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Retail at Inflection Point: A New age of Digital Transformation



 5 minute read



We conducted qualitative research on over 100 listed companies to discover the level of their digital transformation strategies. We then measured the impact of digital sophistication on various financial indicators including sales growth, profitability and valuation. 

This report is produced by Retail Economics in partnership with Alvarez & Marsal and it confirms that businesses that have continually driven digital transformation have reaped the fruits of their investments, achieving substantial financial rewards and competitive advantage over time.

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What can you get from this report?

• A better understanding of how digital sophistication can impact various financial indicators

• Digital transformation strategies

• Areas to focus on for leveraging digital technologies 

• Examples of retailer's use cases of digital technologies

• Oppurtunities for growth 


Report Contents

• Executive Summary

• Introduction

• Methodology

• Key Findings

• Conclusion

• Key Contacts




The shape of retail continues to evolve with digital technology a critical enabler for retail brands. The sector has been deeply impacted by the pandemic, overcoming disruption brought by the rise of e-commerce, shifting consumer behaviour, and supply chains issues among other challenges. More recently, persistent inflation and the worst cost-of-living crisis in a generation have placed additional pressure on sales and profitability.

Our research reveals that businesses that have  continually driven digital transformation have largely  outperformed their peers, including during the tough business environment of the last few years. They have achieved greater efficiencies and stronger sales growth, resulting in increased market share, profitability and strengthened business models.

This advantage has been particularly strong for those players that invested in an omnichannel digital strategy, rather than a pure player one, especially given the rebalancing of online and physical sales that has been unfolding since the pandemic.



In order to identify successful transformation programmes, our research measured a range of data points covering four digital transformation pillars for over 100 listed European retailers. Specifically, we look at online performance presence and metrics, social media activity and engagement, proportion of digital job roles, usage of software tools across various business
functions and digital partnerships, among other metrics.


A scorecard was then created to measure digital sophistication across each of the pillars before normalising the data to create an index used to segment companies into three cohorts:

• Digital Leaders

• Digital Followers

• Digital Latecomers


The following table summarises three critical areas of focus for retailers leveraging the benefits of digital technologies.

digital transformation in retail

(Download the full report to access the rest of the table) 




Key Findings


Key Finding 1: Investing in digital transformation has clearly paid off for retailers

Our research shows that Digital Leaders have seen higher levels of growth across sales, profitability and market share since 2015. In fact, they saw average sales growth of 00% over the last eight years; this is considerably higher than Digital Followers (00%) and Digital Latecomers (00%), in part driven by a superior omnichannel proposition using technology to create a consistent, relevant and blended customer journey across all channels.

While ‘Digital leaders’ are disproportionately comprised of large retailers, they continued to grow their market share during the pandemic.

Fig 3: Market share by cohort (%)


Their investment in a strong digital proposition was shown to be crucial throughout the pandemic, particularly during lockdown. The ability to pivot sales through e-commerce platforms (particularly within non-food) ensured continued growth throughout the disruption as retailers were able to quickly scale online operations. Both Digital Followers and Latecomers experienced weaker sales, constrained by capacity, or were simply unable to switch to an online channel that was fit for purpose.


Digital Leaders also managed to increase their market share over the period, increasing from 61.4% of combined sales in 2014–15 to 66.5% in 2021–22. This market share increase did not come at the expense of profit margins. Our analysis shows that Digital Leaders experienced consistently  higher margins and higher average return on assets (ROA), implying that Leaders leveraged assets to boost profitability more effectively than Followers or Latecomers.


Digital transformation within these businesses was also recognised by investors in terms of valuation, with Digital Leaders reporting multiples (EV/EBITDA) consistently higher than the other two groups. However, average valuation multiples have declined for all groups since 2015, with the largest drop seen across Digital Leaders. This has led to the valuation gap between the Leaders and Latecomers narrowing from 00 to just 00.


Indeed, some of the most digitally advanced retailers experiencing rapid growth over the last decade have operated a pure online model. Being ‘first-movers’ in  some parts of the market, competition was low, capital was cheap, hence they experienced rapid growth in the online space as consumer adoption accelerated. 


These dynamics suggest that some level of digital capabilities is, by now, somewhat a hygiene factor in the retail environment. In other words, digital engagement with consumers is potentially no longer the differentiator factor that it once was, especially when the cost of deploying basic digital retail capability has come down so much. Retailers will therefore need to work harder and be much smarter at building their competitive differentiation through digital; many are already doing that. 

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The other two Key Findings found in the report are:

• The rebalancing of online and physical post-pandemic has benefitted omnichannel retailers

• Next wave of disruption heralds opportunities for ‘second movers’ 


To access more data, download the full report at the top of this page.


The Digital Leaders of today can quickly become the Digital Followers of tomorrow



Our research confirms that, in the ever-evolving landscape of retail, digital transformation has emerged as a critical enabler for competitiveness and growth. 
Retailers who have made strategic investments in digital transformation have reaped substantial financial rewards and realised efficiencies across areas such as customer engagement, supply chain optimisation, and marketing. But even if the competitive advantage of early adopters seems to be diminishing, the race is not over.  


The current climate presents an opportunity for retailers big and small to leverage reduced technology costs and execute a comprehensive digital transformation strategy, securing – or increasing – their competitive advantage in the marketplace.


Retailers must embrace new technologies, such as predictive analytics, machine learning and conversational AI, to improve data and analytics capabilities, thus  enhancing online shopping journeys, streamlining  operations, and fostering a more robust and engaged customer base.


As new models of customer engagement emerge, they must adapt accordingly to drive customer loyalty and retention, taking advantage of data analytics once again to personalise pricing, promotion and  assortment. The inflection point within the retail industry presents both opportunities and challenges. As such, retailers must be constantly alert to the possibilities and risks that digital transformation presents.


Businesses must leverage the full spectrum of technological advancements to continuously drive innovation and refine their business models. The adoption of cutting-edge technologies must be integrated with the pillars of customer engagement, operational efficiency, and data-driven decision making  to create a comprehensive and holistic approach to  digital transformation.
As the retail industry continues its digital journey, new partnerships will be crucial to help retailers navigate the complex digital landscape, avoid pitfalls, and identify winning strategies for growth. 


We hope you found this article interesting. For more insights and industry analysis be sure to connect with us.


About this report

This report produced by Retail Economics in partnership with Alvarez & Marsal measures the impact of digital sophistication on various financial indicators, including sales growth, profitability and valuation to understand how digital transformation can be a differentiator of success for retailers.


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