On Tuesday 19th September, our Director of Development, Derek Palmer, and our Associate Director of Research, Hetal Patel, attended the FT Future of Retail conference in London. When Derek came back and said, “It’s clear that there’s little room for anyone in retail to get bored”, we definitely wanted to learn more about that, and we’ve asked him to do a write up of the conference.
The FT Future of Retail event focused on some of greatest challenges and opportunity for the industry, including recovery from Covid, labour shortages, the untamable returns avalanche, global supply chain complexities, the ever-evolving methods for reaching audiences, the elusive “omnichannel experience” and the role of stores. And, of course, all the hype and promises that AI is posing.
I can’t think of a time when there were so many complex challenges, and so many potential projects calling for capital investment.
Rather than give a blow-by-blow summary of the FT event I’ve decided to stand back, join up some dots and curate my opinion of where retail is going and what will likely be required to succeed in the future. This is of course my opinion, but I am underpinning it with logic and many years of watching trends come and go.
I have built this view around three key themes - Scale, the Ecosystem and Data.
Scale, scale, scale
The complexities of modern retailing, coupled with margin pressure and the need to be attractive to brands are all substantial drivers for retailers to grow their presence and expand their geographic footprints. This isn’t new, but it seems like there are more reasons to have scale than ever before. Multiple retailers talked of how the need to be an attractive and influential channel for leading brands was driving their growth plans for physical presence, while in tandem extending digital reach and scale.
This is enabling some retailers to generate significant revenues from selling digital media back to brands. Retail digital media is a rapidly growing channel generating huge revenues for large retailers. Some of them are now setting up their own organisations to support brand advertising activity on their platforms, in competition with media companies.
A further driver for scale is that it provides the opportunity to innovate once and deploy widely, enabling retailers to place bigger bets and get a large-scale ROI on their innovation initiatives.
Finally, scale can give you access to a greater quantity of 1st party data, the oxygen of AI. Tighter regulation, changing consumer attitudes and new privacy features on leading platforms all create growing challenges for retailers to build a good understanding of customers and their behaviours. Scale gives the ability to collect more diverse data about more consumers, to help drive recommendations, optimise promotions and improve search relevance. It also allows for better mechanisms to ensure the right size, shape, colour of product is sold first time, thereby minimising returns.
Building your eco system
Whatever the size of your organisation, it’s more important than ever to stand back and consider which parts of the operation are valuable to have in-house and what could/should be outsourced. Several retailers at the conference talked about being forced to build resilience into their supply chains due to Covid, the war in Ukraine and various natural disasters. Doing this, including more local sourcing and manufacture, is expensive and can make it difficult to obtain economies of scale. Coupled with this, we heard much about the increasing opportunity of automation in the supply chain and the challenges of getting this right, requiring deeper specialist knowledge and experience.
The supply side is just one area where outsourcing could be beneficial. Digital technology, in the widest sense, is another area. Many specialists in the technology space provide powerful vertical platforms in the cloud, addressing specific areas of the retail technology tapestry. I can envision a future where retailers have core platforms surrounded by a portfolio of specialist services that can be plugged in almost as easily as adding extra features to a LEGO model.
Achieving this will require conscious architecting and material investment. For years retailers have talked about addressing their legacy systems. Some have made good progress and are seeing benefits. Kingfisher were talking about their composable architecture and the benefits that it brought in providing access to data and enabling change. Other speakers raised the issue of innovation debt. The problem of falling behind and being increasingly disadvantaged through a failure to invest in new ideas was touted as a major for some retailers to stay competitive. This will impact company valuations and retail CxO’s will need to work hand in glove with technology teams to create a compelling and strong technology roadmap, with an equally compelling business case.
Evolving towards a flexible, composable model that orchestrates rich, specialised services won’t be without pain, but the alternative path of slow, incremental change could leave many retailers as prime candidates for acquisition by those who have got things right and are looking to scale. Worse still, retailers moving too slowly may just fade away and fail.
It’s about the data
When our children were growing up, they would complain about the time and effort schoolwork, homework and revision took. One of the arguments we would use is that putting the effort in now would give them more choices and more opportunities in the future. They may not have liked this, but it was true then and now.
It’s the same with making data readily usable across our IT services and being able to create a unified view of customer, sales, product and operational information across all channels. The easier it is to get to data, the more valuable and rapidly things can be done. AI is, in my opinion, overhyped at the moment, but an increasing number of Machine Learning and AI use cases will rapidly become mainstream and retailers that can’t implement these will fail to optimise sales, costs and margins.
Some of the most powerful use cases need much disparate data. Kingfisher was sharing how they could dynamically alter pricing and promotions in response to events like a ship getting stranded in the Suez Canal. Another retailer we spoke to recently and have invested in opening up their data and were now able to do realtime dynamic pricing on their website. This helped them maximise utilisation and optimise the routes of technicians providing services to residential customers.
Making a strategic plan to open up data in near real time is hard and can be costly, but it will be valuable in today’s world and AI will further amplify the paybacks of initiatives like this. Failure to address this will mean an increasing number of tactical integrations that will be less reliable and will ultimately lead to less agility and responsiveness relative to class leaders.
Anyone working in retail management will have a stimulating and fast-paced life for some years to come.
It will be important for smaller retailers to think harder than ever over what they do themselves, and where they partner to gain many of the benefits large retailers enjoy, without having to pay the full cost for the IP investment.
Much attention is being paid to the building of flexible, composable architectures. In this volatile and increasingly complex world this seems like the only sustainable way forward. It enables a flexible eco system of technology and operational services to be assembled and changed much more readily.
Many retail optimisations need data, machine learning and AI, increasing the number and value of these use cases. Retailers need to invest in making their data available and usable, then driving as much value from that as they can.
On a final note, the scale and nature of the investment to fix some of the data and architecture challenges will require closer collaboration than ever across the C Suite team, to create a cross functional business case, and joined up change plan. Securing a retail future belongs to the entire organisation and will require greater coherence than ever before.