Like the rest of the business world. the retail industry was blindsided by the COVID pandemic, and was forced to revamp to meet new demands of consumers. But as we enter the rebuilding phase, new research from the Retail Industry Leaders Association (RILA), with support from its knowledge partner McKinsey & Company, offers in-depth insights shaped by leading retail CEOs into the imperatives that will be critical to success moving forward.
“Every retailer, to some degree, has long had a sense of what the future of retail could look like… but the future came early,” the report states.
The new study, Retail Speaks: Seven Imperatives for the Retail Industry, identifies seven imperatives that can give retailers the ability to adapt to a changing consumer landscape while pursuing new opportunities.
“While the fundamentals are largely unchanged, customers’ expectations are now exponentially higher and retailers are rising to the challenge,” said RILA president Brian Dodge, in a news release. “Leading retailers are embracing the opportunity to win new customers by leveraging lessons learned from the past year and investing in strategies to serve customers well wherever and whenever they shop.”
“Corporate social responsibility covers a huge range of business activities and has now come of age,” said Alex Gourlay, Co-COO of Walgreens Boots Alliance, in the release. “Companies now really do walk the walk in their commitment to the communities they serve, the environment, and their people; and take steps to monitor and evaluate their performance and achievements in those areas. This is now a function that is at the heart of every business.”
The seven imperatives:
1. Consumers now demand a seamless omnichannel experience
Consumers will choose retailers based on ease and richness of end-to-end experience.
2. Personalized shopping experience is now table stakes
Most retailers fall short of these expectations today. While 100 percent of top-quartile retailers cited omnichannel personalization as a top five priority, only 15 percent of retailers have fully implemented personalization across all channels.
3. Turbocharge e-commerce delivery
The vast majority of consumers—over 90 percent—see two to three days as the baseline, and 30 percent expect same-day delivery. Retailers are setting ambitious targets for delivery times that will require significant investments to propel their supply chain fulfillment capabilities.
4. Purpose-driven approach to ESG is essential
Consumers are voting with their wallets for sustainability and broader purpose. One-third of survey respondents reported they had stopped using a brand based on its social actions, and 71 percent indicated they would lose trust in a brand forever if it placed profits over people. At the same time, consumers are willing to pay more for products that meet their values.
“Being a purpose-led brand always starts with the ‘why’ behind what we are doing,” said Javier Quiñones, president and CSO of IKEA US, in the release. “People will not only buy from but also buy into brands that stand up for their values.”
5. Recalibrate talent strategies
Retailers typically need to augment their workforce and capabilities to thrive in the digital-dominated world. To close the skills gap, companies will need to reimagine their strategies for sourcing and deploying talent—focusing on upskilling, new recruitment models, and diverse talent pools.
6. Explore the role of partnerships and ecosystems
The development of partnerships and ecosystems, especially those convened by retailers, will accelerate. McKinsey analysis suggests that ecosystems could collectively function as a $60 trillion economy by 2025. That makes developing an engagement strategy an imperative for survival: even if retailers aren’t positioned to establish their own ecosystem, they will have to figure out how to compete, participate, or coexist.
7. Seek transformational productivity gains
Retail as a sector has achieved outsized productivity growth over the past ten years. The next phase will involve deploying analytics and automation across P&L. Retailers will need to prioritize investments that are truly transformational.
“The arrival of COVID 19 in March 2020, which shut down retailers across the country and forced consumers to change buying behaviors, rapidly accelerated the trajectory of retail evolution, leading to more transformation in a year than has been seen in the industry in the last few decade,” said Sajal Kohli, a senior partner at McKinsey & Company, and head of McKinsey’s Global Retail and Consumer Packaged Goods practices.
“The days of only one function driving any successful initiative are behind us. Everything we do requires strong coordination of cross-functional teams – from digital to store operations to merchants and more, everyone plays an integral role,” said Brian Cornell, chairman and CEO of Target, in the release. “And it all starts with a clear understanding of consumer expectations and the right prioritization.”
The report is the result of a benchmarking survey conducted with executives (such as CFOs, chief marketing officers, chief digital officers, and chief supply chain officers) from 30 U.S. companies, augmented by in-depth interviews with top retail CEOs, as well as proprietary McKinsey & Company customer research.