2022 China Retail Digitalization Whitepaper: The next frontier of digital transformation in China’s retail industry

Despite significant investment in omnichannel expansion, retailers in China are struggling to convert this into improved financial performance.

As China wrestles with macro-economic uncertainty amid persistent outbreaks of COVID-19, retailers are under increasing pressure to adapt to slowing sales growth and heightened competitive intensity.

McKinsey research conducted in partnership with the China Chain Store & Franchise Association suggests that, despite significant investment in omni-channel expansion, retailers are struggling to turn a strategic focus on digital into improved financial performance.

This white paper provides a compelling snapshot of China’s retail market and essential guidance for executives seeking to navigate the next phase of growth by implementing digital transformations. Key takeaways include:

— A majority (85 percent) of retailers have not fully realized the benefits of investing in digital, and are caught between expanding online operations and implementing ‘digital intelligence’ initiatives.

— Most retailers are focused on building front-end digital capacity. Digitalizing the mid and back-end of the value chain, or core business modules and back office infrastructure, remains a challenge.

— Driving return on investment is proving problematic. While many retailers have invested heavily in digital transformation and appointed C-suite executives to lead the process, fewer than half expect to recoup their costs within three years.

— Two-thirds of retailers believe that redesigning organizational structure and operating models to support digital transformation is one of three keys to successful digitalization.

— Implementing organizational change is difficult and slows down the process; more than half of retail executives lack a clear plan for what they are trying to achieve, not to mention the digital talent necessary to implement change.

— Four trends are reshaping Chinese retail: The potential for digital transformation to improve efficiency is expanding as market growth slows; the era of the online ‘traffic dividend’ has ended, demanding greater effort to attract and retain customers; retailers are intently focused on merchandise quality to drive sales; and stores are embracing more diverse roles as they turn into experience and online fufillment centers.

— Each type of retail format, ranging from hypermarkets to supermarkets, convenience stores, shopping malls, and specialty stores, faces market challenges that can be addressed through targeted digital interventions. This paper provides a breakdown of the challenges in each segment and examples of digital initiatives that can best address them.

— Successful retail digital transformations are united in requiring four key enablers to be implemented in tandem: a multifaceted ‘middle office’, a complete cultural, organizational, and mindset shift, the implementation of artificial intelligence at scale, and the deployment of affordable in-store technology that serves as a data source for new digital initiatives.

Read the full report.