It goes without saying that recent macro-economic events and their disruptive forces have taken their toll on the retail sector. Certainly, the combined effects of supply chain disruption as a result of Brexit; the sharper growth in digital-purchasing patterns across all categories as a consequence of lockdowns; and a rising cost base with inflation running at a 30-year high exacerbated by geo-political tensions, will have far-reaching consequences for the industry. As retailers restructure under the weight of enormous downward pressure, they will be thinking very hard about profitability.
Even before Covid-19, retail profitability was already under significant strain. Over the last decade, pre-tax profits almost halved for the largest UK retailers, falling from 9.2% in 2012 to an estimated 5.1% in 2021. And the rapid consumer shift since towards online will have only intensified the pressure on store-dependent operating models and margins, requiring businesses to align with more digital-centric customer journeys. Indeed, research shows an inverse correlation between the rise in the proportion of online sales and a fall in pre-tax profit margins over the last decade.
For retailers, the priority of protecting margins and improving operational performance will mean using data to gain increased visibility on profit and loss. Data-driven decisions will be critical in executing more informed investment trade-offs. With the squeeze on spending only set to get tighter in the coming months, cost-conscious consumers – where transparency in price, service and quality win hearts and minds – will place further downward pressure on margins.
Digital transformation and retail insight
The silver lining of Covid – if one exists at all – is that the decisions that were to underpin the digital transformation journeys of retailers were accelerated by years to a matter of months. New partnerships were formed, new business models embraced, and new technologies were adopted. But while this led to initial transformative momentum, recent events have highlighted that the manual processes and legacy systems still widely used in retail are under enormous strain and digitalisation has still much further to go.
Processes that have been historically carried out through a labour-intensive mix of phone calls, emails and spreadsheets are hampering retailers’ ability to pivot business models, category items and promotions as required. And of course, as in so many other industries, technology and, in particular artificial intelligence, will be instrumental in unlocking real-time insights and removing the burden associated with cumbersome, time-consuming methods of data interpretation and operations management.
Greater investment is needed in operational efficiency to automate processes, deliver real-time insights, and integrate more sophisticated marketing campaigns as the economic grip tightens. Successful retailers will be those that quickly deploy effective margin-improvement strategies targeted at the largest cost drivers underpinning the digital switch. For most retailers, these strategies centre around digital marketing, supply chain optimisation and channel-mix management.
Intelligent merchandising: harnessing the power of AI and cloud
The acceleration by retail leaders in their digital transformation journeys is driving demand for intelligent merchandising solutions to help them stay ahead in an increasingly competitive marketplace. AI-driven solutions hold the key to solving today’s complex business challenges, supporting a move away from the limitations of forensic analysis to the use of real-time data to generate accurate predictions and forecasts, improve operational efficiency and revolutionise legacy processes.
Pricing and promotions can now be based on business intelligence and insights derived from data hosted in the cloud. Historic sales data combined with point of sale (POS) data allow retailers to see first-hand what customers are purchasing and when. Options such as ‘basket analysis’ even allow a granular-level view of customer purchases, detailing sales transactions by item, by basket, by store, by day, for all stores and e-commerce, 365 days a year.
The centralisation of all data, processes and planning in the cloud provides ‘one version of the truth’ across the supply chain, accessible to all stakeholders at the same time. This unification speeds up and simplifies processes and facilitates collaboration. For example, two-way supplier collaboration tools bring together retailers and vendors to plan, negotiate and agree deals, track funding and manage media and promotion.
A new dawn: Investing for the future
Analysis of consumer data is key to getting retail right. Global in-store sales rebounded well last year to more than was spent in 2019 before the pandemic began. Retail leaders need to leverage AI to capture deeper insights, anticipate customer needs and proactively deliver across every touchpoint. As we see the growth of disruptors in the retail market, such as online behemoths on one side and the ‘deep discounters’ on the other, it’s essential to invest in systems now that will create a competitive advantage and boost revenue.
A major benefit of intelligent merchandising SaaS software is that is can be taken ‘as a service’ in affordable monthly instalments as operational expenditure and requires no costly upfront fees. And with retail cyber breaches never far from the news, cybersecurity should be a key concern. Cloud facilitates data-centre storage, where information is kept in a secure, dedicated facility rather than relying on on-premises storage and manual maintenance. Regular software updates keep the system up-to-date, resulting in a cutting-edge solution that removes legacy IT infrastructure.
As the retail industry continues to undergo a period of transformation, businesses need to adopt a more detailed and data-driven approach to profitability. Cutting-edge purpose-built merchandising software signals a new dawn for the retail industry, and for those that choose to embrace it, cloud and AI will become powerful allies. With improved forecasting and planning, plus the ability to drive sales and oversee all aspects of supply chain management, intelligent merchandising software holds the key to retail success and significant future growth.
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