Paul Martin, UK Head of Retail at KPMG, discusses how the industry is navigating its way through a challenging period.
The term ‘digital transformation’ seemingly frustrates and motivates those operating in the retail industry in equal measure.
Some are tired of being told of the need to restructure their businesses for the digital age, while simultaneously understanding the opportunities that exist if they can implement the right systems to serve their customers better. There’s also a feeling of distress that other businesses are forging ahead with transformative plans – even if that is not the case.
Perhaps the fear comes from the fact that retailers know they must transform many of their operations to be fit for purpose in a world where customers demand speed, accuracy and exemplary customer service, but are not actually clear what the end result looks like.
“Nearly everyone is on the digital transformation journey, but ‘journey’ is the important word,” explained Martin. “Sadly, it’s a journey with no certain destination at this point in time. It’s about continuously evolving milestones.”
“A lot of organisations have significant legacy issues to deal with, such as tech infrastructure, supply chain, warehousing, networks and real estate – at the moment it’s all about placing your bets and working out where you’re going to get the biggest bang for your buck.”
The need to be product- and customer-centric
It’s common knowledge that the fundamentals of retail have changed thanks to the growth of online shopping, and consumer spend slowing or being redirected towards leisure activities and other entertainment activities. Streaming services such as Netflix are taking a sizeable proportion of the spend that used to be absorbed by UK high streets and shopping malls.
In response, retailers are looking towards different technologies to enable their modern-day operations. There’s a drive towards software that provides a single view of stock, customer information and orders, as well as other tools that create more personal relationships with shoppers.
“As an organisation you need to have the customer at the heart of decision making,” Martin noted.
“It really starts with the cultural process. Many organisations are still grappling with the transformation from a product-centric business to a product- and customer-centric business. Historically, you could have really great products, you’d open the doors of your shop and customers would arrive; but things don’t work in that way anymore.”
He added: “You need to have great products, but you need to know who your customers are, and how you are going to activate them so they spend their money with you. From a tech perspective, some companies are doing a better job than others.”
Even the pureplays need back-end investment
KPMG works alongside the British Retail Consortium to compile monthly UK retail sales growth figures, both offline and online. After a dip in online growth in May, web sales returned to double-digit growth in June – but this is all underlined by quite flat retail sales patterns overall.
Martin recently warned that retailers need to invest in the means to personalise their communications with customers to help boost sales conversions, but he also acknowledged that back-end infrastructure needs to be given more attention.
“Many organisations have been looking at the front end over the last few years, but if you start thinking about HR, finance and procurement, a lot of these systems have received limited love and support,” he argued.
“Even the newer pureplay businesses have focused on the front-end a lot, be it their websites or personalisation engines, but the back office is still really suffering.”
Martin chairs a Retail Think Tank, made up of analysts and leading figures in the industry. Its latest findings indicate that sales growth has been particularly sluggish for the last three quarters, at a level not seen since 2012.
Various cost pressures, including the value of sterling against the euro and the US dollar, are contributing to this difficult period for the industry. Impacts on the bottom line include the April introduction of increased National Living Wage requirements, the Apprenticeship Levy and business rate re-evaluation.
There’s certainly a lot for the sector to contend with, as it continues its journey to modernise for the digital era. Martin’s advice to retailers is to get to know their customers as quickly as possible, as it can help restore some control in a time of macro- and micro-economic pressure.
“Start with governance and processes – do you actually measure customer satisfaction, and do you actually understand your customer? If you don’t, there’ll be a financial impact on your organisation.”