Over three-quarters of retailers have got the message - their operating model needs to change if they’re going to stay relevant to consumers. That only leaves one question - how much more meltdown in the sector does the rest of the market need to see before it gets with the program?
That’s the headline conclusion from a study launched at last week’s World Retail Congress in Amsterdam. Based on analysis across 800 leading retailers, the High Velocity Retail report found that 76% firms believe their model needs to remain relevant over the next five years. A further 21% admit to having doubts about whether their business model is sustainable, while a delusional 3% think there’s nothing to worry about.
The study is built around the concept of High Velocity Retail with the report observing:
High Velocity Retail is not just about speed, but combining it with direction. Winners are focussing on being the best at something that matters to customers: they avoid the pitfalls of going nowhere fast or trying to do everything badly High velocity retailers no longer simply speed up traditional processes, but work out how to completely short-circuit elements of traditional retail to improve both speed and efficiency. They selectively deploy capital against priority areas and select partners that provide capability outside their heartlands.
There are four models of High Velocity Retail that can be seen in practice today:
Value Champions which offer low prices and have a standardised and scalable operating model. A prime example is discount supermarket chain Aldi:
The most forward-thinking players are not just driving market share in their current product markets, but are developing an ‘end consumer’ mind-set to create even greater opportunities to leverage their scale.
Platform Models, built on tailored technology designed to fit partners business platform needs. Luxury e-commerce retailer Farfetch is a case in point:
At the heart of the platform model is establishing front of mind customer awareness. Platforms are increasingly becoming ‘the starting point’ for online shopping missions and are disintermediating search-based platforms in customer acquisition.
Customer Solutions, focused on outcomes rather than products, with Pets At Home given as an example:
As increased price transparency undermines the ability of retailers to recoup the costs of these services in price these businesses will increasingly shift towards subscription and bundling in order to lock in clients to the service proposition on offer.
Retailers as Brands. These are firms with a genuine connection to their customers and which can offer an consistent, omni-channel brand experience, such as Lululemon
Brands care most about getting their product to their consumers and care much less about the channel by which it gets there. Whether they bought it directly in an own-brand store or through a generic platform is no longer relevant. What matters is that the experience stays consistent with the brand identity and values.
Beyond those basic principles, the report offers a number of rules for how to succeed in this new retail environment.
Be the best at something that matters.
In other words, pick your battles and don’t try to be all things to all people. The report argues:
This is not about pursuing a one size fits all solution but deciding how you are going to win, with whom and investing strategically. Speed will not cover up flaws or inconsistency in the underlying proposition…as the world speeds up and barriers to entry fall, the challenge for retailers is to translate this clarity of focus into prioritised investment decisions that develop the dimensions that matter to your target customer.
So Aldi is a good example here as a retailer that knows that value for money and low prices are the differentiators that its customers look for.
Choose where to follow
Being on the bleeding edge is no guarantee of success; it’s as important to know when it’s most appropriate to follow the example of others. That’s why we see delivery services being touted as a big deal by the likes of Walmart, when Amazon has been offering the same facilities for longer. Equally, the way that firms sometimes over reach themselves in trying to ramp up tech investment to compete with such as Walmart and Amazon. Given that the latter spends around $22 billion on tech and content, that’s a pretty futile exercise for most.
Go beyond borders to build your tribe
Don’t think inside borders. Think about how to attract cross-border customers. The push by US e-commerce firms into high-growth markets such as India and China is a good case in point:
To win in local markets, retailers must extend their brands into shoppers’ homes without compromising the end-to-end experience. This involves building a deep understanding of each market, from shopper preferences to marketing strategies. Friction must be removed from all points of the buyer journey, including returns, in order to ensure that the brand is on par with local competitors.
This is an interesting report that picks up on a number of trends in retail. The most interesting point to my mind is the interpretation of speed. It’s a cliche to talk about a fast-moving retail sector, but it’s only a cliche because it’s correct. But this isn’t just about ‘the need for speed’. As the four operating models isolated in the report suggest, there isn’t a one size fits all approach to the challenge of becoming a so-called High Velocity retailer.
Our own ongoing coverage of change programs across the retail industry around the world has thrown up success stories and utter failures when it comes to digital transformation, To be fair, the majority of the exemplars that we track are best defined as works in progress. That being the case, the idea that 21% of retailers are said to be still thinking about whether they fancy being the next Sears or Debenhams astonishes me.
As for the cocky three percent that reckon they’re all good thanks - watch out for the fire sales!