As retailers negotiate bankruptcies, competitors creeping into their margins, changing consumer behavior, and the prospect of a widely anticipated economic downturn, the imperative for survival has never been more keenly felt.
The majority of retailers are stuck in survival mode. Of the 300 retail executives who assessed their organization’s overall health in BDO’s 2019 Retail Rationalized survey, more than half (54 percent) said they're only surviving or breaking even, while 37 percent self-identified as thriving, indicating they're profitable and experiencing robust growth. Of those Thrivers, 84 percent are pure-play e-commerce businesses.
Those businesses that are thriving are better positioned to see the other side of a potential economic downturn. In fact, 51 percent of Thrivers — who are generally e-commerce centric and early adopters of technology — are actively preparing for a downturn. They're also anticipating more retail bankruptcies in 2019 and, to weather the storm, are making smart bets and staying focused on standing out from the competition with exclusive offerings. Those that are simply surviving, on the other hand, tend to be more risk averse, and are taking a wait-and-see approach in response to a potential market correction.
However, staying the course only to play catch-up in the end will prevent those retailers from seizing opportunities that allow them to outpace the competition. With a potential market correction on the horizon — the question seems to be more when than if — the retail battleground could see attrition. For Survivors, investing in future needs is essential. This means anticipating consumer demands and knowing which parts of your business need attention. It also requires a solid financial foundation to make the investment in future needs effective in the long term.
Where Are Retailers Investing?
Two in three retailers said they have recently secured or plan to secure outside capital. Traditional retailers identified using that capital to stay stable, while the majority of pure-play e-tailers say they're using funds to capitalize on growth.
Across the board, retailers are making substantial investments in their e-commerce operations: 56 percent identified a “significant” amount of investment, and 42 percent identified “some” investment in e-commerce. For traditional retailers, that means de-prioritizing investment in real estate assets. E-tailers that exclusively operate digital channels have a natural advantage over traditional retailers when it comes to e-commerce. As a result, Survivors which still have a physical footprint are remodeling or downsizing. At the same time, more than one in three Thrivers is planning to grow their store count, and some e-tailers are making a foray into physical retail.
How Can Survivors Learn From Thrivers?
According to the survey, Survivors largely see their competitive advantage in their customer service offerings. For Thrivers, it's exclusive offerings and better prices. In order for strong customer service to be a differentiator, however, retailers need to inspire loyalty through personalized interaction. This requires adequate staffing and an investment in training, even while retailers are pressured to minimize labor costs.
Other strategies to move from a Survivor to a Thriver include evaluating the nonessentials and being willing to eliminate them — e.g., exiting unprofitable stores or turning them into distribution centers. Upskilling employees to add to that customer service edge and adopting technologies that replace legacy systems with next-gen technology are also tools to leverage.
But when it comes to technology, Survivors are shy. Thrivers are far more comfortable as early adopters willing to take the risks attendant to emerging technology: 54 percent say they plan to acquire a new technology in the next 12 months, compared to just 42 percent of Survivors. With customer service and customer experience driving many retailers’ focus and investments, technology and data analytics can aid customer data-driven strategies. However, without the capabilities in place, retailers will lose an opportunity to mine a wealth of potential insight.
For Survivors, assessing their strengths and weaknesses, acting to shed nonessentials and shore up their strong points, and developing a strong financial foundation to support customer-driven strategies may help them do more than just survive.
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