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Surviving, and succeeding, amid a perfect retail storm

November 26, 2019

5 key trends shaping the retail business today, and into the future

Retail is about many things. Among them, it’s about understanding the consumer in order to anticipate and satisfy their wants and needs. It’s about identifying opportunities within the marketplace, both here at home and globally, and capitalizing on them for growth. It’s about recognizing risks and averting them with savvy innovation and smart thinking. And, it’s about executing on all of these things as disruptive forces effect continuous change right across the industry, altering the retail landscape, sometimes indefinitely.

Change and disruption is not a new phenomenon that retailers need to grapple with. The industry has always been rife with it from the days of the earliest marketplaces and bazaars. However, a combination of the advent of technology and the speed of its innovation, changing consumer behaviour, and geopolitical uncertainty around the world has led to change of unprecedented measure. In fact, the change the retail industry is currently experiencing is almost that of revolutionary proportions.

It’s a thesis developed by KPMG International in which the professional services firm prophesized a ‘perfect storm’ of disruption that was to sweep the industry the world over, compelling businesses to respond fast or, as Willy Kruh, KPMG International’s previous Consumer & Retail Chair, puts it, “become footnotes in the history of the industry.”

Canadian Retailer recently sat down with Kruh and 15 retail executives to celebrate the decades of service that he paid to the retail industry during his time at KPMG International and Canada, and to ask him the one burning question that’s on the lips of every retail executive: how do retailers not only survive the perfect storm, but succeed in the face of such disruption and adversity? To wit, Kruh and KPMG Canada offer the following five trends that retailers need to pay attention to on their journey toward navigating today’s volatile retail landscape.

The store-based model that’s existed for 3,000 years is being challenged

Visit any Main Street in any city centre around the world, and you’ll notice that the merchandising, buying sand selling of goods and services is not too dissimilar from the way merchants operated in Ancient Rome more than 3,000 years ago. This isn’t necessarily a negative. But, with all the disruption happening around us, a reimagination of today’s retail model may be in order.

In fact, according to KPMG International’s research, 58% of all companies worldwide are “rethinking their current business models”. This realization is being driven in large part by the rise of eCommerce and the proliferation of the platform economy, dominated mainly by companies like Amazon and Alibaba. However, as KPMG International’s research also highlights, 90% of retail sales are still generated by brick-and-mortar. So, why is there a need for a rethink? As Kruh points out, it all depends on where along the retail spectrum your business resides.

“Platforms will be the long-term winners,” he says. “But, in the short-term, it will be those operating within the value and premium sectors that will continue to experience success. The middle is just not differentiated enough to see real gains under the current model.”

For those looking to carve out profit operating in between the value and premium brands, Kruh and KPMG Canada suggest that there are several key areas of innovation that retailers must focus on to appeal to today’s consumer.

Perhaps the most important of which is to leverage the data that’s being generated in a more thoughtful and granular way to better understand the things that are driving consumer behaviour. As a result, businesses will be better placed to deliver on the personalized experiences that consumers are craving today.

As noted in KPMG Canada’s report ‘Me, my Canadian life, my wallet’, 54% of Canadians proactively filter information that they receive from all sources. Understanding the things that the business is competing against for their attention, the moments when they are most open to communication with brands and the things that they care about most will allow the creation of catered, hyper-personalized engagement that will resonate with the consumer, putting the communicating brand top-of-their-mind.

Going almost hand-in-hand with the need to hyper-personalize engagement with customers is the development or bringing to life of the retail “experience”. Innovation in the way of artificial and augmented realities is allowing retailers today to add meaningful layers to the in-store retail experience through the creation of interactive displays, smart change rooms and virtual assistants, among many other applications. These innovations help address the need of today’s consumer for speed and convenience, as well as adding excitement and value to the retail shopping experience.

Declining margins make financial management challenging

It’s no secret within the retail sector that margins are declining across the board. This, of course, is a general analysis. However, the decline is impacting more and more retailers every day, challenging them more today from a cost and efficiency point-of-view than ever before. Despite this fact, 94% of Canadian businesses are confident in the country’s economy, and 72% are confident in the global economy when it comes to the potential for growth.

