In 6 months time span, COVID-19 makes retail sector invest in 3 years' worth of Digital Transformation: Zinnov

Zinnov has released the findings of its latest study titled, "Digital Engineering in Retail." This comprehensive study analyzed the investment patterns of the top Retail digital spenders to understand key investment priorities, with the intent of identifying the areas where Indian Global Centers of Excellence (GCoEs) can contribute to the larger digital agenda.

With COVID-19 accelerating digital transformation and adoption across industry verticals, Zinnov estimates that the Retail sector alone has invested in 3 years' worth of digital transformation within a span of 6 months.

The study revealed that retail categories such as Groceries and Medicines witnessed exponential demand at the height of the pandemic, while other segments such as Fashion & Apparel have seen in-store footfalls dry up. However, for a large part, the shift in buying has moved online, with large retailers such as Tesco and Costco seeing their global online purchases nearly double in Q2 2020, as compared to the year before.

The uncertainty brought on by COVID-19 has exposed retailers to a variety of obstacles and opportunities, and they have responded by accelerating investments across key digital themes such as Automated Checkout, Autonomous Last-Mile Delivery, Moving to Marketplaces, etc.

Zinnov's Digital Engineering in Retail study also provides a detailed breakdown of the Digital Engineering strategy of the top 25 technology spenders in the global Retail industry, across key technologies such as Artificial Intelligence (AI), Internet of Things (IoT), Cloud, Augmented Reality (AR)/Virtual Reality (VR), Big Data, Blockchain, and Cybersecurity.

Key findings from the study

Globally, the Retail sector's spend on Digital Engineering grew steadily at 26% year-on-year in the pre-COVID era; however, the pandemic accelerated the spending to USD 25 Bn, a 100+% increase, signaling exponential future growth

North America currently accounts for 57% of the overall Digital Engineering spend, with APAC steadily gaining ground

Cloud and Big Data make up 55% of overall Digital Engineering spend, but the next wave of investments is expected in AI (20%) and IoT (16%)

Digital Acceleration is happening primarily across 10 key Retail themes - Automated Checkout, Contactless Payments, Omnichannel Inventory Management, Warehouse Automation, Stores as Fulfilment Centers, Autonomous Last-Mile Delivery, Virtual Trials, Assisted Shopping, Social Commerce, and Move to Marketplaces

India is fast becoming a retail test-bed because of a large base of existing e-Commerce users (110 Mn), presence of retail GCoEs (25+), a large number of start-ups focusing on retail tech (465+), and also significant digital talent

1/8^th of the world's digital talent is expected to be based in India by 2030

Retailers across operational formats are being disrupted by e-Commerce start-ups in the space of Online Groceries, Social Commerce, etc., but the greatest disruption comes from Amazon, Alibaba, and other platforms, who are forming retail tech oligopolies

The opening up of the regulatory fabric (especially around FDI) and OSP (Other Service Providers) licenses are further bolstering the momentum for the Retail sector in India

Shrunken data costs, soaring digital economy, and hyperlocal demand due to COVID-19 have further propelled ahead of digital adoption by Indian retailers.

Speaking about the analysis, Pari Natarajan, CEO, Zinnov, said, "With the Retail sector undergoing a transformational shift, India is poised to be at the forefront of the ongoing digital acceleration, with 3 levers propelling it ahead - a market with the potential for massive growth, a vast pool of skilled digital talent, and a rich ecosystem of emerging and established players.

Our analysis clearly shows that the number of India's e-Commerce users is expected to cross an impressive 350 Mn in the next 5 years, priming the country to be a test-bed for Retail giants, Retail MNCs, and tech start-ups. The solutions these players are working together on are mostly pilots of local solutions that can potentially be scaled globally.

Retail GCoEs will be poised to take up end-to-end design and development of digital applications, shifting the core of Digital Engineering to the East. Further, the recent relaxation to the OSP guidelines will allow for the transition of IT-BPM portfolios to tier-2 cities, creating significant cost leverage for GCoEs."

Pari further added, "GCoEs in India have multiple avenues - to use India as a test-bed for local-to-global digital solutions and expand Digital Engineering portfolios. Actioning these, however, will require investment in foundational capabilities such as product management, intrapreneurship, product maturity, etc., which will hold the key to unlocking India's retail potential."