Impact on Revenue Streams

As experts discussed, there is potential in the retail industry for a lot of other forms of revenue streams, such as subscription, leasing and renting models. It can be expected that the asset-sale will be the most prominent and most dominant revenue stream in the future. General assumptions for the retail industry however cannot be made, as the industry includes too heterogeneous companies where not all products have the right

characteristics to allow retailers to adopt new forms of revenue streams other than the asset sale.

Retailers are very cautious about exploring new opportunities despite many successful use cases from other industries. The lack of more use-cases potentially implies that the retail industry still has a long way to go in terms of digitization. Apart from the big players on the market, the majority of retailers still have to catch up with simple things such as the adoption and integration of a sophisticated e-commerce shop, before even thinking about implementing VR, AR or AI into the sales channels and changing their revenue stream models. Retailers, which present themselves as extremely innovative and risk-averse in terms of digitization, have great potential of being one of the first to adopt new forms of revenue streams and disrupt entire markets.

The development of the revenue in context with digital technologies is a very debatable topic. While some experts see large potential in an exponential development especially due to personalization, others are arguing that the nature of the retail industry is limiting potential growth and rather describe opportunities as linear.

Figure 11: Potential revenue development (own illustration)

Under the aspect that a retailer successfully digitizes the business, it is realistic to expect an exponential growth in revenue after a period of linear stagnation. As experts conclude, especially in the retail industry it takes a long time until customers finally adapt to changes in the environment. With the implementation of digital technologies,

retailers can close up their business model to online-pure-players and overcome their strengths due to the physical presence that online-pure-players do not yet have. With an omni-channel strategy supported by data systems in the background offering a seamless and border-free experience for the customer, retailers can deliver exceptional customer experience and develop highly lasting competitive advantages.

4.3. Conclusion

It can be concluded that consumer trends and digital technologies have a strong influence on both physical and online retail channels. A total of seven consumer trends were outlined by the interviewees, of which four trends are noticeably associated with at least four distinct channel phases. Retailers need to deliver an engaging and meaningful customer experience, which has to be fully personalized throughout all channels and touch points. Furthermore, user-created content should be utilized to retailer’s advantage to convince others of a purchase and is necessary to maintain simple and fast processes to reduce the bounce rate throughout the customer’s journey.

Lastly, it is important that retailers are able to instantly fulfil customer’s needs in the very moment they occur.

Through the empirical data, twelve digital technologies were derived. These can be utilized to leverage the consumer trends discussed under sub-question one. A total of 30 overlaps were identified between the digital technologies and the consumer trends using Harvey Balls. This shows that the implementation of digital technologies is an inevitable process for retailers to manage consumer expectations. The impact on channels is further clarified. Each retailer has to analyse and determine which set of digital technologies fit best to the business as there is no hard and fast rule in the decision making process. It is important to note that digital technology alone is not sufficient. A great customer service is still a must, and the significance will get more prominent in a retailer’s success. Customers are increasingly asking for staff with expert knowledge that goes beyond the knowhow accessible online. Great customer service coupled with the right set of digital technologies would be the key for retailers to sustain competitiveness.

To identify the impact on the cost structure, a TCO-model based on OPEX and CAPEX was applied to analyse and categorize the data collected through the empirical study. The empirical findings led to the conclusion that digital transformation triggers

a shift in costs between different cost centres. On the one hand operational expenses can be heavily reduced due to the automation and optimization of processes and the reduction of required physical retail space. On the other hand the capital expenditures will increase as technologies and licenses have to be acquired and the initial investments often are high. Digital technologies, such as robotics, VR or Self-Service kiosks are accompanied with high price therefore redeeming the savings in operating expenses. Beyond that, existing personnel has to be trained or new personnel has to be hired for technology operation and maintenance.

Further it can be concluded that even with digital technologies in place, the asset sale will be the predominant revenue stream in retail in the near future. In the long run, retailers that fully adopt the right set of digital technologies and successfully implement them into their respective channels can generate an exponential growth in revenues as compared to a linear development of the market. With digital technologies in place, retailers can not only remain highly competitive the physical retail but also in the online market.