Interestingly, however, according to KPMG Canada’s ‘2018 Growing Pains Canadian CEO Outlook’, the ways in which growth is going to be sought by businesses over the next few years is rather split. Within the survey, 30% of CEOs feel that their businesses will grow organically, 26% believe it will happen through mergers and acquisitions, 18% are confident in the development of strategic alliances, 16% will pursue growth through joint ventures, and 10% through outsourcing.

Despite the way retailers and businesses seek growth, however, the issue of cost and efficiency, and addressing those particular challenges, will be key moving forward. And, one of the lowest hanging fruits on the tree available to do this, according to Kruh, is to optimize what is, in the case of most retailers, an ageing supply chain using artificial intelligence (AI).

According to KPMG International’s report ‘No normal is the new normal’, 84% of businesses anticipate reengineering their processes to be demand-driven and customer-centric, while 70% are keen to accelerate their businesses digital transformation. This is an intersect of intentions that may very well lead to the rise of a more optimized and automated supply chain that will be able to predict demand more accurately, anticipate challenges before they happen and increase efficiency with robots and other forms of automation.

“The potential that AI poses in positively transforming today’s retail supply chain is immense,” says Kruh. “It has the power to significantly increase productivity and decrease inflating costs in a pretty dramatic way.”

The Power of today’s consumer

As consumer behaviour continues to change at breakneck speed, combined with the exit and emergence of large demographic groups from the consumer landscape, it’s becoming more and more challenging for businesses to understand exactly who they should be speaking to and how they should be speaking to them.

It’s not lost on retailers that the demographic with the most spending power is the Boomer generation. For this reason, most retailers have found themselves, according to Kruh, “stuck in a Boomer strategy” when it comes to their marketing efforts. Until recently, Boomers were the largest buying demographic group (officially surpassed by  Millennials in 2016). And up until that point, it seemed to only make sense to target that group. However, as Millennials come of age, and enter the workforce in full, the needs, wants and attitudes of this generation are coming quickly into focus for many retailers.

“This is a group that stands to inherit $30 trillion in North America alone,” states Kruh. “And, even though they may not have the money yet, they’re typically the ones spending it.”

According to Kruh, Millennials have turned the world upside down. They’re the driving force behind the popularity of market trends such as sharing, the rise of products like craft beer, services like Airbnb and companies like Apple. They’ve singlehandedly transformed the way things are done and the way products are used and moved.

KPMG International’s reports show that 84% of Millennials don’t trust traditional advertising. 78% would rather spend their money on experiences as opposed to assets. And 66% would rather share product and services than buy-to-own. These statistics represent a dramatic shift in consumer behaviour across generations and a need for retailers to gain deeper insights into how these consumers think, what inspires them and what gives purpose to their lives and lifestyles.

Kruh warns retailers, however, that marketing and consumer engagement strategies should not become an either/or scenario.

“Depending on the retailer you are and what you offer, of course, you might need to have a Boomer or Millennial strategy,” he says. “But not just a Boomer or Millennial strategy . Retailers shouldn’t ignore Gen Xers who are at an extremely interesting stage of their lives. They’re the first generation that’s taking care of their children and their parents. They have particular needs that are completely unique from other generations. Do you understand their needs? And, if so, how are you personalizing your offer to them?”

Reputation is Everything

In retail, and in any other sectors for that matter, your brand is only as good as the reputation that precedes it. And as a result of today’s digital age, which continues to explode at an exponential rate, everything a business does, and doesn’t do, will become public knowledge faster than you can blink.

“It takes years, sometimes decades, to build a strong, trusted brand,” says Kruh, “and a matter of seconds to destroy it.”

It’s a scary thought. And it’s an eerily accurate one, too. With the proliferation of social networks, news can travel across neighbourhoods, countries and the entire world quicker than could have been imagined only ten years ago. Whether you’re talking about customer service, good or bad, or social governance in all its many forms, businesses today must be diligent and thoughtful in their actions or be prepared to face the consequences.

