Retailers should look on today’s tough market as an opportunity. The current tough trading conditions and the structural changes to the market give retailers a rare opportunity to establish a winning position for many years to come.
The squeeze on consumer purchasing power will be a fact of life for some time. But of more importance is the growth of the internet, already influencing a high proportion of transactions, whether in store or online. In some product categories, the internet is rapidly taking over from stores as the main sales channel.
Tougher times encourage customers to look harder for value, whether that be price, service, design, availability or convenience. This accelerates the growth of new distribution channels and changes to the supply chain as the new technology enables better value to be delivered to customers.
At the same time cost inflation continues to exceed price inflation, intensifying the profit squeeze. Some retailers have already announced space reduction programmes.
Inevitably, some retailers now considered invincible will be overtaken by rivals, better attuned to today’s customers expectations, meeting them and earning profits. Some will disappear. Others will survive, shadows of their former selves. Some manufacturers are already trying to bypass retailers completely. And some competitors from other countries can supply from abroad.
To steer the path to the sunny uplands, three parallel paths have to be followed:
- Deal with the short term. In tough markets many retailers increase prices, impose cost reductions that damage the brand and increase promotional activity. This might fool investors but not the customer. Far better to focus on the core brand values, reinforce them and deliver on exceptional execution. Then watch your competitors become weaker.
- Define a clear vision of what is needed to be a winner in the next decade and communicate it. Ensure this vision encompasses best practice worldwide, including new and non-traditional potential competitors. Invest in the new skills and resources needed to successfully innovate. Act early.
- Provide the transformational leadership needed to overcome the natural inertia and resistance to change. Colleagues want certainty and often find change threatening. Investors want short-term profits and need convincing about the investment. And the media will be a voice for the doubters and vested interests. Innovations need to be protected and nurtured while those dealing with the short term need to feel valued and part of the future.
Successful transformations are challenging and take time. Many more fail than succeed. It is too easy for management to manage short-term profits, talk about tactical innovations and achieve the incentive plan targets, hoping that the tipping point will not incur on their watch. Remain in denial too long and it will be too late.
The leadership need to have the foresight to see the opportunities early and the motivation, incentive and skill to manage a successful transformation.
Leading colleagues, investors and other stakeholders through the transition and the associated learning process is a tough challenge but immensely satisfying.
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