Running a retail business today is one of the most challenging, unforgiving yet rewarding activities business managers are faced with. Competition is fierce, change in the industry is faster than ever and the power and influence of the consumer has grown to an unprecedented level. It is not surprising that more retail businesses have faced severe performance challenges in the last 5 years than during the preceding 50 years before that. What have we learned and what key differentiators have been observed for success in these fast times in retail? This article sheds some light on the answer to these important questions and aims to help retail organizations make decisions that have been shown to improve business performance in today’s business environment.
Based on information we have gathered from our ecosystem and also from large scale research organizations such as RIS news, we have built a retail best practice study to identify what key differentiating factors are playing a role in better performance among retailers. We studied 2017-2018 retail business performance and its correlation with software solutions used by organizations that outperformed their peers.
In overall retail business performance in 2017 and 2018 we observed that customers appear to value positive engagement experience over low prices. We also observed that retailers that address customer engagement challenges well tend to outperform peers that don’t. Interestingly retailers that compensate for a poor customer experience with low prices essentially accelerate their own decline since lower prices decrease margin and consequently the ability to innovate and invest in better customer engagement and related capabilities. This trend was observed to be true in a wide variety of retailer type and segment, including retailers traditionally viewed as discounters.
Another interesting observation is that among poor performers there is a wide variety of retailers in terms of age and size, signaling that in today’s business environment, being successful is not helped necessarily by large size or long business history and conversely, being a large or old business provides no immunity whatsoever against the immediate need to adopt to a changing consumer demand. Large retail businesses need to act with the same degree of urgency as smaller peers to avoid a catastrophically degrading business performance scenario.
In a nutshell two key differentiating abilities for strong business performance were identified:
1. the ability to engage customers in a meaningful and unique way
2. the ability to execute an omnichannel operation without significant issues like items not in stock, etc.
Omnichannel execution we have defined as a capability to execute operations in the retail supply chain with the necessary processes and solutions so that items are at the right cost, where and when they need to be.
Customer engagement is a capability that is heavily analytics driven with segmentation and clustering of customers playing a key role in enabling marketing teams to execute customer engagement on time, at scale and with meaningful information for the customer that creates value both for the customer and the retailer.
It is worthwhile noting that analytics plays an overall key role in supporting both omnichannel execution and customer engagement by optimizing merchandising and omnichannel operations alike. Having the right processes and advanced solutions that optimize those processes effectively is a universal differentiating factor that identified outperformers among retailers.
With these observations in mind we are suggesting the following: Perform an assessment study on your retail business and score how well you perform on critical retail process execution:
a. Can you deliver your customers what, when, where and how they want at the cost you need to achieve to secure your margin?
b. Are you engaging your customers in a positively meaningful, unique and memorable way?
c. Are you achieving points a. and b. above but could do it in a more efficient way?
Choosing an IT Roadmap that solves above-identified challenges
In light of information from our research, there are certain recommendations for near term and long term opportunities every retailer can identify and action. What these specifically are depends on your individual circumstances and current maturity level in your retail processes.
Some questions you can ask yourself as a business leader to help you chose the most appropriate next steps are:
a. What business processes/capabilities are missing/performing poorly and need to be created/improved in my retail business?
b. Are there IT solution changes/new solution(s) needed for supporting my new/improved business processes?
c. Based on available budget, what process change and/or IT solution change do I get implemented when and in what sequence?
d. What are further optimization opportunities in the business?
The above observations and recommendations are only a sub-set of the complex environmental and business factors affecting retail performance and are not intended to be a comprehensive guide.