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How can retailers fund strategic priorities as challenges abound?
More than two years into the novel coronavirus pandemic and retailers are still searching for answers.
“It’s been difficult to plan inventory flow with much precision,” said Nordstrom CEO Erik Nordstrom, last August. “We do not expect those conditions to change anytime soon, so it’s really on us to find ways of mitigating that.”
Mr. Nordstrom’s words, as reported by Sourcing Journal, encapsulate the ongoing planning and execution challenges facing all retailers today.
As COVID and lockdowns emerged in early 2020, panic buying overtook consumers, making it almost impossible to get an accurate read on demand. This was followed by a shift in consumer preferences for zero touch shopping and e-commerce, leaving many unable to pivot.
Since then, no retailer has been spared challenges. Activist investors have promoted the strategy of traditional retailers spinning off e-commerce operations in the spirit of higher valuations. Ongoing supply disruptions combined with the high cost of shipping has put a damper on retailers’ growth and margin objectives.
Prioritization is challenging, especially when lacking resources to compete toe-to-toe with market leaders. Many retailers, defined as “laggards” in Deloitte’s 2022 retail industry outlook survey, are unable to competitively fund the following priorities:
- Resetting physical stores for omnichannel;
- Modernizing the supply chain;
- Tapping alternative higher-margin revenue streams;
- Enhancing data privacy and security;
- Making the workforce future-ready;
- Incorporating ESG practices;
- Engaging in mergers and acquisitions.
Market leaders on the other hand, are shown to have the experience, expertise and resources to advance on all these fronts.
Many retailers are forced to make tradeoffs they can ill afford, even as all face immediate opportunities to improve outcomes with advanced analytics applied at scale (up to 20 percent revenue and margin improvement depending on the use case, according to McKinsey & Company in October 2021).
The question is how to proceed given the skills and experience of a retailer’s analysts, data scientists and data-driven managers — essentially, a retailer’s analytics maturity.
Data reported by Consumer Goods Technology as part of an annual survey demonstrates that most retailers are not yet applying predictive or prescriptive analytic methods like artificial intelligence to use cases such as demand forecasting, assortment planning and inventory management.
This makes sense considering Deloitte’s concern “that nearly half of executives expect a shortage in skilled workers for IT and analytics positions — needed roles that require greater investment and will likely be the foundation of digitally enabled retail.”
Discussion Questions
DISCUSSION QUESTIONS: What can retailers do to competitively fund the initiatives captured in Deloitte’s survey? How can retailers realize the benefits of analytics, like artificial intelligence, given the challenges of hiring skilled workers?
Poll
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Casey Golden
CEO, Luxlock
Mark Ryski
Founder, CEO & Author, HeadCount Corporation
Deloitte’s survey provides interesting context, but ultimately every retailer will need to determine their critical few priorities. The problem, as the article rightly points out, is where to even begin. Analytics are only valuable if they inform a decision or change a behavior, so they’re not a panacea. It’s like putting in a new POS system and expecting sales/store sales to improve. Unrealistic. As an analytics provider myself, I have experienced countless examples of retailers having the data/insights, but not taking action based on the insights. I suggest retailers look hard at what they already have, and focus energy on making better use of what they have — forget about chasing the next shiny thing.
Mark, to solve the question of “where to even begin,” I submit to you that for a business that has five priorities but can only address three, just pick one and run with it. If it’s a true priority, it will improve the business.
Well put, Bob. When I say “critical few” priorities, that’s exactly what I meant. It’s just as important to decide what you won’t do, as what you will do.
It’s hard to say if outsourcing certain IT functions or skills can mitigate the skilled labor shortage but I believe it’s the better alternative. As to AI and the supply chain, if we cannot ascertain how long a ship is going to be docked in Singapore when it should be in the Port of Los Angeles, I cannot see where AI is going to help to plan in the supply chain.
I believe it is all about developing a future strategy based around customer convenience as opposed to profit improvement. We have for too long been a slave to the next quarterly earnings beats rather than playing the long game. We need to invest in infrastructure that enables the customer to view inventory in real time and allows us to rationalize the reality of fewer workers making retail a career. Technology like RFID and prescriptive analytics that prescribe an automated “what to do” vs. a “what may happen.” Retailers of any size need to step back and think about their core business. How do I maintain and build on that? Start with the customer and why they buy from you and go from there.
