After more than 20 years in the retail industry, now is the first time I’ve ever heard CEOs tell me they’re not sure what to do next.
They are faced with reconciling an almost impossible dichotomy – the challenges of cost-cutting and store optimization, alongside developing new, exciting and relevant customer propositions, delivered largely through digital channels.
Effectively managing a business on these two very different fronts presents a serious headache. And that’s even before you factor in responding to competitor innovation and meeting the needs of increasingly demanding consumers. The bar for customer experience and convenience continues to rise as tech giants such as Amazon and Uber relentlessly lead from the front.
How do you guide your people through a tough, hard-nosed rationalization process, while trying to inspire creativity and growth through digital?
The two very different tasks require very different approaches, in terms of style and staff capabilities. As a result, CEOs are faced with the prospect of developing a "split personality" in order to lead equally and effectively on both fronts.
Go big or go home
The greatest danger to this kind of fragmented leadership is that as priorities separate, so do budgets and staff resources, with legacy parts of the business undergoing brutal reconstruction, while the digital arm aims to break new ground.
Without a single, unifying strategy, the two sides can quickly become detached from each other, diluting brand identity. Two separate silos back to back, arms folded, looking in opposite directions, not talking to each other. Customers will instantly see this disconnect through a disjointed customer experience, eroding their brand confidence and loyalty.
Too many traditional retailers are responding too slowly to this changing market landscape, moving forward only in small and carefully considered steps. Time is of the essence – and by the time any action of this kind is taken, a window of opportunity will be missed, and further ground ceded.
Today, the message for retail CEOs is clear – go big or go home. Take bold steps bravely.
The next question, of course, is how.
Cut deep, but mind the muscle
If you are one of the many retailers dealing with declining profitability in the store estate, and sub-scale digital channels that are too reliant on expensive external partners for growth – you are not alone!
Deciding where to cut cost, and how deep, is never easy, but a common mistake is to try to salami-slice budgets or store numbers when a total rethink of the cost base and store portfolio needs is required.
Fortunately, there are many data-based approaches and tools to help determine optimum store estate and cost structure. However, leadership judgement is key to setting the right parameters to guide the analysis.
For example, how will the role of the store change in the future? Could it become an "experience store" – essentially a marketing channel – or is it an omnichannel experience designed to recruit customers to the digital channel? Brands including Burberry, Nike, Apple, and Samsung have all created such formats, and demonstrate what innovation can do to transform the customer experience.
The single biggest challenge is actually underestimating how deep to cut. It is essential to give yourself sufficient time and money to build new propositions and digital capability. Simply chipping away at the cost base to keep your head just above water is not a sustainable plan.
Forecast the customer trends from store to online and think about what cost base you’ll need in three or five years’ time. The trends are unlikely to reverse, and you’ll give yourself a chance to manage change in an orderly way.
Innovate and embrace the digital natives
In most retail sectors, value for money and convenience are commodities. You simply have to offer amazing value and enable customers to access products and services in any way they want, largely for free. That is today’s reality. The remaining differentiator is the quality of your proposition and experience. Offering customers something relevant and unique, and giving them an amazing experience still counts for a lot (in certain sectors).
Disruptors like Airbnb, Rent the Runway and Warby Parker are examples of businesses that have embraced innovation – a combination of new business models and giving something back to the community. Creating unique experiences is a powerful draw – from Selfridges’ amazing Accessories Hall, to the fishing lakes in Bass Pro shops – but don’t forget the value of good old-fashioned customer service – the human kind!
The key to success is to be authentic, relevant and totally focused on the customer, embracing new ideas, even if it disrupts your old business model. It’s always better to cannibalize your own sales than wait for someone else to do it.
Building digital capability is, of course, a major part of this. But, it’s not always easy for a traditional, legacy brand to attract digital talent. A differentiated approach is required. While renting a funky office in Shoreditch with free beer could be a first step, this may be missing the point in the long run. Digital cannot be separate to the core business – it only works if your business is digitized from front to back, requiring a new attitude, not a new building.
This leads us back to the CEO’s "split personality." Leadership has never been easy, but these days retailers have to able to understand and support multiple business imperatives simultaneously.
In part, this is solved through increased diversity and agility in the leadership team. But CEOs also need to check their programming constantly and be ready to accept, challenge and question the paradigms that shape their thinking.
Little wonder that having multiple personalities could be essential for success!