The Future of Retail

The rules of retail are fundamentally changing. Marc-André Kamel, who leads Bain's global Retail practice, and Suzanne Tager, global practice senior director, outline the challenges facing different types of retailers and the steps they can take to thrive in a rapidly transforming market.

Read the Bain Brief: The Future of Retail: Winning Models for a New Era

Read the transcript below.

MARC-ANDRÉ KAMEL: These are disorienting times for retailers, with changing consumer expectations and exploding demands. Fundamentally, the rules of retail have changed.

Being No. 1 or No. 2 locally used to be the recipe to win. It is still very important today, but it's not enough anymore. Now, retailers have to be great at fast innovation; they have to leverage data to delight customers and reduce costs, and, increasingly, overall scale matters.

SUZANNE TAGER: That's right. And what that means is, all retailers, even those that feel pretty comfortable today, are going to have to change and react. At Bain, we ran the numbers, and in the future of retail we see several different archetypes of retailers. And not all are going to survive. On one extreme, you have those retailers that are just really struggling to both operate the business and change the business at the same time, and that's hard to do, but they just lack the capabilities or the financial freedom to be differentiated.

And what we're seeing is, you know, they'll hit their profit targets, but they're doing so by closing stores or decreasing customer experience, and we know how that ends. It's all the headlines of consolidation and company failures, and in the markets that we've looked at, some of them—over 30% of retailers are heading in this direction.

MARC-ANDRÉ KAMEL: That's right, and on the other extreme, you have the large ecosystems, the Amazons and Alibabas of the world, who are creating sticky shopping experiences and accumulating enormous amounts of customer data and high shares of wallet and traffic. These guys are fast innovators, and they're out-investing on technology, even the world's largest retailers, by a factor of six.

SUZANNE TAGER: And that's going to add up over time.

It just—the deficits keep growing. So, in between these two, there's a bunch of different archetypes. You have what we call "the value fighters." They are doubling down on offering very low cost and, I'd say, good-enough service. There are those that will win, because they are just great at product design and product innovation, but they're going to have to borrow scale from somebody and almost hitchhike on the larger players.

There are a few what we'll call "local gems," maybe. They have very strong brands and customer relationships, and I guess they have a longer runway, but who knows where that runway leads? And it's retail. There's always going to be a churn of exciting innovation that gets a lot of attention and, frankly, capital. But they, too, need to figure out a path to sustainability or they're going to disappear.

And then we'll have what we call "the scale fighters," and these guys have figured it out—or they will figure out that formula to win that you described. It's the leading and No. 1 or No. 2 in terms of their local markets. They have sufficient scale to invest in the technology and the data to reinforce those customer-intimacy relationships, etc., and they're great at innovation; they're constantly upping their game. And frankly, ultimately, that's where large retailers are going to try to go.

MARC-ANDRÉ KAMEL: Yes. Everybody will claim to be a scale fighter.

SUZANNE TAGER: I know. But it's hard to be a scale fighter.

MARC-ANDRÉ KAMEL: It's really hard. And this is why, in the future of retail, we see five imperatives for today, whatever the archetype of retailer. Retailers need to strengthen their value proposition and their differentiation, and factor in how technology will continue to evolve. Retailers need to obsess over customers and their experiences and boost traffic through distinctive marketing. They need to find more fuel for more investments, through cutting costs smartly, engaging in M&A and partnering successfully. They also need to install superior analytics capabilities and use that to automate more decisions and, finally, they need to innovate faster by embracing Agile, and scale their innovation fast through the company, also by emulating venture capital techniques.

SUZANNE TAGER: And the scaling part's hard.

You can come up with something, but to bring it across to the whole company, that gets very difficult. But I guess, you know, it's still a very exciting time to be a retail leader. It's challenging, but the opportunity to have impact is huge.

Related Brief

The Future of Retail: Winning Models for a New Era

Absolute scale, rapid innovation and data-analytics expertise are now as important as local leadership.