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COMMUNITY UPDATE

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Retailers can swiftly find themselves blown off course by the ill-winds of tightening consumer budgets and the need to reduce operating costs. This pressure on margins is forcing those in retail to streamline processes and improve overall productivity – yet they must still meet customer demand. 
 
“There is a sharp slowdown in disposable income, which we haven’t seen for a number of years,” explains Jonathan Simmons, Senior Strategy Partner and Lead Partner in the Retail and Consumer Products Practice for Europe at L.E.K. Consulting.
 
“Leaders should plan for the worst; look for cost cutting and restructuring, as well as improvements and changes to the supply chain – that’s particularly a given for those with significant imports."
 
From a UK perspective, the various scenarios posed by Brexit need to be carefully considered. Naomi Gillies, Head of Future Planning and Sustainability Development at John Lewis Partnership, says: “Retailers should focus on de-risking everything – from capital spend to pay budgets – so they don’t have to take a sudden U-turn.” 
 
Added to this uncertainty is the burden of cost increases from the National Living Wage, while rising rents and energy prices weigh heavily on the sector. “We’re lobbying, especially around property costs,” Naomi continues. “Our corporate affairs team do a huge amount of work with Government and external partners to make sure implications on the retail sector are understood.”
 
The stakes are high and mistakes can be brutally punishing, so leaders need to put a resilient plan in place. At DHL Supply Chain, Mark Parsons, Chief Customer Officer for the UK and Ireland, is interested in how retailers are dealing with these challenges. “Every retailer has to focus on its product mix, where it’s generating cash and the level to which information flows up and down the supply chain," he advises. "Traditional retailers can often fall down on one of those elements." 
 
 
High expectations
 
New technology continues to change the retail experience for customers. A prime example is Amazon, which has opened a store in Seattle with no checkouts – cameras and sensors are used to identify the items a customer takes and charges them accordingly. 
 
Rob McWilliam, former Vice President for Consumables at Amazon and former Finance Director at Asda, says that "this type of innovation is really interesting as a cost reduction and service improvement opportunity for retailers”. 
 
When it comes to innovation, Rob notes that while it may be easier to experiment in a digital business, leaders in traditional retail need to find different ways to try out new ideas. 
 
“There are some situations that are one way doors – such as major Capex commitments – but there are many things you can try and if it doesn’t work, you can unwind it. Learn the difference between one way and two way doors. Don’t spend two hours in the board discussing those two ways doors, just do it," he says. 
 
Hesitation will cost you, as Alison Bennett, Relationship Manager at Criticaleye, highlights. “The customer can shop wherever they want, whenever they want; if you can’t respond to that and are not agile as an organisation then you’re going to lose,” she says.
 
At Waitrose, Naomi notes that having separate teams to take the lead on innovation has proven effective. “We sign off as a leadership team the areas within which we’re going to innovate and then test fast,” she explains. “For example, we’ll launch an idea into a store and test customer appetite. Having a team that works solely on this means we don’t have to worry about all the normal hoops you have to jump through.” 

The waters may be especially choppy for retailers, but those that batten down the hatches will emerge stronger. “I don’t think this is going to be a year of retail Armageddon as some people have suggested,” notes Rob. “However, I do think that in order to maintain their market share, retailers need to make sure their sails are set according to the new way consumers want to shop.
 
"In order to do this, leaders need to be incredibly focused on managing the short-term impact, while also testing, learning and innovating for the customer of the future." 
 
 
This article is based on insights shared during Criticaleye's recent Global Conference Call – Retail Sector Watch: Keeping Pace in Retail 
 
 
By Dawn Murden, Editor, Advisory 
 
Do you have a view on the retail sector in 2017? If you have an opinion that you’d like to share, please email Dawn at: dawn@criticaleye.com
 
Don’t miss next week’s Community Update on M&A integration.