From an analytics standpoint, data scientists are expensive, but getting analytics right is essential. I think midsize retailers are struggling because changes are hitting them from many angles. They don’t have the people resources or the cashflow to react to everything, but they don’t know where to place their bets. Reports like the one from Deloitte can point out the problems, but retailers themselves will need to find a way to get the answers that make sense for their particular business.
We’ve come to a moment where prioritizing technology and organizational change can no longer be pushed aside. The brand experience must come first and, with that, the customer journey should be the core of all technology and organizational changes. By mapping detailed customer touch-points, technology initiatives can be clearly defined across many of the initiatives outlined by Deloitte’s survey. How the customer experiences physical stores, engages digitally, how a consumer receives their product to the processes their data being gathered and secured across the organization is part of the customer journey and impacts the overall brand experience.
Instead of budgeting technology spend by department, companies should be looking at solutions that provide continuity and streamline business operations across departments by moving the customer to the center. Customer experience software platforms could provide more holistic solutions, reduce the overall tech spend, and result in quick profitability turnarounds.
Excellent place to start, Casey. This approach helps prioritize where to begin and with the most important thing in mind, even if early ROI is initially small. And if part of the CX won’t work well in the long-run because the tech spend for something in the back office or supply chain needs to happen first, then go secure or fix that next.
As many of my colleagues have discussed through the pandemic, COVID-19 has accelerated changes in consumer behavior. That behavior that was already coming in five years, is now here.
History shows us that retailers notoriously avoid investing in the future. Those that take a 10-year view will be the only ones that will be truly successful. They must determine what Retail 2030 will look like and apply resources to get there.
Where do they get the resources? It is called investing. If funds cannot be generated via cash flow, there are the debt and equity markets places that are looking for these types of challenges.
Of the suggestions on the list, one that many will think will grow there business is M&A. That is the one that is destined for failure 80 percent of the time. It is just rearranging the deck chairs on the Titanic, and no place is a better example of that than retail.
For a lot of retailers, the key to all these priorities is the store. Focus on how the store fuels the business, and watch the other pieces fall into place. It’s important to credit retailers, too, for the amazing strides they’ve made in the past two years.
Amazon and Walmart offer B2B services (like digital ads and logistics) in part to offset steep omnichannel costs.
Retailers of all sizes are digitizing their retail processes to boost efficiency and stay competitive. Companies save time and money by embracing automation, including AI-driven data insights to make smarter decisions faster.
Since labor is often the biggest expense on the balance sheet, optimizing human effort is essential. Adopting AI for mundane, repetitive tasks frees up employees for higher-order work that delights shoppers.
There is a funding problem today because there was a vision problem a year ago and a decade ago. Does cash flow get spent on (invested in) dividends, stock buy-backs, or new and improved processes? Target invested in new and improved — early and often. Walmart is investing heavily. Amazon — yikes. Most mall retailers and grocery stores found it way too easy to just roll along, even though an occasional glance at retail in China would have provided a window into the future.
At this point hiring some psychics might be the best bet because it’s anyone’s guess what the next few years will hold. To remain flexible and adaptable, outsourcing some of these functions and opening tech hubs overseas is one strategy. Some retailers have already opened IT offices in India as it provides a strong pool of tech talent. Of course this presents its own set of security and management challenges, but the benefits likely outweigh the risks.
Although it sounds simple – the only way retailers can elevate their AI and analytics practices is to actually use more AI and analytics. If they need help embarking on the journey, there are numerous experts in the space who can help (my company alone has transformed countless retailers into AI savvy enterprises). As for where to start, I may be biased, but Gartner evaluated 23 AI use cases for retailers last year and ranked pricing as the one that was both the most feasible and drove the highest value. Harvard Business agrees and believes that a 1 percent improvement in pricing drives more profit than a 1 percent improvement in sales, variable costs or fixed costs. More importantly, it delivers quick ROI, which is why a lot of retailers who invest in an AI pricing solution are able to turn a quick profit in the first year which they can then use to fund more AI initiatives or other strategic priorities. Pricing also helps with the labor shortage as most retailers are wasting a lot of labor on ineffective promotions or sub-optimal pricing activities that can be readily identified and prioritized by a sophisticated pricing solution. The key is, retailers won’t be able to fund anything if they don’t start elevating their practices today — their competitors aren’t waiting.
