Why Retailers Must Shift Strategic Focus to New Business Models Now
Reexamine 5 key areas of your retail operations as you plan for the future.
Retail was undergoing a transformation even before the COVID-19 pandemic, with the explosion in online shopping, the sharing economy, subscription services, the growth of discounters, massive closures of physical stores and an increase in home delivery of everything from clothing to food.
The COVID-19 pandemic dramatically increased both the pace and urgency of change. Pressure on struggling brands sharply accelerated, with nearly 40 major retail and restaurant companies filing for bankruptcy during 2020. From March through August of 2020, an estimated 155,000 small retailers closed, and many of these were permanent closures.
You may think this means retailers must be focused on the present, on their current survival. But that’s not the case. If you’re a retailer, to survive and thrive, your strategic work must be focused on the future.
Most retailers are excellent at figuring out what consumers will want to buy next season and next year. When it comes to trends in fashion, home, food and other consumer goods, they are expert trend forecasters. But, other than Amazon, few retailers have successfully applied the same forward-looking expertise to the rest of their business. This needs to change.
Protecting today’s business model and revenue streams will not be enough to carry your business forward.
To survive and thrive, retailers need new business models, new operational models and, possibly, even new revenue streams.
The following are five key areas of your business to reexamine now.
1. Consumer delivery model
The retail industry’s biggest challenge has typically been figuring out when a particular consumer delivery model is changing, but recent data is showing some clear trends. More consumers are shopping and buying online: online spending in the U.S. grew by 44% from 2019 to 2020, and during 2020, 21.3% of total retail spending occurred online, up from 15.8% during 2019.
While consumers are not completely moving away from brick-and-mortar, it seems safe to say the omnichannel retail model is here to stay.
With that in mind, you must figure out what’s coming next in delivery for your sector, your brand and your particular consumer demographics. Your company should be addressing questions such as:
- How and where will consumers want to shop for and purchase the products we sell? Will these two parts of the customer journey occur in different delivery channels?
- How much and what type of information and assistance will consumers want and expect during the shopping process? How can we best deliver this?
- What role might subscription boxes play in our future?
- Where will consumers want to actually receive their products? Delivered to their home or office? From a pick-up location, such as a grocery store or a UPS Store? In-store pickup? Curbside pickup?
- How long will buyers expect and/or be willing to wait between purchase and receipt of goods?
- What will our returns model look like with more purchases happening online or without trying on/trying out our products?
2. Shipping and delivery to consumers
Knowing that purchases are increasingly likely to be delivered directly to your consumers, you should consider shipping and delivery part of your customers’ experience. Amazon already realizes this, which is why it aggressively asks customers to rate every part of their deliveries, including where a package was left for them, shipping and packing materials, and interaction with delivery people. Consider questions such as:
- Should we invest in our own shipping and/or delivery systems, rather than using third parties?
- How can we rethink our third-party delivery and shipping partners to improve the customer experience?
- What should our packaging and shipping materials look like to maximize cost-effectiveness, customer loyalty and a positive experience?
3. Supply chain
You have probably worked hard to make your supply chain as efficient as possible for today’s shopping preferences, and have also likely weathered disruptions from COVID-19 and trade disputes in recent years. But this is an area of your business that likely also needs reinvention. Questions to ask include:
- How must our supply chain change to get products to customers when they expect them?
- How might product availability affect customers’ buying decisions – and how can our supply chain be a competitive advantage in this area?
- Is our supply information accurate enough for future shopping and buying models?
- How might future pandemics, trade disputes and other global trade disruptions affect our supply chain, and what steps should we be taking to minimize potential disruptions?
- How will “conscious consumerism” movements affect the information consumers want about products they’re considering purchasing, and how will we gather and share that information?
4. Brick-and-mortar store experience
Although you can expect far more buying and shopping to take place online, brick-and-mortar locations will still play an important role in the retail industry.
Not every retailer will need or benefit from them, and most retailers will need far fewer physical locations than they have today. However, an in-person experience will continue to be an important part of the customer journey for many brands.
Effective physical stores will likely look and function very differently in the coming years. They might serve more as product showrooms or to simply generate or maintain brand awareness. Or, they may be more important from a logistics perspective, offering consumers a place to quickly pick up or return a product they’ve purchased online.
You may already be experimenting with some of these models as the pandemic has presented health risks and other challenges related to shopping in and staffing a physical store.
Your company should be examining questions such as:
- Will brick-and-mortar stores help us to increase sales and profitability in the future?
- If we need brick-and-mortar locations, just how many will we need in the future? Should we be aggressively shutting stores?
- Where should our stores be located for maximum impact?
- How do we holistically evaluate location profitability to take into account cross-channel sales?
- How will we entice consumers into a store when there’s so much online shopping available?
- What type of unique experiences can we offer in our stores to make them must-visit destinations?
- Should our stores become order-fulfillment centers or retail/order-fulfillment hybrids?
- Do we need to set aside more retail space for picking, packing and pickup of orders?
5. Management and executive talent
Retailers tend to hire management and executive talent from within the retail industry, but new business models may demand a very different set of skills, experience and competencies. It’s time to expand your view of what you’re looking for in senior talent.
And, if you have a board of directors or advisors, it may be time to revisit the board competencies your company will need in a post-pandemic world.
Focus on the future
For most retailers, today’s business model is a dying one, and today’s revenue streams will not sustain your business into the future. Success requires focusing now on evolving your business to the next stage – sooner rather than later.
Contact me or another member of Kaufman Rossin’s business consulting services team to learn more about how we can help you evaluate and evolve your retail business model, operations and strategy to meet the demands of consumers today and in the years ahead.