As we move further into 2020, retail executives continue to respond to the ever-growing expectation for differentiated customer experiences and margin growth. North Highland’s annual Beacon survey of industry executives indicates that two themes will be top of mind for 2020:
- Customer Experience (CX): 93 percent of retail leader cite this as a 2020 strategic priority.
- Operational Efficiency (OE): 85 percent of retail leaders cite this as a 2020 strategic priority.
While these strategic priorities aren't surprising, given their frequent mention in earnings calls and analysts reports, further investigation into each priority provides a glimpse into the investments and capability tradeoffs we should expect this year.
North Highland has identified three common threads across these areas that will be play a significant role in the transformation of retail operations in 2020:
Data and Analytics, Digital Capabilities Leading the Charge to Improve CX
Retail leaders cited improving data and analytics as the No. 1 capability improvement area (87 percent) for the year ahead, closely followed by digital capability improvement (85 percent). The intense focus on data and analytics as well as digital are highly correlated to advancing the customer experience. In an era of seemingly limitless amounts of data collected by retailers, the opportunity to leverage data to make a positive impact on customer experience decisions is very real. Tailored product recommendations and more precise pricing/promotion cadences are just a couple examples of high-impact, data-enabled CX initiatives.
Because retail executives have observed the impact of data-enabled CX initiatives, they identified data and analytics as the capability providing the highest level of competitive advantage. Retailers continue to test and scale new digital applications aimed at creating a seamless customer journey across selling channels and multiple transactions. Continually enhancing mobile apps and product selection that enables customers to “pre-experience”’ products before purchase are now becoming table stakes for large retailers.
Operational Efficiency Driven by Supply Chain and Store Operations Transformations
Operational efficiency can be achieved across all retail functions, but the two areas consistently tied to efficiency improvement initiatives by retail executives in 2020 are supply chain (83 percent) and store operations (81 percent). Supply chain transformation is almost a baseline assumption for retailers in 2020, with continued wage inflation, tariff uncertainty and an increasing mix of expensive e-commerce orders creating a perfect storm of headwinds against supply chain efficiency. On the store operations side, the migration of foot traffic to click traffic has pressured retailers to significantly reduce store operations cost while reimagining the role of the store environment going forward.
CX and OE Tension
The prioritization of CX and OE in 2020 sets up a continual tug of war between leaders focused on driving revenue through improved customer experience and other leaders focused on minimizing operational cost inflation. The growth of e-commerce volume has exacerbated this tug of war over the past five years: When e-commerce was between 1 percent and 2 percent of total sales transactions, operations leaders paid little attention to the high cost of fulfilling these orders. However, with many retailers pushing 10 percent of online sales transactions, the cost to pick, pack and ship single-unit orders across a wide geographic canvas has begun driving intense conversations around the long-term profitability of the online channel. In the end, CX will inevitably “win” the tug of war over OE because OE thrives off scale. Removing the focus on CX will cause sales to fall, leading to much larger challenges than OE.
In the coming year, expect leading retailers to proactively bring together CX leaders and operational leaders to co-develop a CX strategy that enables operation leaders to effectively plan for changes and maximize OE within the boundaries of the company's needs. They're likely to do this through investments in data and analytics and digital capabilities that support both objectives.
Andrew Billings is a principal and senior leader in the retail supply chain practice at North Highland, a global consulting firm.
Andrew Billings is a principal and senior leader in the retail supply chain practice at North Highland, a global consulting firm. He is an expert within the areas of merchandising, product lifecycle management and supply chain transformation. His experience spans across strategy definition, process improvement and systems implementation. Andrew has a passion for partnering with large and mid-market retailers to drive profitable and sustainable growth.