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20 Future of Retail


issue 01


THE TECTONIC SHIFTS OF RETAILING


New customer behaviours Digitally-enabled consumers have changed the economics and dynamics of retail. Consumers have almost unlimited choice, and are both empowered and informed. They are using a range of devices, being bombarded by digital marketing and are shopping in new and complex ways. Importantly, they also now leave a “digital exhaust” – the trail of breadcrumbs of every impression, click, view and basket addition.


New retail fundamentals The changes in consumer behaviour are catalysing three massive shifts in the fundamental economics of retailing: • New revenue drivers. Revenue is now driven by customer acquisition and retention, a more complex dynamic than traditional like-for-likes. This often leads to over-ambitious revenue targets that are not based on a bottom-up, customer-based forecast.


•New costs. Costs are driven by a new set of variable marketing costs (per impression, per click, per transaction) and variable “per order” costs (picking, packing, postage, returns), replacing the more fi xed costs of staff and rent. Profi t no longer correlates with revenues.


•New levers. Retailers have a vast new set of levers to pull, and are able to personalise and optimise all interactions with customers and products –across website, apps, operations, stores and marketing.


New scale of decision-making These new levers have atomised decision making, which now needs to occur at a much more detailed resolution and frequency than the aggregated world of physical retail. •More The digital and multichannel world is powered by a breath-taking array of technologies. A typical multichannel operation will be using 20-30 distinct software products to deliver its proposition. Each system then requires a set of rules to operate, and these get executed across every customer touchpoint. Many retailers are effectively making millions of decisions each week.


• Greater complexity. Many of these decisions are buried in “black boxes.” It is diffi cult, and often impossible, for an executive to get visibility of how these decisions are actually made.


CONTROLLING THESE SHIFTS IS HARD


The harsh reality is that it’s now extremely challenging for the retail leader to stay in control. It has been described to me like being the pilot of a fl y-by-wire 747 – if everything’s going well, you get lulled into a false sense of control; the moment something goes wrong, you have no idea which lever to pull. In the world of physical-only retail, products either


sell or don’t sell. The weekly cadence of reports – focused on stock and sales data – is good enough to drive actions. These actions are limited and relatively blunt: markdown/promote, pushback/accelerate/cancel deliveries, move stock within or between channels and stores. Many retailers are still relying on the traditional weekly trading rhythm and often fi nd themselves in trouble because: • Reports no longer drive the right actions. Reporting has a bad reputation in the digital world: looking at stock/sales to diagnose an online sales issue is like trying to fl y a plane with a car dashboard.


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