From products to people: Retail’s challenge for 2013

Woolworths and Wesfarmers are among the 20 biggest retailers in the world, a new report from accounting firm Deloitte reveals.

The 16^th Global Powers of Retail report, ranks the world’s 250 biggest retail companies by revenue, and finds Woolworths is 17^th and Wesfarmers 18^th. Walmart is the biggest money churner by a long shot, with retail revenue of $US446 billion.

The report also provides guidance for retailers about how to survive the relentlessly tough economic conditions, the onslaught of online rivals, and the rise of the more frugal and savvy consumer.

Interestingly, however, few of the top 250 are stellar exemplars of Deloitte’s advice, which focuses strongly on innovation and omni-channel marketing – with the exception perhaps of online bookseller Amazon.com, 23^rd on the list, with revenue of $US46.5 billion and $US631 million net profit (a tiny profit margin of 1.4% compared to Walmart’s 3.7% net profit margin).

“The central message of the Deloitte report is correct,” says Brian Walker, the CEO of retail specialist consulting company, The Retail Doctor Group. “We would describe it as having a ‘fit business’.”

The key findings of the report include:

• Only two Australian companies make the top 250 global retailers
• Combined revenue and net profit went up, by 5.3% and 3.8% respectively.
• More retailers are growing by exporting. In 2011, 23.8% of the top 250 revenue came from foreign markets.
• Woolworths and Wesfarmers are unlike their top 20 counterparts: their revenue is from Australia and overseas ventures have been unsuccessful.
• Global players such as Zara and Topshop moved into the Australian market in 2011, and more are expected in 2013, such as Pottery Barn and Abercrombie & Finch. Established foreign retailers, such as Ikea and Costco, are expanding in the coming year.
• Wesfarmers tops the 50 fastest-growing companies with a 59.2% compound annual growth rate from 2006-11. However, most of the fastest growers are in emerging markets such as China, Russia, Africa, the Middle East region and Latin America.

Deloitte’s advice comes in two parts of the report: one advising on the way ahead, and one tackling the potential pitfalls.

But Walker says the problem with this kind of report, and the reason that clients knock on his door, is that such reports lack information about how to achieve these changes. LeadingCompany discussed the findings, and strategies for change, with Walker.

Deloitte’s “path to relevance” for retail comprises:

• Adopting a single strategy and vision across channels (talent, physical space, processes, marketing and merchandising)
• Creating a relevant customer experience that begins with a keen understanding of the customers and a strategy to personalise the experience at every point where customers interact with the brand
• Investment in processes that can keep pace with the blinding rate of technological change
• Innovations in talent, the physical space and emerging technologies
• Continuous evaluation of performance; no relying on a single bullet

Walker says these themes must coalesce around the customer experience. “The point about these five take-outs is that they are so heavily interrelated,” he says. “Your single strategy has to be about the customer experience – a shift in focus from product to people, if you like.”

Walker offers his customers a “personality profile” of their customer base, using licensed technology. “It is understanding at an intimate level which channel and which aspect of the brand certain customers resonate with,” he says. “There are 15 different ways you and I can be touched by a brand, but this is a personality-focused way. Putting clothes on a rack and saying this is relevant to customers just doesn’t cut it anymore.”

With regard to innovation, Walker advises retailers to tap into left-field thinkers to get real innovation. “Bring in influencers from completely outside the business: theatre designers to help you merchandise for example. Very few companies can innovate from within their own four walls.”

Deloitte’s list of potential pitfalls includes:

• Access to capital
• Diligent execution
• Financial, cash flow and working capital management
• Being clever with cash
• A clear strategy and the people to execute it

Capital is the critical issue, says Walker. Panicked retailers are struggling with falling net profit margins at time when investment is the answer to their problems.

“Nordstrom (95^th on the list) in the US has funds set aside for the next 10 years plus for new development or innovation,” says Walker. “I haven’t seen any annual report from Australian retailers that suggest anything of that scale.”