EY and the World Retail Congress (WRC) have today published a report, coinciding with the World Retail Congress in London.
The collaborative study, titled Adapting the Retail Model for a New Growth Plan, explores the resilience of the retail sector and its future growth prospects, drawing from interviews with retail leaders, proprietary EY research and data from Coresight Research, Oxford Economics, Capital IQ, Euromonitor, MarketWatch, ThredUp, Business Research Insights.
The report highlights the enduring strength of the retail sector, which has weathered numerous disruptions over recent decades, including the online shopping boom, smartphones, social media, financial crises, a global pandemic, supply chain disruptions, geopolitical instability and inflation.
Despite these challenges, the market capitalisation of the top 20 retailers globally has increased threefold, the report notes, demonstrating the sector's ability to adapt and thrive.
The six priority areas identified by retail leaders to accelerate progress are:
- Leveraging existing assets to provide B2B services – Retailers are recognising the untapped potential of their infrastructure, expertise, customer base and investing in these capabilities to unlock revenue growth opportunity across the supply chain both upstream, through offering additional value to suppliers, and downstream through acquisitions and bolt-ons that shift them into a media- or platform-led offering.
- Repurposing physical and digital spaces to deliver more service-based offerings – Although online sales continue to grow, physical stores continue to play a vital role in driving revenue. Repurposing the store and truly measuring their success from an omnichannel perspective will be more important. Retailers are repurposing store space into community hubs, click-and-collect hubs, piloting rental, resale and repair services and more. In grocery and pharmacy, integrating health services such as in-store clinics and wellness programmes offers further opportunities to meet evolving consumer needs.
- Reshaping businesses through strategic divestments and acquisitions to boost performance – The EY CEO Confidence Index reveals significant attention is being directed to streamlining portfolios and restructuring to save costs and free up capital to invest in future growth. Forty-nine percent of retail CEO respondents are planning divestments of poor performing, challenged and non-core assets in the next 12 months. The index shows M&A will play a key role this year although activity is likely to slow. Fifty-eight percent of retail CEO respondents are planning M&A in the next 12 months, primarily to access new technologies (37%), capabilities (35%) and vertical integration (35%).
- Embracing technology to unlock efficiency, enhance customer experience and power new business models – Technology is underpinning the majority of retailers' efforts to defend margins and drive growth. Technology is likely to be the most heavily ring-fenced expenditure category in retail budgets. Artificial intelligence (AI) will play a central role in technology investments, with its applications split between embedding AI into current infrastructure and exploring new initiatives across various AI branches.
- Investing to develop entirely new value propositions – Retailers can leverage existing assets and make investments that take bigger steps by expanding or pivoting into brand new sectors. A move into technology, media, health, real estate or financial services could open new areas of growth.
- Exploring partnerships to support new business models and enhance operating models – Delivery platforms and new entrants are transforming the retail landscape as they rapidly expand beyond their original focus areas to capture a larger market share across multiple retail segments. Online food ordering and delivery platform companies, which initially built their businesses around restaurant meal delivery, are now aggressively moving into grocery, convenience and other retail categories, leveraging their established logistics and technology infrastructure to diversify revenue streams and meet evolving consumer demands.
“We are thrilled to be collaborating with WRC to deliver a report at a time where retail is withstanding major disruption. Despite increasing uncertainty, with change comes opportunity and retailers must be bold,” Malin Andrée, EY Global, EMEIA and Nordics Retail Leader, said.
“Looking back over the challenges collectively overcome in the past decade and listening to the retail leaders we interviewed for this report, I have been struck by the positivity, resilience and innovation that is inherent in the sector.”
The report, developed in collaboration with WRC and launched on the first day of the event in London from 12-15 May, calls for retailers to embrace innovation, build collaborative ecosystems and diversify offerings to create new value, to confidently meet the evolving needs of global consumers.
“Leading retailers have consistently outperformed market expectations by investing in new business strategies and we know retailers are exploring alternative business models such as pre-owned, rental, subscription, repair, health services, media and logistics. However, these models face challenges in scaling and generating significant revenue compared to traditional sales. The key factors hindering their success are time and money,” Ian McGarrigle, chairman, World Retail Congress, said.
“Large retailers have seen some success, but the revenue from these new models remains relatively small. The focus should be on profitability and growth, as newer revenue streams are growing faster and have greater potential. Retailers need to take iterative steps to build scale, leveraging customer data and gradually embedding new models to drive growth and profit over a five- or ten10-year horizon."
