Feature Story

Digitization reshapes retail markets

digital vortex

The impact of digital disruption may send many retailers out of business.

This is a guest post by Cisco's VP of IoE Global Practice, Joseph Bradley

Digital disruption has the potential to reshape markets faster than perhaps any force in history. Just as Apple and Android devastated the pre-smartphone era of brands like Nokia, Blackberry and Palm, digital disruption is poised to have a tremendous impact on the retail industry over the next five years. 

To better understand the impact of digital disruption, the Global Center for Digital Business Transformation, a joint initiative of Cisco and IMD (one of the top-ranked business schools in the world), conducted original research to understand the nature and speed of this global disruption. The report, titled: “Digital Vortex: How Digital Disruption is Redefining Retail” will be released at the NRF Big Show 2016. 

Because of the digitization of retail, retailers we know as leaders today may become laggards, or even disappear altogether in the next five years. Top report findings include:

  1. Retail Nears the Center of Disruption: Retail is one of the top three industries most vulnerable to digital disruption, after Technology Products & Services and Media & Entertainment.
  2. Close to Half Are At Risk: Forty-seven percent of retail executives believe that digital disruption “somewhat” or “significantly” increases their risk of going out of business altogether.
  3. Leadership Needs an Attitude Change to Survive: Despite the high stakes involved, almost half (46 percent) of retail executives surveyed either do not acknowledge the risk of digital disruption or have not addressed it sufficiently. Thirty percent are taking a “wait and see” approach, in hopes of emulating successful competitors. Only 24 percent have a plan and are willing to disrupt themselves in order to compete.
  4. New Leaders Will Emerge, Likely Start-ups: Survey respondents believe an average of roughly four of today’s top 10 incumbents (in terms of market share) in Retail will be displaced by digital disruption in the next five years. The majority of retail executives (52 percent) believe digital disruption to their business will come from start-ups, and nearly 38 percent pointed to start-ups from inside the industry in particular. In other words, retailers believe newcomers will be their most likely digital competitors.

Incumbents’ strengths like advantage of scale are no longer a defense against the speed and high stakes of digital disruption. For example, while WalMart, a retail behemoth founded half a century ago boasts $12 billion in online sales, Amazon.com achieved seven times that ($89 billion) in just over a decade. Characteristic advantages of start-ups such as innovation, agility, and experimentation must also be adopted by traditional players to succeed in the digital era.

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