgroup:
Significant efforts to meet pandemic needs were executed, but were they done well?
93% of Retail Decision-Makers say their company made significant changes to meet the demands of the COVID-19 pandemic. However, 70% believe these changes were not executed in the best way. E-commerce-only retailers (78%) and those in the specialty non-apparel space (80%) are among the most likely to agree. The lower the revenue, the more likely the retailer is to agree that changes were not optimized: 76% among retailers earning less than $500M, 77% among $500M-$750M, and 67% among $750M+.
9 in 10 claim to know what’s needed to improve e-commerce profitability, but half struggle to deliver.
90% of Retail Decision-Makers say their companies know what improvements are needed to boost e-commerce business. However, more than 44% say their companies struggle to invest in these improvements. Those most inclined to agree include Nordic retailers (71%), Australia (60%), department stores (67%), and e-commerce-only businesses (69% vs. 39% for brick-and-mortar).
Revenue tells a compelling story: roughly 20 percentage points separate those bringing in less than $750M in annual revenue from those earning $750M+ on finding it difficult to invest.
Digital customer experience and omnichannel commerce have the greatest potential to boost profitability.
Retailers are currently making medium/high investments in:
When asked which investment areas are most critical to increasing profitability, digital customer experience and omnichannel commerce take the top spots (50% or higher among Retail Decision-Makers). Supply chain modernization and marketing technology/data monetization form a middle tier (selected by roughly 4 in 10). Customer service, digital store, and strategy land at the bottom (about 3 in 10).
Brick-and-mortar retailers are more likely than e-commerce-only retailers to see investment in omnichannel commerce as necessary to improve profitability, while the opposite is true for customer service. Supply chain modernization slightly edges out omnichannel commerce as the second-most important investment area among grocery Retail Decision-Makers.
What retailers must invest in to increase profits:
Holistic omnichannel digital experience is the clear priority.
Retail Decision-Makers gravitate towards investments in a holistic omnichannel digital experience, which is also the top area where retailers are making investments today. The next two investment areas are the mobile app and social selling/live streaming/agent-assisted shopping. In the short term, there is little variation across key retail audiences on these items. For the long term, social selling/live streaming/agent-assisted shopping generally trumps the mobile app, except for e-commerce-only retailers, where the two are virtually tied.
Top Investment Areas (most critical to increasing profitability):
Near-term challenge (investing in):
Long-term opportunity (investing in):
Current investment (among those investing in this area):
Replatforming and expansion through marketplaces are top challenges today, with current investment backing this up. Long-term, dynamic pricing comes into play. Grocery looks a little different throughout.
The leading short-term Omnichannel Commerce challenge is re-platforming, followed by expanding through marketplaces. Retailers are investing in these areas. For long-term growth, expansion takes the top spot, followed by dynamic pricing and promotions. In the grocery sector, the shift to the cloud ranks second among current challenges and investment areas, and microservices/headless e-commerce are the second most pressing long-term opportunity.
Near-term challenge (investing in):
Long-term opportunity (investing in):
Current investment (among those investing in this area):
Shipping optimization and offering multiple shipping options are top challenges today, supported by investments. Looking ahead, retailers want to tackle MFCs and automated fulfillment.
The top short-term Supply Chain Modernization challenge is shipping optimization, with providing multiple shipping options typically ranking second. These are also the top investment areas. MFCs (micro-fulfillment centers) rank as the #3 challenge overall and #2 among grocery. For the future, MFCs and shipping optimization are top priorities.
Near-term challenge (investing in):
Long-term opportunity (investing in):
Current investment (among those investing in this area):
Business intelligence and analytics are a top focus for many; Retail media platforms/site monetization are especially important among Grocery and e-commerce-only retailers.
From short-term challenges to longer-term opportunities, business intelligence and analytics are key. Personalization is often the second priority. Onsite and offsite advertising is more important among Grocery and e-commerce-only retailers.
Near-term challenge (investing in):
Long-term opportunity (investing in):
Current investment (among those investing in this area):
Self-service and chat are generally the most pressing.
Retail Decision-Makers are keenly interested in self-service online customer support tools, which is the top investment area except for e-commerce-only retailers, who invest more in chat-based support. Apps for sales associates to help with clienteling are also important to grocery and e-commerce-only retailers.
Near-term challenge (investing in):
Long-term opportunity (investing in):
Current investment (among those investing in this area):
Modernizing POS is top-of-mind today, while footprint redesigns may not be garnering sufficient attention. Grocery retailers are keen to incorporate robotics.
Retail Decision-Makers are focused on modernizing POS systems, which is the top challenge and investment area today. New or larger/smaller store footprint designs are the third-most pressing challenge and the second-greatest opportunity for future growth, but this area ranks second-to-last in terms of actual investment. Grocery retailers prioritize robotics for in-store cleaning or inventory.
Near-term challenge (investing in):
Long-term opportunity (investing in):
Current investment (among those investing in this area):
Digital-Physical business model balancing, customer acquisition, and expansion are top areas of focus in both the near and long term.
The top short-term strategy challenge is re-evaluating the business model balance between digital and physical, with customer acquisition a close second. Expanding into new markets or products is a top priority for e-commerce-only and grocery retailers. For the long term, expansion is the top focus, followed by business model balancing. These priorities align with current investment areas: customer acquisition and expansion are the top two, with optimizing the digital-physical split following closely.
Near-term challenge (investing in):
Long-term opportunity (investing in):
Current investment (among those investing in this area):
The Publicis Sapient - Salesforce Global Retail Survey was conducted by Ipsos Public Affairs using a blend of business-to-business online panels. From March 18 to April 12, 2022, a total of 294 retail companies were interviewed in seven markets: the US, the UK, Germany, Denmark, Norway, Sweden, and Australia.
To qualify, respondents had to work in the Retail or Grocery sectors, have a job title of Director or higher, be employed by a retail company earning revenue between less than US $20 million and $5B+ a year, and have e-commerce operations.
Sample Profile:
Sector:
E-commerce Profile:
Revenue:
Sub-Sector:
*Small base (<30)
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MICHELLE GRANT
Senior Manager, Strategy and Insights | Retail & Consumer Goods
Salesforce
michelle.grant@salesforce.com
Publicis Sapient is a digital business transformation company. We partner with global organizations to help them create and sustain competitive advantage in a world that is increasingly digital. We operate through our expert SPEED capabilities: Strategy and Consulting, Product, Experience, Engineering and Data, which combined with our culture of curiosity and deep industry knowledge, enables us to deliver meaningful impact to our clients’ businesses through re-imagining the products and experiences their customers truly value. Our agile, data-driven approach equips our clients’ businesses for change, making digital the core of how they think and what they do. Publicis Sapient is the digital business transformation hub of Publicis Groupe with 20,000 people and over 50 offices worldwide. For more information, visit publicissapient.com
HILDING ANDERSON
Head of Retail Strategy, NA
Publicis Sapient
hilding.anderson@publicissapient.com