Digital vs Traditional business in Retail

Companies across South Africa are struggling, everywhere you go you see too let signs, for sale signs, vacant offices and stores. Many companies still operating are downsizing and retrenching and this is happening across almost all of our industries including mining, retail, financial, telecommunications etc.

All the companies that have closed down, left South Africa or are downsizing have been disrupted. They are no longer operating as they once were. Digital transformation is not only relevant to digital disruption but to any disruption. Digital transformation is about;

  • enabling companies to successfully compete in a digital age,
  • positioning companies to be more competitive, agile and innovative,
  • enabling new business models as the environment changes,

all of which are possible based on the available technologies and digital capabilities. Recent research shows that digitally transformation your organisation can make it more competitive and enable new growth opportunities.

The challenges facing companies is not just facing South African companies, the table below shows the value of some US retail companies between 2006 and 2016.

US Retail Companies

US Retail sales comparison

Use Retail sales comparison

The graph shows that the retail stores are struggling to maintain their value over the past 10 years. The outlier is Amazon, which is the only company considered to be a digital company in this list. If we have to take a closer look at Amazon and Walmart, a comparison of digital versus traditional business.
Firstly, let’s take a look at Walmart, Walmart is 55 years old, it was started in July 1962 and owns a large number of brick and mortar stores and employs around 2.2 million people across the world. In South Africa it bought a majority share in Massmart, which has stores such as DionWired, Game, Makro, BuilderXpress etc.
Amazon on the other hand, was created by Jeff Bezos in 1994, it started as an online book store, but has expanded and diversified extensively.
The problem with only looking at the information in the list above is that it is easy to assume that the growth of Amazon is due to retail sales, whereas in fact Amazon has an extremely diversified portfolio of which retail is one.

If we zone into US retail sales only, a different picture emerges when we zone into a like for like category like US retail sales. Here we can see that Walmart has significant more retails sales than Amazon, and it is forecast that it will still take at least 7 years for Amazon sales to beat Walmart sales unless they change their current business model to include brick and mortar stores, which they have recently done by introducing the Amazon go stores, and the purchase of wholefoods.

Brick and mortar versus eCommerce

The graph to the right shows the difference in eCommerce vs total sales between Amazon and Walmart. 

Adigital transformation mazon vs Walmart US sales

Amazon vs Walmart US sales

It is easy to see why Amazon is getting into brick and mortar stores, and why Walmart is spending billions on getting into the ecommerce space. Customers are going to spend where it is convenient and cost effective, sometimes that will be online and sometimes it will be popping into the closest store.

During my talk at the recent ITWEB digital economy conference, I did a quick survey as to where the audience had purchase goods in the last month by show of hands. Nearly 100% had bought from Walmart in the last month, around 20% had bought from Takealot and only around 10% had bought from Amazon. Clearly in South Africa, it is easier and more convenient to quickly pop to the nearest store to get what you need, assuming they have the necessary diversity and stock availability.

Digital transformation - Amazon cloud business

Amazon cloud business

Amazon has been extremely good at looking for opportunities and changing its business models to incorporate growth opportunities. An example of this is Amazons cloud business, which was created around 2000 as Amazon began experiencing scale problems which forced the company to build internal systems to deal with the hyper growth it was experiencing. The Amazon cloud capability created new business opportunities as Amazon realized that it could provide the platform to other businesses.

Jeff Bezos has been quoted saying “I very frequently get the question: ‘What’s going to change in the next 10 years?’ And that is a very interesting question; it’s a very common one. I almost never get the question: ‘What’s not going to change in the next 10 years?’ And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time. … [I]n our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection. It’s impossible to imagine a future 10 years from now where a customer comes up and says, ‘Jeff I love Amazon; I just wish the prices were a little higher,’ [or] ‘I love Amazon; I just wish you’d deliver a little more slowly.’ Impo

Digital transformation - Focus on what wont change

Digital transformation – Focus on what wont change

ssible. And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.”

It is extremely easy to get caught up in the hype of digital and to believe that brick and mortar stores will not survive the digital age or to try and copy industry leaders, but rarely will those strategies work to successfully compete against the giants in the industry. SME’s need to look for unique value propositions that provide individualized experiences or unique products for the customer or trade in areas where the big stores do not have a significant footprint.

Digital transformation

Digital transformation - Slow obsolescence

Digital transformation has many definitions, for me it is purely about enabling companies to compete in a digital age. Competition is driving many of the innovations in the digital age, companies that would like to compete need to be agile, innovative, efficient and fast. You need to make it easy and convenient for customers to do business with them. You need to stay abreast of new digital capabilities and implement those that make sense, take some risks and learn fast. The companies that play it safe or wait too long will quickly fall behind and be unable to catch up.

If you need any help with digital transformation in your organisation, please contact us.