In this series of Outside In, we attempt to outline a unique concept that blends the domains of equity investing and digital maturity assessment of retailers. This series suggests using a structured framework to assess the next generation orientation of retailers and use it as one of the ‘key’ variables in selecting the right stock(s) in an equity investor’s portfolio. Part I this week provides clarity on why it is important to track retailer digital initiatives closely. Part II next week will cover the proposed framework and retailer examples for concept illustration purposes only and would not be specific comments on select companies or my recommendations. Kindly do your own research before making your stock picks :)
Adding to the Regular Equity Selection Criteria
The usual selection criteria of equity investors cover the following variables:
Management/Promoters
Business Health – ROCE/ROE
Growth Rates
Staple/Cyclical/Niche
Stock Performance (10% CAGR)
Pricing (Stock Gain/Loss)
Stock Alternatives
Market Cap and Market Cap = 5-Years PAT (Gap Today)
Next Generation Orientation > Digital Maturity Assessment: An additional variable is proposed to assess Next Generation Orientation of Retailers by gauging the progress of their Digital-Maturity
Distinction of Digital vs. Digitization
Let’s first quickly recap the difference between Digital and Digitization – as this ambiguity still persists in the industry. Colleen Chapco-Wade has captured this distinction nicely on her Medium post: Digitization refers to internal optimization of processes (e.g. work automation, paper minimization) and results in cost reductions. Conversely, Digital (ization) is a strategy or process that goes beyond implementation of technology to imply a deeper, core change to the entire business model and the evolution of work. To simplify this distinction further, I have collated this simple illustration below:
Why is Assessing Digital Maturity and Roadmap of Retailers Important?
Millennial Shoppers (with a global perspective):
They are technologically savvy, vocal on social media and increasingly open to sharing personal info about their likes, preferences and choices
They demand a true blend of offline and online shopping experience. About 68% demand an integrated, seamless experience irrespective of the channel they are in
They make up a trillion dollar demographic and are transforming shopping. Their buying power is undeniable: By 2030, the collective annual income of millennials worldwide is expected to exceed 4 trillion dollars
Centennials (with a global perspective): Retailers think that Millennials are tough to cater. But Centennials are customers of tomorrow
Shopping Journeys are Not Linear: Consumers Hop across Offline and Online Channels, so Digital Customer Experiences are necessary to create
India Context: 74% Customers use multiple retail channels for Shopping - A significant number of the urban Indian shoppers are omnichannel shoppers, who prefer shopping at multiple retail formats in different situations
Digital Influences Shopping in All Categories: The number of 1st time online shoppers is rising across all categories of retail and services
Bricks are Moving to Clicks: Offline retailers are aggressively setting up their online formats – towards an omnichannel play
Clicks are moving to Bricks: Online players are aggressively setting up their offline formats – towards an omnichannel play
New Hybrid Formats are already going Mainstream: New channels which seamless transit between the offline and online worlds are emerging fast and slowly become mainstream – especially at the last mile connect with the consumers
Takeaway – New Business Skills and Capabilities Need to be Built to progress in Digital Maturity
New Business Skills and Capabilities need to be built by Retailers to progress in a ‘Digital Era’
Retailers need to invest in Digital-savvy Retail Stores – with 5-key analytics feeders: A – Attitudinal, B – Behavioral, C – Contextual, D – Demographic, T - Transactions
And, they need to cultivate a Digital-savvy Retail Supply Chain
Next Week
Part II next week will cover the proposed framework and retailer examples – like Domino’s, McDonald’s, Raymond – for concept illustration purposes only and would not be specific comments on select companies or my recommendations. Kindly do your own research before making your stock picks :)
References and Sources:
1) India Investor Forum 2018 - Digital in Retail – Presentation by Kedar Mehta
2) Digitization and Digital Definitions: https://medium.com/@colleenchapco/digitization-digitalization-and-digital-transformation-whats-the-difference-eff1d002fbdf
3) Millennial Incomes 2030: https://khoros.com/blog/millennial-buying-habits
4) India Omnichannel Shopping: India’s first Omni-Channel Shopper study by Hansa Research and RAI, August 2015; KPMG in India Analysis
5) BCG Facebook Fashion Forward Study 2017