How successful retailers build resilience in tough times
Guest content by Eleanor Winn, Director, Digital Sourcing, ISG.
It comes as no surprise to me to read that while retail sales continue to grow, retailers are seeing their profit margins dwindle. According to Share Centre research, retail sales have risen by 50% in the past 11 years, yet the sector’s profits have dropped by “more than a third”.
We see evidence of the effect of this diminishing profit in the regular reports of household-name retailers going out of business. Debenhams, Select, L K Bennett and House of Fraser have all either gone into administration or needed to be rescued in the past few years. Patisserie Valerie (which had financial irregularities), Wine Direct and OddBins have also struggled or been forced into administration. These are just some of the retailers finding it difficult to adapt and survive.
Retailers are facing increased competition from online stores and fluctuations in consumer behaviour and confidence. But they don’t have to be passive bystanders to their own misfortune. Smart investment in technology can help them shore-up their business and build resilience to face tough competition and difficult economic times.
The retail sector faces unique challenges
The retail sector faces distinct challenges. The investment retailers need to make in technology as a percentage of their revenue tends to be much higher than other sectors. As consumers move online, the high street will inevitably change shape.
The sector is affected by seasonality and consumer whim. If confidence declines, if the competitive market changes shape, if the weather is too bad (or too good), or if there’s a major event, consumer shopping habits change in an instant. This leads to peaks and troughs of income that retailers can’t control (but with the right technology, could predict and manage).
How retailers can build a resilient business
To survive, retailers need to be able to manage these fluctuations. That means investing in four key areas:
- Predictive data and insight
Instead of relying on historic data alone, predictive technologies can give retailers data to help them predict what will happen in the future and how to manage that against business objectives. First, establish clear, predictive KPIs that allow decision-makers to assess the data they receive against objectives.
Next, invest in the technology needed to gather and process the data, and in the talent that can analyse it to produce the insight and recommendations you need.
When planning budgets, consider how to create a model that enables adjustments to the cost base for things like business services and processes, to allow the business to adapt to new market conditions. Create a strategic plan for how to move to as-a-service models which will allow this flexibility.
This gives the business a better chance of competing against more dynamic competitors.
- Manage partnerships effectively
Incentivise collaboration and cooperative problem-solving across your third-party suppliers. That will mean changing the way that you work with your providers to improve strategic alignment and unleash the potential in your relationships with them.
- Create a cost-focus mindset
Create a strategy to ensure you have best-in-market pricing. If you understand the market price for services and have clear performance benchmarks for IT services you can act upon that information to actively manage your cost base – critical with slim margins.
Retailers must deal with considerable pressures that businesses in other sectors don’t have to worry about, but by focusing on building a resilient business, retailers can protect themselves from many of the issues that plague their competitors.
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