Retail Spotlight: the Role of Digitization in Growth of Middle Market Companies

Hot off the presses for 2016, a joint study from The National Center for the Middle Market and Magento Commerce reveals that digitization remains a chief concern for businesses.

The research, “How Digital Are You?,” found that the fastest-growing middle market firms place a greater emphasis on digitization than their similar-sized counterparts. The data also highlighted the shifting focus of mid-market players’ digitization investments, marking a departure from the back office and operations-focused spending that has defined digitization activities in the past.

Unique among participating industries, the retail and wholesale sector has experienced a sea change led by technology and shifting consumer expectations. On the heels of NRF last week, here are a few unique insights for the retail industry:

• Mounting pressure to digitize retail and wholesale trade
  As brick-and-mortar stores struggle to keep up with strong online competition, the pressure to digitize has never been greater. While more than three quarters (78 percent) of retail and wholesale trade businesses say digitization is important relative to other business priorities, retail lags other sectors in the priority it places on digitization who rate digitization importance at 90 to 93 percent. 

• Bogged down by complexity and slow progress
  Not surprisingly, retailers and wholesalers were more likely to report a slower pace of digitization than other industries (37 percent). Integrating with legacy systems combined with a failure to prioritize the implementation of digitization efforts contribute to the problem. While the average payoff timeframe for digitization projects is three years, many firms cited waiting up to five years or more to realize a return on their investment.

• Wake up and smell the innovation
  The study revealed that most retail digitization investment goes towards back office operations (e.g. accounting) and facilitating current business (sales, customer service, marketing and logistics), with only 8 percent currently being invested in innovation projects which are important drivers of future growth and profitability for these companies. As the barriers to embracing next-era technologies dissipate, retailers will need to step up their game or get left behind. 

• New Year, New Me for Retail
  The data revealed that the business services and technology sector had the greatest percentage (50 percent) of companies that consider themselves digitally advanced, while more than one third of retailers (35 percent) feel somewhat or very far behind on digital readiness, leading 29 percent to increase their investment in digitization projects in the next 12 months.

"Clearly, the study validates that improving digitization is important to every industry in the digital age and that technology is rewriting the rules of the game. Businesses that are complacent or just average in this area will get left behind," said Peter Sheldon, Chief Strategy Officer, Magento Commerce. "To keep pace, companies must take necessary steps to address key digitization barriers and move quickly to successfully adopt next-era digital tools. In doing so, these businesses secure not only continued relevance, but also superior returns and growth."

To learn more about the study:

• Read the press release

• Download the full report