Whether it’s true or not – and as unpleasant as the analogy is – this is essentially what is happening to the brick-and-mortar portfolio of many retailers. Ecommerce is slowly eroding the profitability of physical retail, but because the store network is not in immediate danger, retailers are failing to make the operational changes necessary to ensure survival.
It is a question of simple economics. If your online revenue represents 15 per cent of total turnover and your brick-and-mortar 85 per cent, then ecommerce “growth” of seven per cent can be offset by a more unnoticeable decline in bricks-and-mortar of just 1.2 per cent. If you throw in a bit of sales volatility, open and close a few stores and factor in inflation you could almost miss it. But like your dreaded mortgage interest, the effects of compounding are massive. In ten years’ time this transition in the UK will mean 25 per cent of stores will close and 900,000 jobs will be lost. The truth is that bricks-and-mortar has to make fundamental changes to thrive. This needs to be done through automation and improvement in productivity, which in turn means better retail operation communication and store level compliance. This is possible now because the technology and analytics exist to measure performance down to individual store level. The issue is that most CEOs aren’t currently using these tools to drive top-down change. Read more about embracing change:
One of the major differentiators between online and offline success is the chain of command. In the digital sphere, using data to validate and decision-make is second nature. Within physical retail, however, heads of retail are still reliant on feedback from area managers – which is often delivered with no structured reporting system or visual evidence. Area managers are the lynchpin between head office and the store network, but at present it is very difficult for c-suite executives to understand the quality of conversations they are having with store managers. If the figures from those stores are solid then it’s not a problem. However, if a store is underperforming, then lessons need to be learned quickly, and that’s not always possible in the current operational set-up. To make every store within the estate drive profit, two things need to happen at senior level. Firstly, greater visibility and quality of reporting needs to be achieved; area managers should have the technology to give centrally channelled feedback, through both standardised forms and visual reporting. This way, key decision makers can actually see what’s happening on the ground, and know that a task list has been agreed and implemented to effect store-level change where needed. Secondly, heads of retail need to become much more analytically focused about the operational performance of their store estate. Greater collaboration is needed with area managers to benchmark store performance and create an action plan in those sites that are underperforming. A reporting solution then needs to be in place that can show at a glance when tasks on that action plan are completed – preferably supported by evidence (e.g. a photo) to show the improvements being made. This may seem like rudimentary advice, but the truth is that this level of visibility and collaborative communication is not currently commonplace within bricks-and-mortar retail. As a result, there are small shortcomings across thousands of stores that add up to a long-term threat to retailers’ profitability. The need for innovation within store operations might not seem urgent, but if things carry on the way they’ve always been done, retail CEOs will eventually find themselves needing to make drastic changes in order to survive. Either that, or they will go out of business. When is change needed in business, and how can businesses successfully manage change? These seven tips will help you on your way. Peter Wake is CEO and founder of StorIQ, a technology startup bringing the benefits of online retail practices across to bricks and mortar premises.
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