Special Feature
Part of a ZDNet Special Feature: IT Innovation for Small Businesses

ICT-enabled retailers will survive the omni-channel apocalypse

IT investment will be both the driving force behind the retail sector's disruptive new business model — omni-channelling — and the key to retailers' survival.

Retailers that do not invest in IT during the coming decade will find themselves on the wrong side of a yawning "digital divide", incapable of surviving the evolutionary pressures of "omni-channel" retail.

That's the major finding of new research released by the National Institute of Economic and Industry Research, sponsored by IBM. The research shows that the differing extent to which retailers invest in IT in the run-up to 2025 will create huge differences in the sales, market capitalisation, and productivity of businesses, as well as their ability to cope with emerging business models.

By way of example, the research claims that one $25 billion revenue per year retailer taking a "leader" position in IT investment can expect to make $106 billion more in sales, sell 40 percent of its goods online, and deliver 34 percent higher return on capital for shareholders compared to the same sized "follower" retailer taking a "business-as-usual" approach to its IT investment.

Revenue per customer for the leader company is also expected to be three times higher than for the follower over the same period. The leader company can also expect to have full-time employee growth of 280 percent, while the follower can expect a decline of nearly 50 percent.

Leader businesses will not only prosper in coming years, but will also play a pivotal role in the development of a new retail business model: The omni-channel. The model combines digital and traditional models, and, according to the research, better enables retailers to move to meet new customer needs and wants.

"Under this model, customers will, for example, be able to quickly access product information online, make informed decisions, and either locate nearby stores or buy online and pick up goods from a convenient distribution centre," the research said.

Accordingly, heavy investments in sophisticated warehouse systems and supply chains, as well as in customer relationship management (CRM) and business analytics, will be needed to support omni-channel retailing.

"The omni-channel retailer will need strong customer relationships, and will have to better anticipate customer desires," the research said. "Big data will be important for gaining a competitive advantage, enabling retailers to maximise clicks and transactions by better understanding their customers, operations, and supply chains."

Commenting on the findings, Australian Retailers Association (ARA) executive director Russell Zimmerman called on retailers to move to hybrid business models that combine the strengths of online and bricks-and-mortar strategies.

"It is becoming increasingly evident that success will be driven by how effectively retailers can harness the power of new technologies to deliver unique value to customers with the speed, efficiency, and ubiquity they demand," he said in a statement.

"Those [retailers] that pursue an accelerated route by taking advantage of digital technologies will deliver better outcomes at a lower cost than if they stay on their current paths — which is something all retailers need to embrace, given the current tough economic climate."

In July, Zimmerman said the adoption of mobile payment services among Australian retailers was beginning to take off, based on bricks-and-mortar retailers' need to cut transaction times, access customer loyalty programs, and boost face-to-face interactions.

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