Blog 9 | Digital transformation as a vaccine to cope with the ‘new normal’

By News, Retail

Corona causes dramatic changes in consumer behaviour, forcing retailers to respond with unprecedented agility, at the highest pace. Impact varies across sectors, but even within sectors responses vary widely. Many retailers struggle and seem to get stuck whilst others smoothly ride the new waves and successfully launch new propositions. Why is that?  

In the ‘new normal’ one thing is certain: there is a lot of uncertainty – at least in the nearby future. In many cases, coping with this uncertainty requires an instant and flexible response, to adjust capacity, shift direction and realign offerings. Responses easily take too long, and agility can make the difference. For example, online food retailer Picnic, who shortly after the corona outbreak faced tripled demand. At short notice, they increased delivery capacity in cities, through extending the number of morning delivery timeslots and hiring 500 additional employees. On a different scale, Instacart has nearly doubled their workforce from 200K to 350K employees to offer greater flexibility and their delivery options and allowing customers to place orders two weeks ahead instead of one.

However, agility alone is not enough. Many corona responses need to include innovation, an area which retailers historically do not excel in. Shelves typically have been the same for many years. A lot of retailers are stuck in the paradigm of inefficient and manual processes, inflexible systems, complex governance structures and limited data insights to substantiate innovation. In contrast to pure e-commerce players, who have innovation in their DNA. Digital natives who combine technology and data with a setup of trial and error. It enables them to manoeuvre more quickly. Like traffic application Flitsmeister launching the new service ‘Pickup’ in response to the corona-driven capacity challenges and delays at parcel delivery companies. With Pickup, they call on their 1,7 million application users to help retailers delivering packages. Within 24 hours, ten-thousands of application users registered as potential deliverer and 250 stores showed their interest.

Many factors are in play for to create a setup that accommodates successful and swift innovations. Next to agility, it is also about availability of resources and organizational entrepreneurship to name a few. However, companies like Instacart, Picnic and Flitsmeister illustrate how technology and data can make the difference. Technology as an innovation enabler instead of a constraint and data as the fuel to get it right. For more traditional players who lag these capabilities, now is the time to embark on an accelerated digital transformation journey. We will further elaborate on three key ingredients: technology, data, and agility.

Ingredient 1 – Technology to enable swift innovations


For many retailers, technology is characterized by complex legacy that has been built up over many years. Typically, most attention is geared towards ‘keeping the lights on’. Shifting gears towards innovation requires technology to be more flexible than everCloud and high-performance platforms can help increase time to market in a cost-effective way. 

The current market volatility requires high speed, relevant innovations. Since technology is increasingly wide available, unique and differentiated innovations are crucial to outperform peers. An integrated and seamless customer journey becomes a hygiene factor with personalized offers as a qualifier rather than a differentiator. These developments can only be realised through IT and the integration between IT systems. However, most retailers rely on outdated IT systems and have a fixed IT spend that is not aligned to their operationsUp to 80 percent of retailers’ IT spend is needed for daytoday operations. This leaves only 20% for investments to differentiate or innovate, which should be around 50%To make step change, many retailers face three challengesFirst reducing costs for daytoday operations in a sustainable manner, secondly make the IT landscape resilient for abrupt demand changes and third accommodate agility and fast time to market for differentiated propositions. New technologies are evolving quickly and getting more maturehence opening up new possibilities.  

Many companies still choose on premise solutions. Meanwhile, cloud platforms are creating great possibilities to seamless integrate standard plug-and-play solutions in existing IT landscapes. By using cloud platforms, you create the ability to easily scale up and down, to align IT spend with business volumes through pay-per-use fees. In areas requiring differentiation, flexibility and fast time to market, we observe a vast increase of low-code platforms. Annual market growth of low-code is between 30% and 50%. It can reduce development time with a factor 3 to 6 compared with traditional software development. The philosophy in the program language is to click small, modular building blocks into each other, hence preventing traditional heavy coding. These building blocks then can be tailored to specific needs. Moreover, maintenance cost savings can add up to 50% (complex integrations). Gartner predicts that 65% of all software development will include low-code by 2024. An interesting example is Lidl, who has built an ecommerce platform that is only available at special times of the year, such as during holidays when people are prepared to eat more luxuriously. Low-code in specific made this business case viable. This way, technology becomes an enabler of high pace iterative developments (launch and learn) of innovations.

Ingredient 2 – Data as the fuel to get it right

Already since a long time, data has become the cornerstone for understanding consumer behaviour and making the right decisions to fuel growth ambitions. However, with corona this is becoming more complex since historic data is no longer a reliable start to predict the future. Yet, accurate forecasting has gained importance due to changing behaviour and volatility in demand.   

A data science capability (including predictive analytics) has proven to be a key asset for quite some time now. Both through personalizing offerings to meet demand and through adjusting supply accordingly. One of the most well-known examples is the American supermarket Target. With data, they once predicted a high school girl’s pregnancy based on her spending habits, before her father did. On the demand side, a data science capability is more important than ever due to corona. Demand is erratic and customer loyalty can only be achieved through an extensive understanding of a changing customer journey. Surprising your customer is not easy and competition is fierce. A company like Cool Blue shows how to create fans, with their tagline ‘Everything for a smile’. On the supply side, the pandemic has shown the vulnerability of supply chains and the importance of reliable forecasts. Patterns in replenishment and promotional sales have completely turned around, requiring a different approach to forecasting and often work-arounds to manage supply adequately. A large Dutch do-it-yourself retailer for example, established a manual loophole to process orders, because of limitations in their existing systems.

Unlocking, structuring and enriching data is one thing, but translating it into (actionable) business insights to enhance integral decision making, is another. This hinges upon the data science capability to be seamlessly linked to the business. Carefully selected dataset should be easily and instantly available at different organizational levels. For example, a company CCO is interested in performance across stores, whereas a store manager rather needs commercial insights on how to improve on NPS, conversion and basket size in one specific store. Having the right data available enables determining specific actions per channel, region or customer segment, whilst making substantiated cost/benefit trade-offs. An example comes from Picnic, who uses data analytics to optimize the fill rate of their crates. Data showed them their minimal order amount of 25 euro mostly resulted in the need of a second crate that was often minimally filled. By increasing the minimal order amount to 35 euro, this second crate is well-filled. Most customers already ordered over 25 euros, so this increased threshold did not jeopardize customer satisfaction. A simple example of how data can be translated into actionable insights that create value.

