There’s a great line courtesy of Albert Einstein where he was quoted as saying, “If I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask… for once I know the proper question, I could solve the problem in less than five minutes.” Though we (thankfully) do not have a problem that our lives depend on today, the line epitomizes the spirit of reflection that many people take at the start of the year to make changes for the coming 12 months.
We are no different than many others in that we, too, spent time reflecting on the prior year’s challenges and the solutions we would consider. Thinking about the challenges that retailers faced last year – and will continue to see in 2020 – we came up with a shortlist of topics that stood out. As the retail industry continues to change, and as fourth quarter results start to trickle in with subsequent strategic shifts, we see seven key themes for retail leaders in 2020:
- Purpose: Retail brands need to inspire customers and employees with a mission that goes beyond shareholder profit. It includes clear understanding of the core customer, a deep understanding of their needs, and a focused and differentiated proposition. In a world facing numerous challenges, customers expect retailers to not only act responsibly and sustainably, but to play an active role in solving those challenges. Clarity of Purpose drives strategy and actions.
- Personalized Experience: Technology has raised the bar in terms of customer expectations and is now intertwined with the customer journey from inspiration to transaction. Retailers are breaking down siloes between their physical and digital teams, but most have not invested in a customer-centric redesign of the end-to-end experience. How will customers use voice assistants to add to their list or to make a purchase? How can your app recommend product and alert a store when the customer arrives? How can customers receive targeted messages and offers while shopping in the store?
- Private Brands: In a competitive environment, private brands are a powerful lever to drive differentiation and provide a compelling reason for customers to shop with a retailer. They often can provide customers with a better value and retailers with a better margin – Costco’s Kirkland Signature is a great example. As a result, retailers must elevate the way they invest and care for their own brands.
- Pricing and Promotion Optimization: Data analytics offers a powerful way to improve pricing and promotion strategies which are no longer driven by weekly circulars or print ads. Consideration of pricing strategies, such as price matching, to grow customer trust and save sales are critical levers in a competitive environment. Furthermore, digital signage will enable dynamic pricing and more effective utilization of inventory.
- People: The pace of change and evolving needs makes talent a critical enabler of winning the 2020s. Retailers need to rethink talent strategies from the frontline (in-store) to the backline (HQ). This involves a mindset shift from a “knowing” culture to a “learning” one and making appropriate investments in training, technology, and career pathways to keep up with rising wages.
- Process Transformation: Legacy retailers must break down silos and adopt more to agile ways of working. When done correctly and at the proper scale, process transformation throughout the organization yields significant savings, which should be redeployed and fund growth elsewhere while enabling continuous change.
- Partnerships: Looking to Amazon and Alibaba, retailers must think more broadly about their “ecosystem” strategy. What are the key partnerships and alliances they should form to enhance their offering or proposition? What are the underutilized assets or distinctive capabilities that can be offered as a service to others?
The last decade saw dramatic shifts in retail (case in point: Sears had $45B in revenue in 2010) and the next ten will further separate successful retailers from those that have not transformed or built businesses to match customer expectations. Upon our year-end reflection, we noticed that successful transformations of the last decade such as Best Buy, Target, and Home Depot put the customer at the heart of their strategy as the leaders invested in their businesses. On the flip side, companies, like Sears, focused on engineering financials to maximize profitability.
Like any well laid plan – or solution to a key problem – there must be a fundamental understanding of what ails the company which so often means understanding why customers are not purchasing from you anymore. Einstein’s wisdom of nearly 80 years ago holds true today and will continue to do so for any company seeking to reinvent its business.
Interested in learning more about the topics in this article? Send us a note at firstname.lastname@example.org or feel free to contact us for a call.