The turmoil of the last two years has hit retail particularly hard, and it appears the rollercoaster ride is nowhere close to coming to an end. Joined by a handful of my colleagues, I spent a very insightful and absorbing couple of days with executives and thought leaders from the industry at the World Retail Congress in Rome earlier this month. The central theme of the discussions at the event was that our industry is continuing to undergo massive disruption. Broadly, there are six challenges that are on the minds of retailers:
- Supply chain challenges
- Digital channel growth
- Availability of talent
- Sustainability focus
- Tactical disruptions like inflation
- The empowered new consumer
Supply chains still hiccupping
Short-term disruptions – Most of the world’s current supply chain problems can directly or indirectly be traced back to COVID-19, including transportation shortages that caused retailers so much pain ahead of the holiday shopping season in 2021. In recent weeks, the worries have been exacerbated by Russia’s war on Ukraine, which has impacted product availability and commodity prices and caused economic and stock market turbulence.
Long-term changes – A trend toward deglobalisation was already underway with trade tariffs but as supply chain challenges continue, companies are beginning to rethink their entire sourcing and procurement strategy. The idea of lowest-cost production appears to be losing its appeal, with many retailers instead trying to ensure security of supply/agility through nearshoring or intra-country options.
The pandemic dramatically accelerated online penetration. And while different retailers are seeing a different new mix of channels, a majority of retail’s growth will soon come via digital channels. Levi Strauss CEO Chip Bergh even went as far to say, “If you aren’t a technology company in 10 years, you’ll be dead.” Tired retail stores don’t work anymore. But stores that exist to either provide a great experience, enable digital sales, or help enhance customer convenience in another way can and will be an asset. Through AlixPartners analysis, we know that when online penetration crosses the 10% threshold, profits can be severely damaged if channels are not optimised. With global online penetration now at 22%, retailers must act urgently and strategically so that growing online sales do not erode margins.
Talent is getting harder to hire
Like many other industries, retailers have been facing a shortage of labour supply as well as massive competition for workers, leading to skyrocketing labour costs. One of the main reasons for this is that labour participation levels are significantly lower than they were prior to the start of the pandemic. Retail has almost 300 million global workers, many of whom are demanding more – more money, more respect, more humane working conditions. But just money isn’t enough for today’s workers, and retailers must figure out other ways to increase retention. One answer may lie in linking purpose to the job. One key theme at the conference and in corridor conversations was the importance of purpose in the employee proposition.
Sustainability is no longer optional
It’s been a buzzword and conference agenda items for more than a decade, but totally apparent that retailers have no choice but to embrace sustainability now. The pressure is on from consumers and governments alike, and even though most retailers have sustainability targets, much has not been done to make lasting process and systems changes. The biggest barrier to change has been access to data, metrics, and transparency around sustainability initiatives, which can often answer the question of cost versus benefits. Retailers need the right tools and measures to embed new ways of working and ensure sustainability becomes ‘business as usual’ across their value chains.
Responding to tactical disruptions
Growth in the cost of goods and services is at a 40-year high. Inflationary pressure and supply disruption is the number one tactical priority for retailers to face into today. Without a similar rate of wage increases, consumer purchasing power will remain lower and lead to a spending contraction. There is also widespread distrust in government and media, with a vicious cycle of distrust across the globe. Many consumers expect businesses to help fill the trust void on issues such as climate change, economic inequality, workforce reskilling, and racial injustice. The need for retailers to be agile, data-centric and totally attuned to their customers’ needs has never been greater.
Catering to Me-centric consumers
Another big transformational change that has taken place is the power shift in the relationship between consumers and retailers. Retailers must recognize that they are no longer in control and work hard to understand what is most important to their customers. Once they have that answer, they must reprioritize the whole business in a way that maximizes their relationship with their customer.