The Retailer Winter edition_2020

retail disruption and innovation

THRIVING RETAILERS WILL CONSTANTLY CHANGE, REINVENT AND TAKE RISKS

BRIAN MARSHALL PARTNER, STRATEGY AND TRANSACTIONS RETAIL LEADER EY

WHY INCREMENTAL PERFORMANCE IMPROVEMENT IS POINTLESS WITHOUT REINVENTION AND RISK TAKING In the last decade perhaps the most widely used terms in UK retail were ‘distress’ and ‘turnaround’. As the pace of technology led disruption (including the dramatic switch to online shopping) and changing consumer behaviours, tastes and preferences increased exponentially, even our most valued and loved high street brands faced turbulent times and struggled to react. Survival became the name of the game - a game some previously great retailers lost. Was this because they didn’t know their own business, because they didn’t have bright, talented, dedicated people who could react, or even because they had no understanding of the structural, technological and socio-economic shifts that they had to react to? No, it was the sheer pace of change and the lack of financial headroom, made worse by rising costs and heavy discounting due to increased competition, that led to the ‘closing down’ signs becoming an unwelcome feature of the British high street and retail park. ‘Turnaround’ too often meant quarter-by-quarter survival – pulling the same tactical levers a little more firmly each month, a CVA to help rationalise the physical estate and get the rent bill down – managed decline rather than building a foundation for real, long-term success. To break this cycle, those still in the game as we start the new decade must find the breathing space to be more strategic and the courage to reinvent, transform and take risks. RUTHLESS SHORT TERM PERFORMANCE IMPROVEMENT CAN ENABLE LONGER TERM REINVENTION Increasingly, retailers are taking more proactive and pre-emptive actions to improve operational and financial performance. With analytical techniques and tools increasingly mature, retailers are able to take harder decisions, which are based on much better information across a host of operational and commercial areas, for example: pricing and markdown, sourcing and supplier profitability, store location, lease negotiations, SKU performance, marketing spend, workforce management, inventory, logistics, and online performance. However, retailers that satisfy themselves with turnarounds based only on ruthless operational improvement and margin protection will still be ignoring the real challenge – how to be truly transformative and reinvent themselves, so that they can delight increasingly demanding consumers, and then embed a passion for reinvention in the culture of the organisation. Disruption, change and reinvention are here to stay, so retailers must have a completely different mindset to thrive, rather than merely survive, and to make their success sustainable in the long-term.

Brave strategic change Perhaps the most important capability that the successful retailer of the future will have is the ability to develop and execute new strategies at pace in response to constantly changing consumer tastes and the technological trends that drive different and new behaviours. The most important shift in organisational culture will be bravery – reducing the fear of failure that so often suppresses innovation and creative thinking. This need for speed was recognised by M&S CEO Steve Rowe back in May of last year when he stated that “we are judging ourselves as much by the pace of change as by the trading outcomes”. Partnerships, acquisitions and new offerings that surprise consumers will help keep them intrigued and interested. In physical retail, strategies based on collaboration and the sharing of space in experiential shopping locations are increasingly being used to keep retailers relevant and exciting and also to maintain or improve footfall. Visit the Next store in Manchester and you can now buy a car, get a haircut, and sit down to eat after you have refreshed your wardrobe. Meanwhile, in the online domain, there are now numerous examples of traditional retail brands boosting their online business by becoming a ‘host brand’ to other clothing lines, thus collaborating to provide greater choice to consumers. Not all of these bolder strategies will improve the top or bottom line, but some will. Those that don’t will still have served a purpose in the psyche of the customer. Differentiation Standing out from the crowd is not just about headline grabbing strategic plays. Inspiring technology offerings that help drive personalisation and a sense of intimacy with every customer will embed loyalty within existing customers and curiosity from others. Again, fashion is arguably leading the way here. The past year has seen the introduction of the first self-service checkouts in some UK clothing stores and several retailers experimenting with digital changing rooms. Trust Finally, consumers only want to buy from retailers they trust, but the factors that drive that trust have fundamentally changed. A familiar, well-loved brand, efficient service and consistent quality and availability of stock may still have their place, but they will not be the drivers of trust for the consumer of the future. What fellow consumers say about a retailer on social media is already more important than its brand. Sustainability and transparency of product origin and manufacturing ethics, authenticity, reliability of delivery and returns policies are all factors that will promote loyalty in the future. ‘Ethical retail’ is now a significant topic across all retail sectors. In food and grocery, ethical sourcing and recyclable packaging have shot up the agenda of all the major players whilst, in fashion, ethical manufacturing, clothing recycling and even hiring rather than buying (using services such as Rent the Runway and Hirestreet) are all becoming more prevalent.

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