The Retailer Spring Edition 2022

THE RE TA I L ER

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ADAPTING TO CHANGE

Dan Fox Retail Practice Leader Aon

t he retail & wholesale sec tor has experienced fast paced and wide-rang ing challenges prompting an adjustment of strategy, creat ing opportunity and new risks As global events continue to shape consumer trends and impose ever increasing supply chain disruption, retailers are driven to shift their strategies which, in turn, can quickly expose them to unforeseen and emerging risks. At no point in the last decade have consumer demands and needs accelerated as they have done in the last two years. Factors such as the response to COVIDwith consumers switching to online spending, the shifting macroeconomic picture in terms of inflation, rising interest rates and the growing cost of living, and ESG (envi ronmental, social and governance) concerns, are all exerting a powerful influence on retail business strategy. As retailers pivot their business models at speed to capitalise on these and to stay relevant to new consumer trends, it is critical for them to recognise that as their strategy changes, so does their risk profile. And with a change in risk profile, it’s more important than ever to understand what those risks look like through out their value chain – from product design through to customer fulfilment – and how these risks can be evaluated, mitigated, and transferred (if necessary).

Meeting customer needs – an increased risk Retailers see the failure to innovate and meet customer needs as fifth in their current top ten risks, rising to second in their assessment of future risks, according toAon’s latest Global Risk Management Survey . Retail organisations know they need to keep investing in, and changing their strategies if they’re to maximise new opportunities and respond quickly to global events. The consequences of this shift are already being seen with examples of big brands like Nike choosing to go direct to the consumer rather than exclusively through high street intermediaries. Conversely, even some ecom merce brands are embracing a ‘back to the future’ tactic where bricks and mortar become part of their selling strategy – Gym Shark, for example, is due to open an 18,000sqft store in London’s Regent Street in the summer of 2022. The hybrid model is an opportunity for many, but the operational challenges are also growing, not least in the additional pressure on efficient fulfilment as customers demand goods quicker. All this change brings more risk. If you look at a retailer’s product journey from the design stage or sourcing, through to manufacturing, transit, and fulfilment, and then to the consumer (whether that’s wholesale, direct to consumer, bricks and mortar, or ecommerce) there are key risks that can influence any stage of that journey; from cyber, protecting new complex automated fulfilment systems, through to supply chain, workforce issues, pricing, and reputation. Importantly the ESG position across this product journey clearly needs to be carefully considered prior to implementation.

Accelerated digitalisation brings cyber vulnerability Cyber continues to be a fundamental expo sure and ever evolving risk – ranked highest by retailers for future risk in the Aon Global Risk Management Survey – and can impact a retailer at any stage of the product journey from how the retailer interfaces with the customer, through to automation in the distribution centre, right back to engagement with the supply chain. Many retailers have accelerated their digital isation programmes as part of their focus on growth and relevance to their customers, but these digital transformations may not have been as comprehensively stress tested in the desire to go to market quickly. This opens the possibility of increased vulnerability to cyber attack or incidental risks such as dependency on third parties. Strengthen the chain Supply chain is also one of the most signif icant risks for retailers, as shown over the last 12-24 months, with many experiencing supply volatility whether it’s through driver shortages, shipping challenges, or pandemic disruption. The Suez Canal, for example, is estimated to carry US$1 trillion of goods a year, which meant its blockage in 2021 proved to be amajor headache formanyUK retailers shipping manufactured goods fromAsia. It’s a powerful illustration of why supply chain or distribution failure is currently listed as retailers’ biggest risk in Aon’s Global Risk Management Survey. The current geopolitical instability in Ukraine and resultant expanding sanctions placed on Russia will undoubtedly create further stress points. The complexity of this risk is growing for retail organisations and has the potential to inflict significant business interruption costs as well as the loss of customers in a hyper competitive market.