The retail sector is witnessing an extraordinary shift. As we embrace digital transformation and evolving consumer behaviors, we're moving toward a retail model that is set to look radically different a decade from now. While traditional sources of retail profit, such as sales margins and customer footfall, remain significant, new profit avenues are emerging rapidly, from #retailmedia & #retailmedianetworks to leveraging big data to make money directly from brands that need actionable insights to adjust their product strategies.
Current Profit Drivers in Retail
The primary source of profit for most retailers today continues to be the simple sale of goods procured from suppliers, leveraging volume discounts and markups. For instance, in the US, the average profit margin for retailers ranges from 2% for supermarkets to upwards of 50% for jewelry and clothing retailers.
Geographically, in mature markets like the US and Europe, omnichannel retail is driving profits. Meanwhile, in emerging markets like India, traditional brick-and-mortar retailing remains profitable due to a high preference for in-store shopping.
The Future of Retail Profitability
A report from Bain & Company (The Future of Retail In The Age of Convergence) predicts that by 2030, "beyond trade" activities could account for half of retail industry profits. This refers to value-creating diversification such as marketplaces that generate commissions, business-to-business services, and monetizing underutilized assets like customer data and advertising channels.
Interestingly, Footprints AI predicts that 35% of all profits will be driven by Retail Media revenues, indicating a surge in the value of data and advertising in the retail sector.
Changing Retail Verticals
Retail verticals are also transforming. For instance, grocery retailers like Kroger and Albertsons are seeking scale through mergers and acquisitions. Tech-first retailers like Amazon and Alibaba are diversifying into physical retailing, while traditional retailers are upping their digital game, enhancing omnichannel capabilities.
The Role of Footprints AI
As retail profit drivers shift, AI-powered solutions like Footprints AI can be game-changers. Here's how:
- Optimized pricing: Footprints AI’s machine learning algorithms analyze historical sales data and customer buying patterns to provide optimal pricing strategies, helping retailers maximize profit margins.
- Demand forecasting: With accurate demand forecasting, retailers can reduce stockouts and overstocks, enhancing profitability and improving customer satisfaction. This also means an accelerated route to the Zero Waste commitments.
- Retail media revenue growth: As Retail Media becomes a significant profit driver, Footprints AI can provide personalized recommendations, omnichannel ads, enhancing ad effectiveness, and consequently, revenues.
- Data monetization: Footprints AI can help retailers unlock the value of their customer data, transforming it into actionable insights that can be monetized directly or indirectly.
The future of retail profitability lies in embracing diversification and leveraging the power of data and AI. The convergence of traditional retail and tech-first strategies will shape the retail landscape.
Remember, the retail model that thrives in the next decade will be the one that continuously adapts and innovates to deliver value beyond the simple sale of goods. As retailers, we need to start this strategic evolution today. The future of retail is not just about surviving; it's about thriving amid the change.