STORES Global Powers of Retailing 2009 - (Page 44) 2009 global powers of retailing Thus, profitability will more likely arise from the ability to limit a variety of costs. Retailers are likely to take a knife to operating costs by consolidating support functions and slashing payroll. In addition, they will examine their cost of goods more carefully. They will attempt to negotiate better deals with suppliers, taking advantage of the fact that a recessionary environment creates more of a buyer’s market. They may even find that they now have more leverage with suppliers. Retailers will also more closely examine the mix of businesses they operate and may choose to eliminate formats, fascias, and merchandise categories that are underperforming. This is an excellent time to become more focused on core businesses—and define what core business a company should operate. It is also an excellent time to figure out the appropriate mix of formats and fascias, as well as to re-negotiate leases. In so doing, smart retailers will be better positioned to take advantage of the ultimate economic recovery. Finally, retailers will take a hard look at their locations, choosing to exit some markets and shut down stores that are probably cannibalizing others. retailing, including customer service, store layout and design, product information, ease of finding merchandise, speed and efficiency of checkout, visual merchandising, and after sales service. Retailers will also focus on two things: designing an appropriate customer experience that is synchronized with the overall strategy and brand message of the store, and properly executing that experience. Evidence abounds that customer experience can make a large difference in the performance of a retailer. There are countless examples of retailers who have re-designed their customer experience with positive results. The largest challenge, however, is not so much to design the correct experience but to execute that experience. The challenge is especially difficult when it entails using employees to execute a personal experience. That is where the next trend comes in. Think human capital management Perhaps the greatest challenge for retailers, other than the economic climate, will be managing human capital in a way that generates strong results. Like other service industries, retailing is an intensely personal business, much different from the manufacture of products. Yet it is even more challenging than some other service businesses such as financial services or transportation because retailing involves meeting the needs of people at many different levels. It involves meeting their simple material requirements and dealing with their financial and time constraints, while at the same time providing them a degree of entertainment and diversion. All of this, of course, must be done while flawlessly managing complex supply chains, logistics, and cash management. While it all requires good people, the overall complexity requires a very large number of people. Often these people are the only connection between a retailer and its customers. And yet such people often receive modest compensation, have limited experience, and are not properly trained. The challenge going forward will be to spend more time and money on training, do more to engender employee loyalty to mitigate turnover, and improve employee productivity in order to justify higher compensation—the latter being critical to attracting the best people. Given the demographics of developed nations (slow population growth, aging workforce), it will be important to off-shore some processes to lower wage countries. In addition, it will be useful to attract and retain older employees. Think risk management Having been burned by an abrupt shift in the business landscape, retailers will be wise to focus more attention on the issue of risk mitigation. And given that financial markets want retailers to be prepared for changes in the environment, more attention will be paid to this critical issue. Among the risks that will keep retailers awake will be disruptions to supply chains, currency volatility, natural disasters, man-made disasters, legal liability, and financial market disruption. The latter is probably of most immediate concern. The recent meltdown in credit markets demonstrated the importance of having sufficient cash on hand and having strong financial service and supplier relationships. It is likely that more retailers will have a chief risk officer and maintain more substantive plans for dealing with business disruption. In addition, an important part of risk mitigation will involve diversifying risk. Those retailers with supply chains concentrated in one location or with one major supplier may choose to re-think such business design. Diversification of sourcing will be critical. Think customer experience In a slow growth environment, retailers will look for ways to differentiate from competitors in order to build brand equity and generate interest in store visits. One important way to do this will be to focus on the quality of the customer experience in the store. This can entail many aspects of Think multi-channel The Internet is now one of the most powerful tools for interacting with consumers. Not only is it a valuable selling tool, it is also a great tool for learning about consumers, telling stories to consumers, and G44 STORES / January 2009 www.deloitte.com/consumerbusiness http://www.deloitte.com/consumerbusiness
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