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Strategy + Digital

Fortifying against Amazon

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Andrew Gorecki
Managing Director - Retail Directions
January 11, 2018

In 2017, many Australian retailers experienced increased headwinds in their business. The top line stalled and profits shrunk.

With Amazon now open for business Down Under, Australian retailers are concerned to what degree this will make the already uncomfortable situation worse.

This blog post summarises Andrew Gorecki’s, Retail Directions MD, presentation at the November 2017 AFR Retail Summit. In the keynote, Andrew looked at the underlying real reasons behind the malaise and how retailers need to respond.

Slide02

Let’s start by looking at the nature of factors that can impact a business. Each of the above, once identified as such, requires a different response from the retailer.

Slide05

The consequences of incidents will usually pass by themselves or require once-off remedial action. In an incident scenario, retailers must avoid panic and reactive changes to their business model or strategy.

Cyclical variations can be predicted and retailers must design their business model to cater for both the periodic peaks and troughs.  Proper planning and business structure are the key.

Structural changes are different.  They are permanent in nature – they won’t pass and they won’t reverse themselves as seasons change.  This is the kind of change that retailers have been experiencing over the last few years. This means that the pain will not go away until retailers recognise the need to systemically restructure their business, to align it with the new environment.

Slide06

Before we can consider remedies for the structural changes that occurred in society (hence, in the retail environment), we need to identify the underlying reasons for the changed world, which retailers now have to navigate.

Many factors (as listed on the above slide) have been proposed by industry insiders, consultants and the media. But, these are more symptoms of the change, rather than the cause of the emerging social, economic and political environment.

All these people hold a powerful computer chip in their hands and the chip is connected to the global network.  It is usually known as a ‘smartphone’…

The chip has not yet been plugged into our heads, but if a gentle Bluetooth interface was available, then who knows…

The “connected chip”, now in use practically 24/7, gives people extraordinary abilities.

Slide08

We don’t have robotic bodies as yet, but the man in the t-shirt is a thing of the past. Evolution has moved us beyond him through the permanent attachment of a smartphone in his hand.

As a consequence, we are now dealing with the society of semi-cyborgs. And if you doubt this, check out the next slide which lists the capabilities of this new species – something humans couldn’t do (or even dream of) only a few years ago.

Slide09

There is a slight exaggeration in the ‘telepathy’ part, but we can share our thoughts almost instantly across the globe. True, we still need to say it or type it, but we are all connected.

The last three items have the most profound impact on the society and on the retail industry.

The ‘cyborgs’ are plugged into a number of hubs (mostly social networks) and as a consequence have become partially disconnected from reality. If you want to reach them, you need to go through their hubs.

This new species can also easily cluster together into swarms, turning into potent electronic crowds. Research into this space is relatively new (less than 30 years), but this area needs to be studied and understood by the modern marketing teams.

Slide10

One of the lessons behind Amazon’s success is their full alignment with this new breed of humans.  Amazon both: understands this new consumer intimately, and continually creates an evolutionary force to shape them.

Slide11

The standard five step purchase process has changed for Humans 2.0.

The first three stages are now dominated by digital engagement and they morphed into a Digital Path to Purchase. Please note: ANY purchase, not just via E-commerce.

Furthermore, if the purchase takes place within a store, retailers still need to realise that they are servicing Humans 2.0, not the humans as we knew them five years ago. This is why the store staff must also be given “computer chips” to hold in their hands, to boost their chances of successful customer engagement. Don’t let Humans 2.0 outsmart your Human 1.0 staff.

Slide12

This is where most retail businesses have evolved today. Please note the absence of the term ‘E-commerce’ here. In reality, we need to recognise that we only deal with two kinds of sales: over the counter and delivered. How the order was placed matters less. This is an important distinction in designing the retail enterprise of the future.

Slide13

This is the retail model which needs to be adopted if retailers want to remain relevant in a world populated by Humans 2.0.

Digital Path to Purchase (any purchase) means that retailers need to change their business structure, to create a single marketing department, focused on the digital engagement. At the same time, modern retail operations and logistics need to focus on business-wide fulfilment.

The old paradigm of brick & mortar + E-commerce operating in parallel is dead.

Slide14

To function effectively in a world dominated by Humans 2.0, these areas within a retail enterprise need realignment.

Technology, Logistics and Store Operations require refinement. However, the Marketing and Loss Prevention areas need total revolution, not evolution.

The following slides look at each of these business areas in more detail.

Slide15

Indisputably, the most profound change in retail enterprises must occur within the marketing sphere.

A united, cross-channel marketing team must be created, with strong digital skills, to facilitate digital engagement with Humans 2.0. This engagement must be holistic, to drive both over the counter and delivered sales.

Consequently, sales and profit reporting needs to move away from brick and mortar vs. online sales and must now focus on order mix (online, in-store, over the counter) and fulfilment mix (over the counter, delivered, pick up).

Retailers who persist with separate e-commerce and store marketing efforts will struggle to remain relevant in the new world.

Slide16

The IT focus in a modern retail enterprise must be on smooth internal operations and dynamic external connectivity.

Retailers who still fight in-house battles to get their systems right must act promptly to sort this out, so their technology attention can be focused on interfacing with the external digital world.

Slide17

Operational Excellence is no longer an option – it’s a must.

To remain a going concern, modern retailers must put in place efficient processes and the requisite technology, to stop wasting time, money and effort on mere keeping the business running.

The main focus must be on customers and digital engagement, which becomes tricky if stock levels are consistently inaccurate or if people don’t routinely do what is expected of them.

Slide18

Like Retail Operations, logistics must also run smoothly in a modern retail enterprise.  This too requires solid processes and requisite systems.

Support from suppliers is also critical to put in place efficient distribution models. Modern retailers must be able to combine store replenishment with customer order fulfilment, without duplicating warehouses and stock.

Slide19

Loss Prevention is no longer optional within the modern retail enterprise.  With the massive increase in digital interaction with the outside world, retailers need to be able to monitor and defend themselves against malicious people and organisations, which can connect, and cause serious damage, to the retailer’s systems (and reputation).

Slide20

The first key message from this presentation: Humans as we used to know them are becoming extinct.

We are not yet machines, but… retailers need to learn and engage with the new species: the Connected Man, Human 2.0.

Slide21

To keep pace with Humans 2.0, retailers must adapt their thinking, strategy and business structures to ride the wave, rather than remain stuck in the past.

Andrew will share further insights into this critical topic when he takes the stage at Retail Leaders Forum 2018, participating in the customer-focused panel session near the end of day one.

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About the author

Whether it is retail, technology, current events or entrepreneurship – Andrew Gorecki brings an unconventional approach to the subject matter. He provides a compelling alternative narrative, challenging mainstream views, and is sought out by industry insiders for his strategic advice and insights. Andrew co-founded the retail software company Retail Directions in 1994, and was a non-executive director of Reece Ltd and its subsidiary companies between 2008 and 2017. His latest book, Gearing Up for Success covers the critically important secrets of success that our schools choose not to teach.

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