The past few months have brought unprecedented uncertainty, complexity and change to the retail industry, both globally and here in Ireland. In the Coronavirus wake, some retailers will thrive while others struggle to survive, writes Niall Savage, KPMG’s Retail and Manufacturing Lead.
While the inexorable shift to digital platforms may be the dominant trend in global retailing, there are other quite profound shifts taking place, including changing consumer behaviours and attitudes, a greater focus on purpose and differentiation from competitors, and a recalibration of cost and business models.
These trends offer clear indications of how retail markets in Ireland and around the world are changing and how the retail industry might prepare for the new reality.
Even before COVID-19, it was becoming increasingly clear that physical shop-based retailing has passed its zenith. While many physical shops and outlets will certainly return to growth, it is clear that the days of being able to drive growth through physical bricks and mortar presence on main streets and high streets are over. While some retailers had already embraced the online opportunity, others had not, and those with no existing online or delivery channel will struggle to survive.
The challenge now for more traditional retailers is how to evolve to ensure they still have a profitable business. Competing with online platforms like Amazon will be very challenging for traditional retailers, where consumers have become accustomed to being able to purchase goods in one click, and have a tailored offering available to them online, based on their online behaviours and personal preferences.
A solution for retailers who are now building their online presence from scratch would be to partner with existing platform providers, so they can establish their presence as quickly as possible, and in a more cost-effective way.
From the outset, the vast majority of governments and businesses have been clear that they plan to put people ahead of profits. COVID-19 only accelerated a trend that was already well underway. Consider this: according to a study by Edelman in late 2018, nearly two-thirds of consumers around the world said they would decide to either buy or boycott a brand based solely on its position on a social or political issue.
This trend presents an opportunity for Irish retailers. The emphasis on shopping local has never been more prevalent, and retailers can use that to their advantage to appeal to consumers. Customers want businesses to stand for something bigger than just the products they sell or the dividends they return to their shareholders. Retailers should ensure they are getting the message out there that they stand for more than just profit, so that customers and potential customers are aware of their active role in communities, or that they stock goods from local suppliers. Musgrave and SuperValu for example put a lot of focus on highlighting their support of local communities, and others like Dunnes Stores promote the fact that they are buying locally and supporting Irish businesses and communities by stocking products from Irish designers like Paul Costello.
Most retailers recognise that conventional forms of cost cutting are no longer enough to shore up margins and rebuild the business. Even after the aggressive cost-containment strategies rolled out in the immediate aftermath of the response to COVID-19, most retailers recognise they will need to go further if they hope to return their business to profitable growth in the years ahead.
But it’s not simply a question of reducing costs. It’s more about investing where you can have most impact, identifying what is most valuable and which cuts could damage things like customer loyalty. Some of the more obvious places for investment include new technologies to improve the efficiency of supply chain management, inventory management and shipping and receiving. These are areas that could yield significant value if the right technologies and operating models are brought to bear. There are certainly a multitude of tools and technologies on the market that offer as much.
There is no doubt that margins will continue to come under pressure as markets start to rebuild from COVID-19. Yet rather than simply slashing costs and hiking prices, we would hope to see retailers start to look for new ways to secure value from their existing assets.
In today's environment, customers care less about breadth of choice and more about availability. And that could change the way many retailers operate. As different countries moved into lockdown status and “non-essential” retail stores closed their doors and grocery shop shelves emptied, those retailers who know their customers had a clear advantage. Some grocery retailers have started exploring ways of narrowing their focus down to a decreased range of high-demand items — creating ‘minimum viable ranges’. In doing so, supply chain efficiency and working capital measures are increasing significantly; and few customers have so far complained.
In the near future, we can expect that customer expectations will once again shift. Our view suggests that only two types of retailers will likely survive: those offering a limited yet curated selection and those offering unlimited selection. Those in the middle may be the ones that struggle most.
We also expect to see retail leaders think more clearly about their investments into three key areas: customer loyalty programmes, customer data, and technologies aimed at making the shopping experience easier, safer and more efficient.
To find out more about how KPMG perspectives and fresh thinking on issues impacting the retail sector can help your business, contact Niall Savage.