“There’s a long list of issues that retailers need to be aware of and at the forefront on when it comes to protecting the reputation of their businesses,” says Kruh. “Everything from social issues such as the proper and ethical sourcing of goods and maintaining healthy and safe working conditions in owned or outsourced facilities, to compliance issues such as data protection and privacy. Companies today must be vigilant in the way they’re running their organizations. Any misstep in the operation could spell disaster.”

Not the least of concerns for retailers today, adds Kruh, is the collecting, handling and treatment of customer data. And this, unlike many other examples of responsible business practices, directly impacts the consumer and can have lasting ramifications if care and due diligence are not taken.

According to KPMG Canada’s ‘Me, my Canadian life, my wallet’ report, 30% of Canadian consumers are highly concerned about the unauthorized tracking of their online habits; 33% are highly concerned about the theft of their credit cards when online shopping; 37% are highly concerned about the hacking of financial, medical or other personal information online, and 39% are highly concerned about identity theft. And, if these consumer sentiment statistics aren’t enough to underscore the importance of treating customer data with the utmost of care, the same report finds that less than 6 in 10 Canadians (57%) trust banks with their payment data, with an abysmal 9% trusting retailers with the same information.

“Customers are beginning to understand the value of their data and are much less inclined to give it out than they have been in the past,” the report explains. “Businesses need to be open and clear about why they’re asking for certain types of data, how they’re going to protect it, and with whom they’re planning to share it.”

With so much at stake, it’s clear that retailers need to put compliance and protection at the top of their list of priorities, lest they risk running afoul with their customers and triggering the demise of their brand.

Empowering your people

When it comes to retail, as many brilliant minds have proffered, you’re only as good as the people representing your brand. Whether talking about frontline staff or those pulling the strings in the executive suite, for brands to compete and succeed, they must ensure that their people are able and willing to perform at an optimal level.

“Businesses are in a constant state of transition,” says Kruh. “For businesses to evolve and transform to meet the challenges of the day, they must ensure that their workforce transforms as well.”

This means that it may be time for retailers operating in Canada to rethink their people strategies and start to look at different skillsets and specialties that can help bring the business forward.

According to KPMG Canada’s ‘2018 Canadian CEO Outlook’ report, 64% of businesses in Canada rate the importance of emerging technology specialists to help propel them forward as highly important, followed by scenario- and risk-modeling specialists at 62%, digital transformation managers at 38% and data scientists at 36%. However, only 26% of those businesses were planning to hire new skills—regardless of future growth targets. 74% are waiting to achieve certain growth targets before hiring new skills.

“Businesses will be severely challenged going forward if they continue to take a wait-and-see approach with respect to their talent development and acquisition,” says Kruh. “To truly transform the business, you need the right people in place who can fill the needs of the business and help lead the integration and adoption of a transformative mindset.”

In addition to acquiring much needed new skills, part of the transformation of the workforce is going to include a wider spread use of AI and robotics to automate routine and manual tasks. This will require employees to acquire and develop the skills necessary to work alongside them.

The use of robotics in this way will certainly eliminate some tasks currently performed by humans, perhaps rendering some entire jobs obsolete. However, as KPMG research points out,

66% of Canadian CEOs believe that the integration of AI and robotics into the workforce will actually create more jobs than it eliminates.

“The roles of today’s workforce are changing rapidly,” says Kruh. “Aided by innovative technology, their roles and responsibilities are evolving, enabling them to focus more on high-value activities and decisions that impact the customer and the business most.”

It’s true, as KPMGs research and data suggests, that a “perfect storm” has over recent years been enveloping businesses globally, forcing all to evolve and adapt to new ways of doing things. The explosion of technology, a shifting in demographic spending power and behaviour, and a number of geographic and geopolitical factors have all converged on retailers, putting more pressure on them to perform amid these unrivaled levels of change and disruption and leaving very little room for error.

However, as Kruh adamantly states, amid this adversity, there may also be even greater opportunity.

“During my time working with retailers around the entire world, I can say with confidence that Canadian retailers are some of the savviest, hardest working and innovative businesses out there. Because of this, there are real opportunities for them to succeed. With a willingness to truly transform in this digital age and the courage to take some risks and to learn and evolve, there’s no doubt in my mind that retailers in this country will not only survive this period of disruption, but have the chance to grow exponentially.”

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