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Business models evolve

Business models evolve

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COVID-19, for the most part, has put physical retailing on pause. Indeed, with a significant proportion of the world’s consumers currently under some form of lockdown and all but essential services (generally food and pharmacy) permitted to operate, physical retailing is in a precarious state. 

business models evolve

Given that physical stores have been the foundation of the retail experience since the dawn of ancient Greece, the implications for today’s retail business model are massive.

Even before the upheaval, it was becoming increasingly clear that store-based retailing had passed its zenith. And while many physical stores will certainly return to growth, it is clear that the days of being able to drive growth through physical stores alone are over. Those with no existing online or delivery channel will struggle to survive this challenging time.

At the same time, the challenges related to COVID-19 are also forcing retailers to rethink the complexity of their value chain. Companies now need to be good at not just buying and selling products, but also at things like online fulfillment, home delivery, data analytics, AI, machine learning and process automation. The capabilities required to succeed in retail continue to expand. Given the current capability shortages and cash flow challenges, retailers should now be looking to refocus on the core retail fundamentals of buying and selling whilst partnering to deliver the other required skills.

Many are looking to platform companies to help deliver some of those important capabilities. Retailers (particularly that the days of being able to drive growth through physical small and medium sized ones) are also looking to them to drive footfall. Indeed, what this difficult time has clearly demonstrated is that online platforms are quickly becoming the shopping malls of tomorrow.

Retailers need to be in the right malls — and, just as importantly, in the right location — to see footfall today and (very likely) in the new consumer environment.

Generally speaking, most retailers now have three main options 1) become a platform, 2) leverage platforms or 3) continue business as usual.

 

Creating their own platform. Only a handful of market leaders currently have the strength (in capabilities, balance sheet or brand) to develop a platform ecosystem compelling enough to truly compete against the existing heavyweights. However, for those that can, the added value of controlling the data, route to market and capabilities that come with a platform will be extraordinarily valuable.

 

Leverage platforms. Those without the scale to become a platform themselves will likely need to partner with one. As part of their business model planning, retail execs are starting to think carefully about what part of the value chain they should own and what parts could be better delivered through partnerships (where all parties put some skin in the game).

 

Business as usual. Being able to partner while expanding and maturing your omnichannel capabilities will be pivotal. Prior to COVID-19, consumers were increasingly jumping channels as they moved through the sales journey and retailers will need increasing sophistication in their omnichannel approach in order to ensure customer experiences are seamless going forward. In this environment, business as usual would be challenging at best.

We believe that — over the coming year — ongoing challenges with supply, demand and business continuity will force many retail groups to rethink their future business models and make the respective choice. And that, in turn, should spark a new wave of innovation and competition across the industry.

The excerpt was taken from KPMG article, Global retail trends 2020: Preparing for the new reality.

© 2020 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

 

For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.

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