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December 6, 2018

To read Part I of this series, click here >

Despite the dire warnings and recent failures of notable name brand retailers, many signs point to a surge in next generation retailers that have the capability and vision to successfully navigate retail’s rapid evolution and transformation. While more than 40 retailers have declared bankruptcy since 2015, there are strong economic tailwinds driving an all-time high in consumer spending. Gross domestic product (GDP) is expected to rise 2.9 percent in 2018[1], while unemployment continues to hover at historic lows. According to a recent study, retail sales are expected to rise 4.5 percent, compared to 2017[2]. As the sector changes and evolves faster than ever before, we believe there are 10 keys to success that every retailer, wholesaler and direct-to-consumer business must adopt, or risk becoming obsolete.

In Part I of this two-part series, we discussed the key customer-facing elements of a successful retail playbook. Part II explores the important operational underpinnings of retail organizations and outlines five ways retailers can survive and flourish in the new world of retail.  Rapid market changes have disrupted the landscape and reshaped the relationship between customer and retailer forever. More than ever, operational strength and excellence in execution are mandates for a critical path to sustainable long-term success.

Customers today, no matter their age, want the exact item they are looking for, at exactly the moment they want to buy it, at exactly the price they would like to pay for it. If retailers don’t instantaneously meet or exceed customers’ expectations, prospective patrons will move on in real time. As consumer behaviors rapidly change, an organization’s ability to respond quickly is derived from strong operational, cultural and financial discipline. In other words, operational excellence and flawless execution, fueled by business intelligence, are key drivers that allow today’s retailers to stay nimble. 

In order for companies to survive and thrive in the ever-changing retail market, they must focus their efforts on the following areas:

1. Operational Excellence

To paraphrase Vince Lombardi’s famous quote, “Winning is not a sometime thing; it’s an all the time thing. You don’t (do things right) once in a while; you do them right all of the time...” Those words of wisdom ring true, especially in the retail industry, now more than ever. Fast growing, successful companies have a habit of not paying attention to all the details. Instead, they may rely on top-line growth to mask a multitude of missteps that can cripple an organization such as spending loosely and not aggressively managing SG&A expenses. Conversely, larger, more established organizations sometimes control the expense structure so strictly that they forget what made them successful in the first place, such as innovation and investment in products and branding to drive growth. The market is too competitive and unforgiving for any company to “fake it” by glossing over those areas. Maximized revenue strategies, strict expense controls, professional oversight and creative leadership are key tenets for staying nimble. Businesses that invest in and focus on all functional areas are best positioned to pivot as the customer and retail landscape evolve.

2.  Data and Analytics

Technology has enabled retailers to access vast amounts of data in real-time. While it is important to have these data tools, real business value is only achieved when information is utilized and applied appropriately. There are greater risks if insights are used incorrectly or not used at all. StitchFix is a company that curates product and assortments based on the individual customer’s data – specifically their preferences and demands for apparel. The company’s online subscription and personal shopping service uses that data to help inform buying decisions which ultimately drive growth and increase customer satisfaction. In addition, challenged with excess inventory, H&M is now utilizing customer and supplier data analytics, coupled with location intelligence algorithms, to help mitigate inventory risk.

3.  Execution, Execution, Execution

Great retailers that successfully weather the storms of shifting market dynamics and turbulent economic times are obsessed with execution. These titans of the industry are creatively sound and execute like the best engineers in the world. You can have the best idea and best product, but without precision execution, it is worthless. Successful companies adopt a maniacal approach to execution and consistency throughout the organization. To do this, leadership must create an accountability structure that permeates the entire organization. All functional areas of the company need to be aligned to a culture of high standards for performance and execution. Creative, finance and logistics are examples of departments that are integral components of executing for success. Furthermore, to help galvanize an “excellence in execution” mindset, performance management and compensation should be tied to similar results. Kohls is a great example of an organization that understands and executes this discipline daily throughout their organization. From the front lines of the in-store experience, to the home office corporate teams, they execute with precision, and it looks to be paying off. Initial performance results for the 2018 Thanksgiving weekend look to be strong for this Midwest-based retailer.

4. Supply Chain Speed and Optimization

A key area of disciplined execution is the end-to-end supply chain. Given the fast-paced nature of the industry, companies must diligently leverage, maximize and optimize the internal business operations of their supply chain. Warehouse operations, logistics and procurement are important components for delivering the right product, at the right time and the right profit level. Innovating and revolutionizing the front end of the supply chain is equally important. Gone are the days of year-long development and delivery cycles. Companies must condense their product development lifecycle and production calendars to align with consumer demands. All resources in the supply chain need to be tightly aligned to provide customers with the right product at the right time. This means an end-to-end supply chain solution that provides speed, efficiency and excellence in all areas. Zara famously innovated their front-end supply chain to turn product from design concept, to delivery in store within 30 days. Designers attend fashion shows in Paris, sketch inspirations after the shows and email drawings to the home office. The team then quickly collaborates with their network of partnered suppliers to expedite production and delivery of product in warp speed.

5. Leadership Strength

If operational excellence and consistent execution is the backbone to retail success, leadership and culture is the central nervous system. Weak leadership and culture are partly to blame for today’s retail malaise. Leaders must build organizations that are focused on collaboration and accountability in order to best serve the customer. How should companies go about building it? Commit to your credo and live it every day.  Focus on aligning talent with performance results. Construct hyper-motivated teams to perform at the highest level of excellence in all areas of the business. Foster a culture of collaboration and cooperation by breaking down traditional barriers of communication. Develop a system where leadership is not only top-down but also bottom-up and side-by-side. Create a “high potential” program for talented individuals internally and look to promote from within where possible. These are just some of the activities that will lead to strength in leadership and will manifest across the entire organization. Good companies identify, grow and reward their top performers, especially those who embrace collaboration and customer centricity. This is how excellence is created and sustained at high-performing retailers.

The market has changed forever and there are new rules to play by. While there have been notable retail successes, even greater opportunities lie ahead. Companies can no longer operate on autopilot and expect to exceed expectations. Complacency leads to failure and vigilance is the key to prosperity. To survive and thrive you need to adopt an aggressive approach to doing what you do best over the long term.

 

[1] Kiplinger’s Economic Forecasts

[2] Business of Fashion