Dancing in the hurricane
Balancing cost, risk & growth in an inflationary environment.
Last few years have been tough for the retail industry. In every customer interaction I have had, the discussion almost always comes around to the question weighing on every retailers mind- what can be done to manage costs, reduce risks and still drive for growth in this inflationary environment? We have barely gotten used to the post pandemic new normal and now, the current political chaos coupled with market uncertainty has brought this debate front and center in every discussion. With inflation rates rising in major asian economies, consumer and business confidence has turned a bit more pessimistic from where it was a couple of quarters ago. Higher inflation is now beginning to hurt not only the consumers but every stakeholder in the retail ecosystem, hence now the need for a fundamental shift in the way retailers look at their priorities, business models and retail operations.
Doing more with less
The impact of rising inflation is now very visible in retail. Doing more with less has become the global mantra. The demand volatility due to supply chains disruption coupled with changing shopper behavior is causing havoc leading to frequent stockouts and poor on shelf availability. With retail operational costs climbing, a knee jerk reaction to optimize is leading to poor in store execution which inturn means unhappy customers. As the ripple effect of price increases reaches to the shoppers, they are infact now getting less for more!
While this gets played out, we are seeing frequent news by large retailers announcing cost cuts, layoffs, delayed spending apart from setting expectations that the worst is yet to come, hence, advocating a more cautious approach going forward. It does feel like we are getting into a vicious cycle and a downward spiral. So what can retailers do to not only manage their costs but to also grow & successfully navigate these turbulent times. Let's talk about that a little more.
Here are the 5 foundational strategies - a must do in today's environment
Focus on Product & Service Innovation
Both product and service innovations are the key to value creation in retail. From a product perspective, simplification ( product features) can often lead to a better experience. More so now when everyone is looking for ease of use ( do we really need so many features when we at best use only 50% of them?). Carefully listen to your shoppers. Technology today allows you to set up feedback loops to capture the voice of your customer, shopper as well as your store associates.
With respect to Service Innovation, I cant do justice to this concept in this article but looking at just one topic of improving service excellence in the stores by improving associate productivity can go a long way in improving conversions and better in store execution. Look at the technology applications- collaboration platforms, task management apps and other productivity tools available which can help store associates to efficiently run their store operations while providing excellent service to their shoppers.
Optimize your Supply Chain. But first digitize and get transparency.
Often the simplest of improvements can lead to the biggest gains. More often than not, just getting better visibility across your value chain can solve most of the problems as you now can take an informed decision. This typically starts by integrating the network, operational and 3rd party data sources into a central supply chain data platform with an objective to build a supply chain digital twin.
Once you have this visibility of real time events data, you can then run multiple use cases which are critical to reducing cost and driving growth. Infact, one of the first things you can do is to focus on reducing wastage by getting the right assortments and improved demand forecasting to reduce excess inventories in your stores.. The other important factor in reducing cost and mitigating your risk is optimizing your delivery & logistic networks. Given the geographical diversity and complexity of asian markets, building efficiencies around last mile delivery is not only about managing cost but also a huge growth driver.
Last but not the least, supplier management is critical in times like this as it becomes extremely important to build collaboration networks as well as drive down your procurement costs. Not to forget the emphasis on buying local and integrating private label brands which can substantially lower your procurement costs and improve margins.
Double down on Customer engagement
Make a shift from a product centric to a more customer centric business model. What I mean by this is to build your technology platform/ infrastructure so that you have visibility across the shopper purchase journey, giving you the ability to engage with the right audiences with the right product at the right time. Sounds simple enough but you can't do it without first building your customer data platform which can then become the foundation for your activation engine. Having a customer 360 view gives you the ability to look at customer profitability & customer lifetime value which inturn stops you from taking short term knee jerk pricing / promotion decisions.
A better visibility across your shopper journey makes it easier to implement a robust personalisation engine leading to an improved shopping experience, repeat purchases and loyalty. Not to forget, keep the communication lines open by implementing conversational chat agents, search & discovery tools, digital shopping assistant, post purchase engagement; infact any opportunity you can get to proactively engage with your customers and get them back in your stores.
Think Opex and not Capex.
With the pace of technology moving so fast, it is not wise to invest in depreciating assets. Embrace cloud technologies, make use of the infrastructure and application platforms to run your technology setup. If you have already done so, consider putting your stake in the ground by negotiating multi year commits with your cloud provider which will get you better economic value and upfront discounts.
Drive technology adoption across your organization
Based on my experience talking to multiple retailers, I can assure you that technology is no longer a constraint. It is the slow pace of technology adoption, the culture and the resistance to change which usually brings the pace of transformation down. Ensure there is executive sponsorship for driving this change and teams/ leadership in place to executive on the mandate. Drive accountability but make sure the teams have the authority and enablement to drive this change.
Shall we dance Mr Retailer?
Retailers are finding themselves in a difficult position in this inflationary environment. In a buyers market, where shoppers have endless options with low exit barriers, it is no doubt becoming increasingly difficult to balance the severe margin pressures with the high growth expectations. So, should we get into a preservation mode and wait for this storm to end?
In my view, chaotic times like these present the best opportunities. It is therefore time to look forward and go for transformation. Embrace technology and focus on your transformational pillars. Identify & prioritise your biggest value drivers and double down on the same with a single minded focus on building a customer centric business with an endeavour to drive profitable growth led by technology innovation. Keep looking ahead and stay on course. After all, it's a marathon and the race has just begun.