Investing in Digital Transformation in Retail Industry

Digital transformation is an essential part of running a retail business, but it can be costly. Learn how much you’ll need to invest in this article.

Investing in Digital Transformation in Retail Industry

Retail businesses require their owners to keep a keen eye on the financial side of their operations. Incoming revenue and outgoing expenses must be tracked carefully in order to ensure you have a decent profit margin — both for your own earnings and to have money to reinvest into the business. For example, many retail businesses will benefit from investing in digital transformation.

However, how much investment is needed for digital transformation in retail, and what should that investment be spent on?

In this article, we’ll discuss the amount of capital retail businesses should expect to spend on their digital transformation, and provide some examples of where to secure funding and what digital products you should invest in. Read on for more.

How Much Investment is Needed for Digital Transformation in Retail

Due to the unique needs of each company, it’s almost impossible to provide an average cost for digital transformation for a retail business. For example, a 2022 study by the International Data Company found that, in the US, an enterprise-level digital transformation cost an average of $27.5 million. However, this figure is significantly skewed by multinational companies that might spend hundreds of millions of dollars installing new software tools or upgrading computer systems.

So, instead of providing hard and fast monetary amounts, we’ll explain the factors you need to consider to calculate how much investment is needed for digital transformation in retail.

Obviously, you’ll first need to consider the base cost of the digital products you’re looking to implement, whether it’s the price of a full overhaul of your website or the subscription fee for a particular software tool. However, in order to get a better understanding of the actual investment these digital products will require, you’ll also need to work out the time it will take to implement them properly. You may lose money on the time spent training staff to use new software, or there may be a way to save money by letting the vendor take care of implementation.

Once you’ve worked out a base cost and a timeline, you need to start thinking about the return on investment (ROI) you can expect from the digital transformation. If the digital transformation can start making (or saving) money even during its implementation (for instance, if you can start using certain software tools immediately while you’re waiting on new computer hardware), the overall investment will seem less significant because of the fast ROI.

There are other financial factors involved in digital transformation. But with the base cost, implementation timeline, and projected ROI, you can start building out more comprehensive plans. With around 70% of digital transformations failing due to poor planning, it’s crucial that you consider these three components before you start spending money.

Digital Transformation in Retail Industry: What You’ll Spend Your Money On

During a digital transformation, you’ll be investing your money in various different ways depending on your business needs. It may be that you’re trying to eliminate a specific problem with your digital transformation, such as inefficiency in a particular process (like checking out or inventory management).

However, if you’re looking for more general benefits such as higher sales, increased loyalty or better customer service, here are some suggestions on what a retail business could invest in during digital transformation:

  • Artificial intelligence: This cutting-edge technology is revolutionising a range of industries. In retail, AI can help with everything from ordering stock to answering customer queries. It’s particularly helpful during busy peak seasons when your human resources need extra support.
  • A new website: By investing in custom website design, you can help ensure your online retail store is accessible to potential customers, visually appealing, and free of technical glitches. This form of digital transformation is particularly beneficial for ecommerce retailers.
  • Dedicated brand apps: If you’re trying to build a better customer journey, a brand app is a great way to keep your audience engaged with your company. By investing in hybrid app development, you can ensure customers can use the app regardless of the mobile platform they prefer.

Sources of Funding For Digital Transformation in Retail Industry

The right source of funding depends on which business model you use, and the level of investment you think you’ll require. However, here are some common sources of funding that most businesses can consider using:

  • Internal funding is the easiest to access. This term simply means funding your digital transformation entirely using business revenue. However, this strategy requires careful budgeting, as you’ll need to ensure you still have money to funnel into day-to-day expenses.
  • Bank loans can help you secure large amounts of money, but most banks will require collateral and a business plan when you apply. If you need a loan, make sure you have your digital transformation precisely mapped out.
  • External investors can often be persuaded to help pay for the expenses related to digital transformation, particularly if there is a high ROI. However, they may also require a significant stake in the business before investing, so you will need to be comfortable with losing some level of control over your company.

Initiate Your Retail Digital Transformation With Future Platforms

Digital transformation is an immensely beneficial process for retail businesses. However, it’s important to enlist expert help if you want your own digital transformation to be successful. If your digital transformation includes building an engaging, user-friendly brand app or a sleek modern website, Future Platforms can help.

Our highly experienced team of developers understand the key elements a digital product needs to ensure it helps build customer loyalty and increase revenue. We’re also highly experienced in working with companies undergoing digital transformation, so we know how to build products within set timelines and strict budgets. If you’re interested, contact our team today.