Ingredient 3 – Agility and organizational resilience to keep up with the pace

Digital transformation is not just about data and technology. A company’s culture often is the number one barrier. This includes leadership, way of working and employees’ skillset & mindset. Embedding agility in a company’s culture is key – but not easy. Starting point can be a ‘lab’ set up where data and technology are combined with an agile way of working to accelerate innovations and hence organically change from within. 

Culture evolves and strengthens over time, making it often a barrier to transform. Successful innovation requires an entrepreneurial mindset to be embedded across the organization. Leadership must be able to delegate responsibilities and give guidance based on output rather than throughput. Giving employees ‘trust to act’ is key. For many retailers, this has proven to be a positive side-effect from corona, where employees had to work from home in a more independent setup. Sustaining this when the working situation is ‘back to normal’ will be challenging though, unless it is structurally embedded in your setup. Booking.com does this by authorizing any employee to launch and experiment on millions of customers, without management approval. To strengthen innovation culture, the best companies use culture hacking. Referring to costless small actions, possible to start instantly, leaving big impact on company culture. Google, for example, has the Courageous Penguin award for people who dare to take a risk without knowing the outcome, just like the first Penguin to jump from the iceberg. To encourage new ideas, Ben & Jerry’s introduced the Flavour Graveyard of unsuccessful flavours. Motivating employees to have the courage to look forward and to become ambassadors of innovation is needed to accelerate change.

Agility can only be embedded in the organization when facilitated by the way of working. Short cycles facilitating continuous improvement iterations is needed to speed up the pace of innovation. Again, a great example comes from Booking.com, running more than 1,000 experiments simultaneously. On estimate, they run over 25,000 test each year, to truly understand customer behaviour and respond accordingly whilst most retailers do not go beyond a few dozen per year.

But how do you become agile? A good starting point can be to initiate innovations in an isolated lab set-up first. In this lab, a dedicated team focusses on innovations. Working in sprints of 2 to 3 weeks, prioritizing their activities from a backlog full of innovative ideas and working to a minimal viable product each sprint. It facilitates alignment between all ingredients to increase adaptiveness and guarantee progress, to make the digital transformation really stick.

Conclusion
Any successful digital transformation hinges upon advanced analytics, flexible technology and organizational agility. It is the combination that can drive swift innovations effectively. A comprehensive and urgent agenda in case you lag but embracing and embedding all ingredients is key to make digital transformation work!

Contact
Bram Gilliam

Director at IG&H
E: bram.gilliam@igh.com
T: +31622564054
 

Maarten Vaessen
Partner at IG&H 
E: maarten.vaessen@igh.com T: +31653571666

Author: Myrthe van Hoek (myrthe.vanhoek@igh.com) 

Blog 8 | Buckle up: Jump the curve to become a retail winner

By News, Retail

Within retail, the magnitude of disruptive trends typically increases during a crisis, while also speeding up their transformational impact by at least 3 years. For this blog post, IG&H specialist in digital transformation within retail and Piet Coelewij seasoned executive and board member in the retail and consumer sector have exchanged perspectives on how the Corona crisis may further transform the sector and how retailers can use this crisis to outperform their peers. Conclusion: Time to buckle up. In the Corona crisis digitally innovating customer experiences and jumping the curve is imperative to become a retail winner.

Crises accelerate the structural transformation of the retail sector
Reflecting on the 2008 economic crisis and what seems to be happening in the 2020 Corona crisis, we see each crisis accelerate the structural transformation of retail. In 2008, digital platforms proved themselves as a disruptive and superior technology-driven business model. This crisis demonstrated the resilience of platforms like Alibaba and Amazon as their business model is secured against economic fluctuation. In prosperous times they grow as a result of general economic growth, and in downfall they grow as a result of price transparency. Simultaneously, in traditional brick and mortar retail, the crisis set the stage for the further shake-out and consolidation driven by financially strong retailers (for example, the acquisitions of Super de Boer and C1000 by Jumbo). The crisis uncovered the weaknesses of the mid-market, particularly in non-food retailers. More traditional retailers differentiating in either the low-cost segment or the customer value-added segment were successful, whereas retailers that were stuck in the middle, encountered difficulties. Remember the news headlines of major store closures (such as V&D) during the recovery that followed? Since then, non-food retailers with a more differentiated positioning could grow, such as Decathlon, Rituals, and Action. In food, this crisis provided the market conditions for the accelerated emergence of Lidl.

The Corona crisis creates a new transformational wave
In 2008 we saw the end of the mid-market, with the further rise of digital platforms and growth of the differentiated low-cost and the customer value-added retailers. The Corona crisis will cause a transformational shift, very much driven still by platforms, towards true omnichannel.

‘We are now moving into the fourth phase of digital retailing. The first wave was about efficiency, where the capital employed in relation to cash generation of e-commerce was unprecedented. The second wave was personalization and customer experience. The third was the structural use of the network effect where an increase in parties linked to the network results in more value for the customer.’

Parties like Amazon and Alibaba have reinvested most of their profits into expanding their network and leveraging the network effect. Currently, we are in the fourth wave — the move towards omni-channel retailing, which will be accelerated by the current crisis. This means that retailers create (digital) one-on-one relationships with their customers and use the channels in an integrated way. E-commerce will have to become an integrated part of retailer, rather than a separate channel. As a result, we see pure players entering the realm of physical retail in a big way with examples like Amazon GO Alibaba’s Hema, and Amazon buying Whole Foods.

‘The next step in the blending of channels will happen as a result of customer-experience innovations that disrupt traditional customer journeys by integrating retail with other (online) aspects of life such as social media or entertainment.’