Prioritization is not the issue. Despite the leaders/laggards concept that Deloitte’s survey presents, retailers know that they need to modernize their supply chain, enhance security/privacy and build store omnichannel capability. The larger problem for many retailers is financing. With tiny margins, there just isn’t enough resources available to push through such enormous change without not only disruption to the business but also no guarantee of a solution that is not outdated when complete. Even the smaller, incremental changes have become costly and retail operational profits are paper thin for the “laggards.” Partnering, consortiums, joint ventures, and third-party investment through lenders or the market are sources of capital that need to be explored – but sometimes even these don’t pan out. I have no doubt that retailers who could invest in AI, a strong analytics platform, and experienced skilled experts in data and data science would jump at the chance – but it’s like going into the candy store with 50 cents and nothing is less than a buck.
Balancing long-term initiatives with short-term returns has been a management conversation since the beginning of time — ok, maybe not that long. I think the key disconnect is that the C-suite thinks that they own innovation and that the rest of the organization is in place to execute.
I heard a great comment recently that companies should scale their employee output to 70% and not 110%; this would free them up to think and grow in their roles and focus on bigger pictures. I also think that making strategy a priority is an imperative, not a luxury. Brands should always look 3-5 years down the road, but build agility to pivot as needed. Funding strategy and the costs to implement are critical.
Regarding talent, companies should look to develop more skill sets from within the organization. Supplementing education/training and onsite mentoring should all be part of your work processes and not just your retention strategies. If you can’t buy/recruit it, built it.
Deloitte’s list is daunting if this is their expectation for all retailers and grocers. Since the pandemic, many have been focused on controlling labor expenses, store conditions, margins and predictability. While notable chains and bigger players have made greater technology inroads in omnichannel, targeted ads, etc.
The good news is, in just four years, there are now many more attainable platforms and apps to help the vast majority of grocers and retailers serve up a better CX while also finding immediate savings in margins or labor. Some examples are loyalty platforms which generate immediate customer savings, while providing the retailer a % of the coupon revenue (and better margin) from the CPG or manufacturer. Another platform is organizing purchases into a network for buyers to widen manufacturer and supplier options, which improves margin opportunity immediately, and choice in the supply chain.
The ROI is there to be had now without great expense or having to employ analysts and data scientists.
For retailers, I think the key is to pick one thing and execute well. There are always more projects and ideas for experiments than resources, but every market leader does one thing really well to keep ahead while experimenting with other projects to sustain the momentum. If you can’t identify that one outcome you are trying to achieve, it just won’t work.
As the former owner of an Analytics company that did predictive, prescriptive and AI work, I believe more is needed than analytics in these times. First of all, although most of us understand the difference between reports, analytics, predictive, prescriptive, AI and ML, my team and I often chuckle at how all these terms are so misused by the media … (but that’s another article topic).
I think that if budget is limited and they can’t afford to enhance their analytics capabilities, then the key is for companies to use all the resources available. And some of those things are intuition, common sense and life experience of existing employees. Analytics are great, but when an unexpected event like Covid-19, coupled with shut downs, hits, companies need to tap into the internal knowledge that exists in their own employee base.
And I don’t just mean executives. Yes, their experience and thoughts are important, but I mean the people stocking shelves and cashiers. These are the people who can share real world experiences. These are the people that can tell you what they will be spending their hard earned dollars on. Now that gas is costing them an extra $20/week and inflation is forcing them to buy generic items instead of the name brands they are the one’s being hurt and they are the one’s who can share information. These people are the employees who can shed the greatest light on what you should be doing in hard times where analytics has limited, historical value.
If you can’t afford to buy new data that will help you bring in information from other sources like the CDC or weather trends, or import/export information, then use the resources you have. Your employees. Get their opinions. Adjust your shelf space accordingly. Accommodate online purchases accordingly and be nimble. And give the consumer what they will buy. Very often, what they want and what they will buy are two different things.