Global digital outsourcing opportunity for service providers in the retail vertical is estimated at $8.3 Bn in 2018 and is expected to grow to $23 Bn by 2022 at 29% CAGR, according global management and strategy consulting firm.
In its newly released report titled, ’Zinnov Zones for Retail Digital Services – 2018′, Zinnov estimates that retailers worldwide will spend over $102 Bn on digital in 2018. Retail digital spending is likely to increase at a CAGR of ~21%, touching $220Bn by 2022. As one of the highest spenders on digital services, retail industry currently employs 1.5-1.8 Mn people as a result of digital investments.
The rating analyzed the Global Retail Digital Services landscape and evaluated myriad digital transformation stakeholders and decision makers in global retailers, to identify the top Service Providers in the digital domain. Zinnov defines digital investments in retail as spending on digital infrastructure, engineering of digital applications and products, investment in modern technologies such as IoT, AI/ML, Robotics, etc., and digital managed services, to achieve better customer experience, derive higher operational efficiencies and create new digital products.
Given the emphasis on creating omnichannel experiences for customers, the industry continues to see large investments in online commerce, in-store experience, and supply chain operations. Furthermore, IoT has started to emerge as a key spend category among digital retailers. It is estimated that $15.5Bn will be spent this year on IoT-enabled use cases such as Store-front Intelligence, Store Inventory Intelligence, Logistics Intelligence and others. Large global retailers are leveraging internal infrastructure and resources, and partner ecosystem to design, create, and deliver cutting-edge experiences for their customers. Modern technologies as well as collaborations with innovators across the digital landscape are also being explored by several digital retailers.
Zinnov’s ranking analyzed 14 global Digital Service Providers on their digital prowess and scalability with regards to the retail vertical, to position them in Zinnov Zones (’Nurture Zone’, ‘Breakout Zone’, ‘Execution Zone’, and ‘Leadership Zone’). Apart from the overall ratings on Retail Digital Services, the analysis also provides a relative positioning of Service Providers across six key areas in the retail value chain, including Marketing & Sales, Store Operations, Supply Chain Management, Merchandizing, In-Store Experience, and Online Commerce.
Zinnov estimates that externally sourced digital services will account for ~8% of the total retail digital spending in 2018, amounting to $8.3Bn. This is expected to cross $23Bn by 2022 at a CAGR of ~29%. According to the study, Online Commerce and Supply Chain Management together account for 60% share in the retail digital outsourcing spend. In terms of the geographical spread, North America leads the demand with 61% market share, followed by Europe at 16%.
Given the large opportunity for digital services in the retail vertical, Service Providers are investing in building deep capabilities aligned to the segment. Top Service Providers have made acquisitions primarily focused on design to augment digital capabilities for retail companies. Retail-focused CoEs and innovation labs set up by Service Providers are working on building industry-specific digital solutions as well as collaborating with customers. For building digital talent, Service Providers are leveraging various innovative ways, including setting up in-house academies, offering certification courses, and partnering with specific universities. Furthermore, Service Providers are exploring and collaborating with the larger tech ecosystem through partnerships with platform companies as well as investments in start-ups focused on building retail solutions.
Speaking at the launch of the report, Praveen Bhadada, Partner & Practice Head, Digital Transformation, Zinnov, said, “Over the last 18 months, retail has emerged as one of the top industries in terms of digital investments. These investments are targeted at three broad categories – e-commerce-led new revenues, high customer experiences across all engagement channels, and intelligent operations to ensure optimizations at all levels. On an average, large retailers globally are working with at least 25 new age digital start-ups & ISVs to deliver on these use cases.”
Further, elaborating on the huge outsourcing opportunity, he said, “While the $23Bn outsourcing opportunity is huge, Service Providers who are placing bets on ‘Outcome Economy and Customer value’ are the ones who are going to lead in the long term. Capabilities in digital infrastructure, IoT, AI & data management, Retail-specific IPs & solutions as well as differentiated engagement models are becoming table stakes to win the market.”