An example of this would be telling smart home system Alexa that you would like to purchase the jeans that a certain individual is wearing in a specific Youtube video.

The future is uncertain, but this crisis is more uncertain than others
The current pandemic is different from the 2008 economic crisis in multiple ways. In the 2008 crisis, there was a sudden and sharp decline of liquidity. Current levels of financial liquidity are high and interest rates are low. As a result, large (PE) investors will be driven towards higher risk investments which tend to be more transformational in nature. In addition, institutional financial systems (Central banks, IMF, ECB etc.) are currently significantly more resilient and are responding in a coordinated fashion, resulting a more stable financial environment.

During this pandemic, recovery is dependent on the speed and effectiveness of how we control the virus, making the duration highly unpredictable. In the case of a quick V-shape recovery, retail will experience a crisis, after which we will return to the preceding transformation path, but in an accelerated mode. In the case of an extensive U-shaped recovery, the crisis will be followed by great unpredictability, including the above mentioned opportunities for high risk investments.

‘In a U-shape recovery scenario, the balance in the market will be gone, which creates systems that are unpredictable.’

We see it as an overarching certainty that retailers, in this fourth wave, need to truly shift to a one-on-one relationship with customers and embrace a digital innovation mindset. The main goal, which needs to be worked towards continuously, is creating advantaged customer experiences and higher lifetime value. Speeding up these innovations must be facilitated through the use data and technology such as AI.

’Retail survival of the fittest speeds up during crisis periods’.

To provide some guidance to become an innovative retail winner, we identified several fundamental shifts that you need to strongly consider.

Shift 1: Overall value trends
How to enhance the overall value perception of your customer experience

Traditional retailers must run a different race than the big platforms. Since competing at the scale and price levels provided by the platforms is not realistic, a differentiated angle must be found through providing compelling and integrated value propositions to specific target groups addressing specific needs. Companies like Decathlon, Uniqlo and Trader Joe’s show a way to do this.

  • In the Corona crisis, personal hygiene and health trends are getting an instant boost.
    The nature of the current crisis has a significant impact on hygiene and health concerns. Not only do retailers need to take precautions in their operation that will impact how they do business, it will also impact what they sell. An increasing amount of health focused products are finding their way to the market. There was already a move towards more health-conscious purchasing behavior, and this will get a sizeable, and long lasting, boost as a result of the current pandemic
  • The ’new normal’ will accelerate the shift to convenience 2.0.
    New services facilitate the step-change towards next level convenience. In food, this crisis accelerates the shift towards constant and easily available (semi-)prepared meals at any time, offered at decentralized (smaller) stores or food delivery services. At the same time, convenience also means the shift from DIY to DIFM or a subscription form for recurring needs like contact lenses. In order to avoiding crowded places, this crisis increases the movement of customers towards retailers who provide a quick, nearby, and non-crowded environment, with technology as a key enabler. Concepts like pick-up points and stores without check-out (Amazon GO) will get a growth boost. You only need to look at more advanced Asian markets to see the full potential of convenience.
  • This crisis makes consumers demand retailers to take responsibility for people and planet.
    The Corona crisis accelerates demand for sustainable products, both in terms of planet and people.

    ‘The youths of today are the first generation who actually changed their buying behavior based on their ideology.’

    As a result, retailers need to re-consider topics like value chain responsibility and local sourcing. Retailers now innovating their products and experiences to build on these trends are likely to jump on a new growth curve.

Shift 2: Innovation of business models
How to differentiate customer experience through innovation of business models and services

In this crisis we see an accelerated transformation of technology-enabled customer experiences in retail. This trend was already underway, with platforms often showing the way. Here we reconnect to the fourth wave of digital retail laid out above. For example, marketplaces and platforms are facilitating product and price transparency and customer personalization whilst remaining flexible. This crisis further highlights the weaknesses of traditional players who struggle to (digitally) innovate.

  • The Corona crisis will accelerate the shift to personalization and true omnichannel.
    Once again, this crisis will shift how consumers perceive value. Where price and quality used to be a differentiating factor, it is nowadays conditional. You cannot compete when the price-quality ratio is no longer competitive. Retail winners of this crisis do not fall back to old ways to manage price and value perception, but rather will seek to customize through individualization and personalization. Retailers must enhance their customer experience through personalization of value to emerge strongly from the current crisis. As mentioned above, this means that as part of the fourth phase of digital retailing, retailers create (digital) one-on-one relationships with their customers and use the channels in an integrated way. E-commerce will have to become an integrated part of retailer, rather than a separate channel. As a result, we see pure players entering the realm of physical retail in a big way with examples like Amazon GO, Alibaba’s Hema, and Amazon buying Whole Foods.
  • Acceleration of e-commerce pure players at the expense of crowded retail areas.
    Shopping malls and high streets have been struggling with declining numbers that seem to be shifting towards e-commerce, for quite some time. The concerns surrounding the Coronavirus have magnified this trend and we can see fewer consumers going back to crowded retail areas in countries where quarantine restrictions have been lifted, like China. This crisis provides a tipping point for e-commerce, as we discussed in our 3rd blog post of this blog series. It accelerates the position of pure players like Picnic, Bol.com and Amazon, and is likely to be the basis for higher autonomous growth of players with advantaged e-commerce.
  • Create digitally enabled one-on-one relationships, become a partner for life.
    The relationship between retailers and their consumers was already changing. Brands that were becoming a partner for life by providing services, in addition to their products, that enhance the consumer experience have a competitive advantage in times of crisis more than ever. We see many examples of brands, for instance, in sports, fitness, and food service, who use this crisis to deepen their digital customer relationship. Large amounts of data and the ability to use that data to create personal profiles are needed for this shift. Whereas large platforms are constantly improving on their already existing capabilities in this field, these same capabilities are increasingly more accessible to other parties through means of Software/Technology as a Service business models.

