In October 2018, I had the pleasure of joining a panel with Michael Kollender, Rick Perkal, and Colin Watts at the Association for Corporate Growth’s M&A East event in Philadelphia. We had a practical and engaging discussion on “The Changing Retail Industry and the Impact of Amazon.” Our discussion revealed that while the new retail landscape presents challenges and Amazon has forced many to rethink their operating models, some have simply taken their eyes off fundamentals. Below are a few ideas that emerged from our conversation.
1. Develop “outside-in” leaders who win in the business of today and tomorrow.
CEOs and leadership teams must be able to recognize and act upon the trends that have potential to improve their business. The ever-increasing pace of disruption demands that organizations build a method to constantly identify disruption while evaluating ROI and required capabilities to apply them. Yet, CEOs must not only focus on the business of tomorrow.
Fears of obsolescence often drive boards to overly focus on “the next big thing.” However, CEOs must also win in the business of today. Retailers need to assess the dichotomy of the “business of today” (e.g., optimized store ops, inventory) with the “business of tomorrow” (e.g., digital DTC models).
2. Know Your Customer.
Do not lose sight of the most critical questions for any business. Who is our customer and what unique value do we provide them? There are 1 Billion people over 55 who control 70% of the disposable income. Marketing dollars are not proportionately focused on this demographic. Are you sure you know what they want, how they want to shop, and what they expect? Before you finalize your channel strategy, make sure you know your customer, what’s important to them, and the ways they like to shop and engage.
3. Drastic funding cuts in traditional business models to support DTC growth rarely works.
While growing e-commerce or funding omnichannel initiatives are atop most Executive Agendas, funding this growth by harshly cutting costs in existing channels is fool’s gold. Most simply cannot grow digital revenue fast enough to offset new digital cost structures and shrinking top line in your heritage business to make the math work. Companies have tried to fund growth objectives by reducing store labor costs (with rising rates, this typically means less people), cutting store level inventory, or moving marketing dollars to digital campaigns. Instead of bolting on capabilities, companies need to rethink and focus on integrating business and operating models that connect the digital and physical strategies, not eliminating capabilities to fund growth.
Matt Katz serves as Managing Partner of the Retail and Consumer Packaged Goods practice at SSA & Company.