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Rethinking the cost of doing business

Rethinking the cost of doing business

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Margins were already razor-thin across many parts of the retail sector. Now every cost is coming under the microscope and every drop of cash is being aggressively preserved. The memory of this event will remain in the collective consciousness of retailers for some time; the desire to eliminate costs will likely be insatiable. 

rethinking the cost of doing business

Most retailers recognize 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 to COVID-19, most retailers recognize they will need to go further if they hope to return their business to profitable growth in the years ahead. Expect to see a flurry of investments focused on improving the value of existing assets over the coming year.

Some of the more obvious places for investment include new technologies to improve the efficiency of supply chain management, inventory management 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.

But this year, we expect to see retailers start to take a closer look at the value of their other assets — namely their stores, their employees and their customer loyalty. Due to COVID-19, all three are now in flux and their value propositions are rapidly shifting. Ensuring the right costs are being incurred to achieve the right objectives will be key.

Retailers need to increasingly leverage data and analytics to identify their most profitable stores, configurations and products and, based on this, make some important decisions. Given the massive recent changes in customer expectations and demand, all previous analytics will need to be reviewed. Stores that were profitable before may no longer be so in the future.

They will likely also view their employees in an entirely new light. Rather than simply stocking shelves and overseeing cash registers, employees will be engaged as valuable customer experience agents and ambassadors for the brand’s purpose. Head office jobs may also start to shift as companies look to take advantage of new remote-working models and virtualized ways of working.

The most advanced will likely start to manage their customer experience and loyalty as if it were as asset, carefully nurturing and measuring their stock of loyalty in order to enhance its value and improve its resilience.

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, expect to see retailers start to look for new ways to secure value from their existing assets.

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 network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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