Shift 3: Consolidation and collaboration
How to accelerate innovation of customer experience through consolidation and collaboration

Earlier crises gave way to further industry consolidation to build market presence and scale. This crisis will not be different because the sector is in a transformation towards digital enablement, blurring and moving towards the creation of larger ecosystem. Businesses are increasingly competing with one another, whilst at the same time being dependent on each other. Retailers no longer need to develop a fully standalone business with accompanying scale and capabilities. Collaborations, networks and platforms provide access to new costumers and skills, but also increase the level of direct competition. For instance, Zalando uses Amazon Web Services but at the same time is in direct competition with Amazon. We are moving from a fragmented landscape to interconnectedness. Here, the right to play requires data and technology to be on par. This does not mean every company needs to participate by themselves. Large investments in the in-house development of technology are no longer necessary, since advanced technology is widely available (TaaS). Therefore, ‘the questions retailers need to answer is how to use their own capabilities and how to acquire the capabilities they are missing to enlarge their competitive advantage on customer experience.’

  • Leverage the power of collaborations and networks.
    Prior to the crisis we already saw large ecosystems forming around the leading platforms. Networks were formed by increasing the amount of connected parties and thereby its reach and proposition strength. To take advantage of these networks and their beneficial effect, retailers need to position themselves within these networks and ecosystems and create partnerships When the number of players in a network rises linear, the value of the network will rise exponentially.’ Examples of gaining new ways to reach customers through collaboration can be found in the institutionalized partnerships between Albert Heijn & Takeaway.com, HEMA & Jumbo, and Wehkamp & BCC.
  • Acquiring new digital skills through collaboration or acquisition.
    It is a core capability of winning retailers to be able to identify and realize synergies through collaborations or acquisitions. This crisis however emphasizes the need to access new digital skills needed for innovation and different ways to reach your customer. For example, we see acquisitions of digital and data analytics skills such as Lidl by getting into cloud services with the stated intent to compete with Amazon Web Services, Nike acquiring data analytics companies, and brick and mortar retailers operating on the technologies provided by AWS and Alibaba.
  • Consolidation through Darwinian evolution
    Not all retailers will survive the crisis on their own. For retailers and Private Equity players with financial muscle, this crisis provides an opportunity to raise the game through acquisition and consolidation. Depending on the U or V shaped recovery the consolidation, the impact will differ. The strong will nevertheless eat the weak, yet the weak can indeed be very big. A rationalization in the number of retailers is a Darwinian consequence of the crisis. A very recent example of this is the fall of J.C.Penny, where Amazon has shown interest in (part) of their store network.

Buckle up, now is the time to act
Every crisis accelerates trends and creates opportunities. In that regard, this crisis is no different. However, there is a high level of uncertainty which is fully dependent on the effectiveness and speed of the measures against the Coronavirus. Even so, retail must prepare for the rapid development of one-on-one customer relationships to create a clear customer experience advantage. To be successful in doing so, you need to embrace digital business models and technology.

Jumping the curve is about creating a path of micro-innovations rather than big set innovations that take years to complete. Retailers that are able to integrate these micro-innovations and speed up iterations of improvement will become the winners of this crisis. The biggest challenge in doing so is changing the mindset of management to act now and alter what they are doing, rather than repeating more of what they have been doing in the past. Start now.

‘A digital transformation is a cultural transformation rather than a technological transformation. Just start. Every retailer can start a transformation and will gradually expand, where gradually can go on a fast pace.’

With special thanks to Piet Coelewij,

Robert Spieker
Partner at IG&H
E: robert.spieker@igh.com T: +31622791962

Authors
Myrthe van Hoek (myrthe.vanhoek@igh.com)
Jochem Jansen (jochem.jansen@igh.com)

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Blog 6 | Retailer-Supplier collaboration is crucial to successfully deal with uncertainty

By News, Retail

Having the right products available in the right quantity at the right time has always been important. However, the highly unpredictable and volatile period ahead will probably also proof it has never been more challenging.

How is consumer spending going to change in response to a recession? How is the 1,5m-society going to affect consumer needs and shopping behaviour and for how long? What will be the impact of new outbreaks on supply chains? These are just a few of the key questions that have recently made it to the boardroom agenda of retailers.

There is obviously no precedent to base the forecast on. What is clear, is that high levels of uncertainty and demand variability will remain a critical challenge for retail value chains. Most notably, supply chains with long lead times, large batch sizes and/or high seasonal exposure will proof vulnerable. These supply chains rely on early and precise forecasts, which are now virtually impossible to build.

What (not) to do
Unfortunately, some retailers have one-sidedly responded to the recent immediate loss of customer demand by cancelling orders (sometimes already produced), demanding substantial discounts or stretching payment terms.

Although understandable from a retailer’s cash perspective, pushing the problem upstream in the value chain is not a structural solution for the underlying challenge to match supply and demand in this Corona crisis. The current market dynamics require retailers and suppliers to collaborate in partnership and create flexibility and responsiveness on key strategic categories.

Some retailer-supplier combinations are responding in a more sustainable manner.

For example, some food retailers and their suppliers have managed to jointly respond to the recent surge in demand by eliminating side assortment, and thereby significantly increasing the production output of fast moving items.

And, in the fashion industry suppliers and retailers are working together to smartly de-risk the assortment by moving from seasonals towards basics and never-out-of-stock items.

For the more trendy and hence less predictable items, retailers and their suppliers are looking for a Corona-proof balance between product margin and supply chain flexibility, moving towards the latter one. Partial local sourcing, express logistics, smaller production quantities, and delayed order commitments are all discussed jointly.

Where to start  

Developing retailer-supplier collaboration to manage such demand & fulfilment challenges is complex and requires trust from both sides. Under normal circumstances building trust can take years, especially if the relationship has been highly transactional and predominantly price-focussed before. But, the current crisis creates the urgency and necessity to act immediately and decisively.

The three measures below are a starting point for retailers to initiate a collaborative response with suppliers to this Corona crisis.

1) Prioritise suppliers and categories based on commercial relevance and risk
The typical retailer has hundreds of suppliers and can simply not engage with every supplier on every category in great detail. Choices must be made.

