FEATURE
THE FUTURE OF RETAIL : THE AGE OF CONVERGENCE ,
PART 1
By Gino Dizon , Yukiko Tsukamoto and Marc-André Kamel
Gino Dizon and Yukiko Tsukamoto are Partners based in Bain & Company Manila and Marc-André Kamel is a Partner at Bain & Company based in Paris .
Since the early days of the Internet , traditional retailers and digital insurgents have been battling for the same customers . Now , they are increasingly competing for the same talent , too .
Big hitters lured from tech to a retail incumbent include Walmart ’ s chief technology officer , a veteran of Google , Microsoft , and Amazon . Those going in the opposite direction include a former Tesco mainstay now running Amazon ’ s physical stores and a senior executive at Australia ’ s Woolworths recruited to the Amazon Fresh grocery leadership team .
While forecasting amid today ’ s volatility is tricky , Bain & Company estimates that “ beyond trade ” activities could account for half of industry profits by 2030 in key markets around the world . That ’ s based on analysis of the retail industry in 19 countries , including Indonesia , Malaysia , China , Taiwan , Japan , Australia , and India , as well as the US and a selection of major European markets .
Converging business models and blurring profit boundaries will threaten some companies . But the industry ’ s coming evolution will offer fresh opportunity amid the upheaval . Retailers have risen to a series of challenges in recent years . Through their ingenuity , they helped keep society functioning during the
The two-way flow of talent between some of the youngest and oldest names in the industry is a potent sign of the convergence that will be one of the defining characteristics of retail over the next decade .
On one side of the industry , that convergence is being powered by traditional retailers upping their digital game . Leaving behind their store-first roots , they are adding omnichannel capabilities pioneered by tech-first retailers . At the same time , they are speeding up their decision making and increasing their spending on technology and innovation in a further bid to emulate disrupters .
Conversely , digital natives are honing the classic retail capabilities patiently built up over decades by incumbent rivals . Many need these skills to run physical outlets amassed through acquisition ( examples include Amazon ’ s purchase of Whole Foods Market and Alibaba ’ s takeover of Sun Art ) or organic diversification ( such as the London grocery store recently built by food delivery aggregator Deliveroo in partnership with Morrisons ). Macroeconomic turbulence has also made it financially imperative to excel at retailing basics , online and offline .
Against this backdrop of convergence , we think other boundaries in retail will continue to erode . That ’ s because profit pools are on the brink of an unprecedented shift . Our analysis suggests that , between now and 2030 , retailers will see only modest profit growth from traditional trade ( meaning retail activities centered on the simple sale of goods procured from suppliers ). Instead , the lion ’ s share of profit growth during that period is likely to come from activity that reaches beyond trade .
This value-creating diversification might take the form of more marketplaces that generate commissions by linking third-party sellers to customers . Retailers can also branch out in other ways , such as through business-to-business services and products that extract fresh revenue from their existing assets , including logistics infrastructure , customer data , and underexploited advertising channels on apps and websites .
Covid-19 pandemic , and they are now doing their utmost to ease a cost-of-living crisis caused by war and global macroeconomic turbulence . With the right strategic moves , executive teams can also chart a value-creating course through tomorrow ’ s flux .
We ’ ll look at the age of convergence from another angle in a further article for the next edition of this publication . That article will examine the need for scale to fund heavy investment in areas such as technology , price-cutting , and physical retailing . It will also outline four imperatives that tomorrow ’ s industry leaders will heed . These successful companies will undergo a customer epiphany to extend their understanding of shoppers ; excel at omnichannel 3.0 ; grow beyond trade to reduce their reliance on traditional buying and selling ; and play “ talent Tetris ” to overcome recruiting and retention challenges .
Convergence will require further cultural change on both sides of retail . Traditional retailers must keep asking : What can we learn from tech-first rivals ? And digital natives still have work to do to emulate the core retail prowess of incumbents . At a time of great economic challenge around the world , it ’ s another big item in the in tray for executive teams . But the converged future of retail also presents huge long-term opportunities that can be grasped with a strategic evolution beginning today .
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