Segmentation and prioritisation should be based on two perspectives. First, based on commercial relevance: what part of a retailer’s revenue comes from what supplier and what categories are most relevant for its commercial proposition? The second prioritisation perspective is a demand and supply risk consideration: how likely will customer demand deviate significantly from pre-corona levels and how likely will supply chains be disrupted?

A clear prioritisation of those suppliers that require more intensive collaboration emerges once both the commercial relevance and the risk of demand deviations and supply disruptions are understood.

2) Share and use data to understand how demand develops
Most demand scenarios are top-down and expressed in financial terms. In order to be able to make sensible decisions, it is necessary to have access to the latest demand information about the specific high-risk categories in focus and bring a collaborative team together around it. For example, the use of advanced analytics on real time (POS) consumer data can identify shifts in demand across categories and regions fast and at an actionable level of granularity. Simple dashboards on a digital platform accessible to the common retailer-supplier team can then help to facilitate the collaboration process.

Full transparency and constant communication with respect to changes in the demand pattern will enable the retailer-supplier combination to act faster.

3) Engage in a collaborative and constant dialogue
For many categories future demand is expected to remain highly uncertain. A large fashion retailer commented that the key in creating flexibility is to start thinking from the perspective of the supplier and listen to understand what drives lead time and complexity from sourcing to dispatch.

This is becoming even more relevant in this Corona crisis. Collaboration can result in the retailer committing to multi-purpose raw materials and production capacity (to ensure supplier ability to supply), whilst both parties have a dialogue on the latest possible production moment and its batch size (to prevent over and under stock of specific products).

We started this blog by stating that we foresee a highly unpredictable and volatile period ahead. We see retailers responding in various manners. Some seem to try and push their problems upon their suppliers, others seek to enhance collaboration with their suppliers and take an end-to-end value chain perspective in addressing the challenges posed. We believe the latter will emerge stronger as retailer-supplier collaboration will proof to be a crucial factor to survive this Corona crisis.

Contact
Ruud Schoenmakers
Partner Retail at IG&H
E: ruud.schoenmakers@igh.com
T: +31651319257

Jasper van Rijn
Partner Retail at IG&H
E: jasper.vanrijn@igh.com
T: +31653376760

Carsten Treur
Manager at IG&H
E: carsten.treur@igh.com
T: +31651150504

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Blog 5 | How to create an intimate customer relationship whilst keeping a ‘social distance’

By News, Retail

The corona virus pandemic ushered in a new reality and it is increasingly becoming clear that these changes will persist for a prolonged time. Consumer behaviour has seen radical changes (e.g. hoarding of essentials) and people are finding new ways to meet their needs.

Customers are looking for a genuinely emphatic connection while having to come to terms with the 1,5-metre-economy. This poses a conundrum for Retailers. Having had to close their stores, they are missing out on valuable customer contact. Moreover, there is no historic data or experience with this unprecedented crisis. Understanding customer needs and behavior that has radically (and instantly) changed is not easy.

Historically, shopping in stores is the ultimate way to create an intimate and personal connection with customers. Due to corona, online is rapidly becoming the starting point for customer journeys, even in areas where this did not seem obvious before. New solutions need to be found to address the missing personal offline touch.

One success story of customer intimacy is Chinese department store Intime. They developed a new way to connect customers with their brands during the Corona lockdown by offering livestreams to provide personal advice and tutorials. Per livestream one representative was able to help more customers than they normally could in half a year. Now, Intime is planning to offer 100 livestreams per day as a permanent fixture.
In this blog we elaborate on 3 elements that we see as crucial for becoming a customer intimacy frontrunner:

  • Be creative in how to understand your (new) customers while they are still discovering their current needs
  • Translate insights into radical new and customer driven solutions
  • Last but not least, how to create a heartfelt connection with your customers

1) Be creative on how to understand your customers while they are still discovering their needs today
Radical times ask for new, explorative, ways of understanding people’s changing needs. Retailers are used to automated data-driven insights that enable optimization of the ‘ongoing’ business. Now is the time to use analytics as a means to get insight in how customer preferences and behavior have changed before the crisis and now. Widening your scope from ‘customers’ to ‘all humans’ is key in that.

To understand how people’s behavior changes, create real-time data that can be contrasted with historical (POS) data. Form a customer insights taskforce to stay on top of the latest developments and encourage them to seek new ways to get input from customers. Web scrape relevant news pages and opinions on social media. Create thousands of datapoints through simple and targeted surveys, polls, A/B testing or smiley terminals in stores. Determine which information is relevant for whom and make it easily accessible to act upon (via dashboards). This way, everyone stays on top of changing circumstances as the virus develops.

With the historical and real-time data you can investigate shifts in popular items and categories, price segments, how people shop online compared to offline, at what times. Segment customers not by traditional demographic characteristics (e.g. “the elderly”), but segment according to behavior and preference characteristics. Find out if, how and why your customer base has changed, or why it has not. Improve (where possible) analyses with predictive models reflecting new demand patterns.

Despite efforts as mentioned above, data will not give all the answers. Therefore, interpreting data and validating your hypothesis is more important than ever. Not only enrich your findings, but also discover new ones by entering in a real dialogue with your customers. Use underutilized sales or store personnel to call, chat or organize (digital) sessions. Understand why needs change, what choices customers make and see patterns emerge.

2) Translate insights into radical new and customer driven solutions
Identifying people’s altered needs enables retailers to take away pains in a way that maximizes value. A successful example is Nike. During Corona they invested heavily in promoting their digital fitness app; Chinese consumers eagerly made use of the digitally connected ‘expert training network’ while quarantined. As a result, Nike’s digital business in China grew by more than 30% during the first quarter and maintained momentum throughout this period.

Quickly developing new initiatives enables connecting with customers in a way that sticks. Faced with increased traffic at stores, Albert Heijn and Jumbo were quick to recognize concerns of their senior target audience, being a group at high risk for corona, by organizing an ‘elderly hour’ in the early morning.

Whereas the first retailer extending their return policy or instating a ‘elderly hour’ will stand out, the tenth retailer won’t be noticed. Furthermore, actively involving customers in developing new solutions to take away pains and address needs might lead to radically new ideas altogether.

Success doesn’t necessarily mean that an initiative must yield euros right away. Rather, if you have demonstrated genuine connection and intimacy it will stay in peoples mind.

3) Last but not least: how to create a heartfelt connection with your customers
There’s a thin line between really connecting with customers and giving them the idea you are taking advantage of the situation. What might start as a genuine promotion can easily backfire if your actions are not perceived as genuine. RUMAG, for instance, experienced this when they were exposed to profit from their collaboration with the Red Cross to raise funds for fighting the Corona-virus.

Sympathetic actions can deepen connections with customers. For example, one Albert Heijn entrepreneur released a touching advertisement encouraging customers to shop at local (competitor) bakeries and groceries to support them. Likewise, UberEats gave discounts on delivery from local eateries to support local businesses. What we learn from China is that local players have shown to be better positioned to come up with a sympathetic response than international players, further reflecting the need to enter in real dialogues with your customers.

One of the key elements to create a heartfelt connection is to be emphatic; speak early and directly with consumers, while sticking close to your brand identity. Make them feel you understand how they are coping with this crisis and care about their wellbeing. Customers are still keen on the value you create for them; telling them what innovations have arisen from dealing with the crisis and how you are serving them in new ways will make them curious. Finally, give customers means to stay connected and be accommodating to things that are out of the ordinary (e.g.: be reachable at non-typical moments, be less strict in policies)

If set-up well, creating customer intimacy enhances lifetime value after the corona crisis
Taking time now to understand changing needs can feel counterintuitive – because the building is on fire and it is important to assure that every euro is well spent. However, it will prove crucial when trying to maintain an intimate relationship over every channel even after the corona crisis, since customers will continue to switch between their online and offline journeys. Take the courage to pursue radically different initiatives and go the extra mile to create a heartfelt connection. Consumers will remember your genuine actions and will potentially be a fan for life.

Contact
Bram Gilliam
Director Retail at IG&H
E:  bram.gilliam@igh.com T: +31622564054

Maarten Vaessen
Partner Retail at IG&H
E: maarten.vaessen@igh.com T: +31653571666

Rinke Klein Entink
Manager Analytics at IG&H
E: rinke.kleinentink@igh.com T: +31645530833

Author: Evelien Kip (evelien.kip@igh.com) and Robert Briggeman (robert.briggeman@igh.com)

 

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Blog 4 – ‘Ensure financial agility and make your business model future-proof.’

By News, Retail

A conversation between Henk Hofstede (sector banker Retail – ABN AMRO Bank) and Robert Spieker, Maarten Vaessen and Myrthe van Hoek (IG&H Retail), about how retailers can rebound from the Corona crisis.

Question 1: What are your most important observations on changing consumer demand in the retail sector, due to the Corona crisis?
In Food Retail, as the weeks of hoarding in which we reached ‘Christmas peak results’ are gone now, we are moving to the new normal. The online sales channel is quickly growing, which results in capacity problems and fully booked delivery timeslots. Most slots are used by existing customers who buy online more frequently, since only 4% of the demand increase comes from new users. There are ample new opportunities in food retail. Specialty stores are expected to benefit from the crisis in the short term. Customers like to treat themselves and spend more on home consumption, since they are not able to visit restaurants. However, if the crisis lasts longer, demand will shift towards the value segment. Food retailers facing a decline in demand, are the ones partly dependent on customers from Belgium or Germany, I.e. at the borders of the country.

In non-food, we see a large drop in demand, especially in physical stores. Industry associations report an average drop in demand of 70-80% with stores. With fashion’s seasonal collections, the ultimate mix between postponed and revoked consumer shopping and buying is decisive. Problems occur for retailers who are both not able to get rid of their current inventory and need cash to plan- and buy for the next seasons. DIY stores and garden centers do well, they enjoy significant sales increases. This is also true for drugstores, since we all foster our personal health. Online in non-food is increasing by 20-40%. However, this increase typically does not offset the offline decline. Thuiswinkel.org reports an online share within non-food of on average 17%. The crisis accelerates online growth, not only for its convenience, but also because it is considered to be safer. Time to invest in the development of online channels. If not alone, then with partners or through platforms.

Retailer take-away: Put yourself in the customers shoes and make sure you have a thorough understanding of the underlying shifts from offline to online, between postponed and revoked consumption and between categories and price segments.


Question 2: Which scenario’s in terms of crisis length and impact do you currently foresee and how do these scenarios differ for the retail (sub)-sectors?
ABN AMRO Insights, the economic bureau, currently foresees a crisis length of 3 months and a recovery of 3 months. However, implications of a crisis length of 6 or 9 months, instead of 3, are being studied. Therefore, we ask customers to make scenario projections of their liquidity, based on the base case (3 to 6 months) and stress-test and include darker scenario’s and timelines (6 to 9 months and beyond). We expect all measures to be quantified and agreed with key stakeholders such as government, banks and supply-chain. Of course, we will differentiate how we look at these plans depending on the retail sub-sector and the exposure to store versus online.

Retailer take-away:  At retailer board level, make sure you craft in-depth well thought through scenario analyses (3-6-9 months), including the impact on cashflow and liquidity, and revisit them at frequent intervals. All measures to be quantified, with stakeholder commitment.


Question 3: Due to the crisis, a lot of retailers are facing financial challenges. As for the credit applications you receive, do they mostly reflect financial distress or also retailers who are well positioned and looking for opportunities to invest to strengthen their position during this crisis?
Almost all credit applications reflect distress, these types of applications are getting the bank’s full attention. The most distressed cases have priority, these include the retailers who will get in trouble within two weeks without further action taken. All clients of ABN AMRO automatically receive deferred payment of interest and repayments for the next 6 months, to strengthen their cash position. However, we need to stay realistic, in the end, we cannot rescue everyone. We need to be selective and decide whether the retailer’s business model is sufficiently future proof. Is the company in liquidity problems, as a result of the Corona crisis, or did it already have problems before the crisis? Confidence in survival of the retailer for the mid to long run, with support of the government, the bank and commitment of suppliers and real estate partners, preferably without firing people, is needed.

With capacity becoming available to move beyond handling the most distressed cases, we are eager to process credit applications that reflect opportunities that emerge out of this crisis. When we do so, we assess if the business model is future proof and resilient as well as past performance. In the end, every retailer needs to make sure its financial position is robust and in good shape. Do your homework well. If you conclude being short on cash, we jointly assess if and where the bank can help. The willingness is there, but we always need to check be resilient for the uncertainty the current future certainly holds.

Retailer take-away: Pro-actively develop an integral, future- and crisis proof plan and make sure you build-in financial flexibility.


Question 4: A lot of retailers end up with financial challenges – which can only be overcome together with real estate, suppliers and internal retailer stakeholders. How, from a banking perspective, to best resolve these challenges with the different parties involved?
Closing the financial gap in this situation, is something you cannot do alone. You may need to involve government, suppliers, real estate. And, of course your bank.

Recent media discussions are focusing a lot on real estate. Retailers ask for a reduction in rent or even a stop, while real estate agencies have their own obligations towards banks as well. You do have to collaborate. If the owners of your store assets collapse, who is going to sublet the coming period? A “covenant” – a non-binding agreement – has been made by retailers and real estate companies, which advises real estate agencies to dismiss rent payments until the 20th of April. I think covenants like this are key, collaboration in the sector is a must. Other possibilities are deferment of payments or switching from monthly to quarterly based payments. All partners in your ecosystem are in the same game, you cannot just move the hot potato around.

Retailers must ultimately decide themselves how to close the gap. Cash is king in a crisis, but make sure you really reach and build commitment with your partners. You also need each other after the crisis. Last week, the media reported on credit insurers reducing the amounts they are willing to insure, implying wholesalers – who often already face uncertain demand – need to change their conditions. In other words, they expect their retail customer to pay more quickly. Of course, I understand these credit insurers, they have to reduce their risk exposure. It can be logically explained. If you want to prevent all of this from happening, then ultimately the government will need to also create a safety net under credit insurers. This week, the government announced that credit insurers will also be protected by government security, this will resolve this problem for now. Beyond this, there are also for example discussions taking place about the possibilities for a fund to support retailers that are future proof.

Retailer take-away: You cannot manage through the crisis by yourself. You must ensure commitment through collaboration and partnership within your retail sector with key strategic partners and competitors, including banks and government


Question 5: How would you recommend retailers, who both face significant demand uncertainty and need to buy their merchandise ahead of time (e.g. due to seasonal buying), to make their buying and financial commitments at this moment in time?
That’s a devil’s dilemma. Nobody knows what the situation will really look like in 3 or 6 months from now. A sold out or empty store will mean no revenues but having the wrong or too much merchandise put will put you in the wrong place also. Consumer confidence is critical, we need to see it recover. You need to look at smart buying, of course assuming you have the liquidity you need. Focus on buying the most current ranges, the runners and never out of stocks that will always sell. Lower your exposure towards more trendier ranges and collections. The role of buying will be more important and strategic than ever. You have to stay on the safe side, making the right agreements and commitments with your suppliers will pay off.

Retailer take-away: Smart buying now is more important than ever before, to make sure you can take the next hurdle through demand planning for uncertain fall 2020 and 2021 consumer demand.


Question 6: Before the crisis a lot of stores where already “under water”. The crisis causes a further reduction in sales per store, in the rebound we may not return to the level of sales per store we saw before the crisis. How do you currently look at the need to revisit the store network and footprint?
Until right before the crisis we indeed already saw store vacancy increasing to 7%. A lot of retailers where facing downward pressure on store profitability, due to on- and offline competition, increasing price pressure and often by falling behind in much needed innovation. For some retailers the Corona crisis will be the final push into the graveyard of retail. Part of offline sales will come back, but not everything. We certainly project further online growth. Before the crisis we projected an online CAGR of 15%, we see this accelerate. The implication is that we will see further store closures. We jointly have to prepare for thickening urban shopping areas. Retailers once again have to revisit how their store format can differentiate and remain relevant with clear value added to the consumer. You have to include the 1.5-meter economy perspective. What can I do in a store, where we need to keep 1.5 meter distance, does it influence store lay-out and merchandising? What to change? We already see a lot of creativity and examples which will help adjust to this new reality.

Retailer take-away: Reconsider how your store format and store network can remain relevant in the 1,5-meter economy, focus on differentiation and value added and be creative.


Question 7: For many retailers the safety and health of their employees has become an important priority. However, at the same time personnel cost are now even higher as a share of overall business, as stores have reduced opening hours and traffic has fallen dramatically. How do you look at this, what are the implications?
Both in business services and retail we see that healthy profitability is a result of a healthy company culture. Having the right personnel (customer oriented, with expertise and genuine interest in their customers) attracts consumers to the physical store. You should no longer regard personnel as a cost item, but rather as a source of revenue growth. Before the crisis, retail was facing problems to attract enough good personnel. A further rationalisation of the store footprint will take place in retail, hopefully the labour shortage will imply that people laid off will quickly find a new job in retail. This crisis will force us to look differently at the frontline, store personnel from now on. To give more appreciation and acknowledgment. Possibly, we may see pay increases. In the 1,5-meter economy personnel will be a differentiator and driver for revenue.

Retailer take-away: This is the moment for a robust plan and approach to develop skills, culture and align proper pay to retain and develop store personnel for the 1.5-meter economy.


Question 8: Looking ahead, do you see any major tipping points over time, that will cause certain types of retailers to no longer be able to keep their head above the water?
The longer the crisis lasts, the more the consumer will shift away from the high end, more luxury segments. Groceries, clothing and home entertainment are in a good place, but other retail segments will be at risk. The crisis impacts employment and therefore buying power and income. Price consciousness will increase. It depends on the situation of each specific retailer, on their financial position and the type of merchandise focused on. Retailers that have not been leveraged to the max and that still have financial muscle allowing them to take pro-active strategic and commercial decisions are advantaged. Financial viability and agility are decisive. Retailers that do not have this viability and are typically highly leveraged are at risk. They cannot handle headwind, they can only overcome their challenges by growing again. Which will be tough. The past couple of years we observed a sprawl of new retailers and formats. In the crisis, and in the rebound, a downward correction will take place. You have got to prepare yourself for all different scenario’s, not only the optimistic one.

Retailer take-away: Make sure you have both financial and commercial agility and resilience. Renew focus on the value segment and the value elements of your proposition including price, range, marketing communication and promotion.


Question 9: Which lessons can we learn from the Corona crisis regarding the retail business model?
Dual sourcing. For example, we have become too dependent on China. Retailers need to shift their supply-base and perhaps move it closer to their base markets and reduce over dependency. It is not all about the lowest price, but also about delivery reliability and quality. Step up investment in long term relationships along the supply chain. Strengthen eco-systems with your partners, because as already said, you will need each other after the crisis as well.

Retailer take-away: Intensify supply chain / strategic partner cooperation, shift to more locally sourced and less centralized supply, and prepare for the new.


Question and conclusion of the conversation: If you could give one piece of advice to retailers – for both the coming weeks and the near term – to rebound from the Corona crisis, what would it be?
Cash is King in times of crisis, but also do try to reinvent yourself at the same time. There are opportunities emerging all over, but decisions have to be made to stop or change certain activities and adjust elements of your proposition. The most important topics we discussed are future readiness, financial agility, creativity and cooperation in the supply chain with your stakeholders. Furthermore, it all depends on how fast we take control over the virus, how fast governmental measures are going to be eased and how fast consumer trust can be re-established. Prepare yourself for the new normal, for now we call it ‘the 1,5-meter economy’.

With special thanks to Henk Hofstede,

Robert Spieker
Partner at IG&H
E: robert.spieker@igh.com T: +31622791962

Maarten Vaessen
Partner at IG&H
E: maarten.vaessen@igh.com T: +31653571666

Author: Myrthe van Hoek (myrthe.vanhoek@igh.com)

How Retailers can rebound from the Corona crisis – 3) The breaktrough of online shopping as the new standard

By News, Retail

It is not the first time that the world has been shut down through the outbreak of a deadly virus. In 2003, SARS forced people in China to stay at home as well. It turned out to be the trigger for B2B start-up Alibaba to move into consumer markets. They launched consumer shopping website Taobao (similar to the Dutch “Marktplaats”). At the time, JD also was a small company with 12 electronics shops in Beijing.  Revenues plummeted due to SARS as all but one of the stores had to be closed. The founder, Richard Liu, took drastic measures and turned towards a primitive version of ecommerce. He advertised his goods in forums, had employees manually write down orders, send text messages when the order was ready and personally delivered them to customers close to the office. Ever since, both Alibaba and JD have rigorously focused on offering consumers access to products from home. Today they both rank amongst the world’s largest retailers.

Just like SARS, the Corona outbreak leads to a drastic change in consumer lifestyle & behaviour with a strong boost in e-commerce – this time on a global scale. This blog addresses the opportunities and challenges this implies for retailers, and how to respond both short-term and long-term. In short:

  • Corona accelerates the breakthrough of online shopping as ‘the new normal’
  • Retailers struggle to quickly scale up e-commerce due to staff shortages, limited stock availability and inflexible logistics operations
  • Key short-term opportunities include use of underutilized stores as ‘dark stores’, radically re-allocate the workforce and instantly optimize assortments
  • Longer term, “think digitally” to reset your business model profitably(offering, stores and capabilities)

E-commerce is flourishing: the accelerated breakthrough of online shopping as “the new normal
Due to the Corona outbreak, consumers stay at home and are looking to create safety and comfort for themselves and their families. Online shopping addresses these needs perfectly. China has seen the number of consumers shopping for online groceries almost double in February (source: South China Morning Post). In the Netherlands we see the same figures. In certain sectors online demand levels are already similar to the holiday season (Thuiswinkel.org). Drugstore and personal care products have grown between 50 and 100% in recent weeks. Items that make life more enjoyable, such as sports, DIY and garden items, show growth rates between 20% and 40%.

The massive switch to online is expected to (partly) be a sustainable consumer behaviour rather than just temporarily. In 2003, the SARS virus accelerated the breakthrough of digital telephony and Internet.  Similarly, the heritage of Corona will be lasting confidence in online shopping and drastically enhanced adoption. New target groups such as elderly people are discovering the convenience of online grocery shopping. Sectors where online is still in its infancy are accelerating by offering new digital services. Examples are numerous and include e-health apps to track corona-related complaints, online (home) education applications and fitness video streaming as an alternative to gyms.

This crisis is creating new consumer habits that will likely stick. This means a hard reset in consumer behaviour: online shopping becomes the new standard in many areas. Therefore, now is the time for retailers to really take a leap forward in e-commerce.

Growing pains
Scaling up an e-commerce operation is not easy and meeting customer needs can be particularly challenging these days. For instance, for many retailers delivery times in e-commerce fulfilment have increased from same or next day to multiple days or even weeks. Why is this happening?

  • Personnel shortage in warehouses and parcel depots: at present approximately 15% of own- and temporary staff have fallen out due to Corona measures. For manual operations, this often leads to a direct drop in productivity. Food retailers are getting priority for labour because of their vital function in the chain – affecting other retailers even harder
  • Low stock availability: Supply chains have been severely interrupted leading to long delays in inbound replenishment orders from a.o. the far east. In addition, consumer needs have changed instantly, making forecasts unreliable. Taken together, this has drastically deteriorated inventory availability levels for many retailers.
  • Inflexible logistic structure: existing DCs are often inflexible to switch between offline and online logistics due to fixed mechanization. In manually operated DCs it takes time to set up new picking locations with supporting IT. For many retailers, E-DCs are separate from retail DCs, resulting in additional inventory allocation and movement complexity.

Fasten your seatbelt: innovate around new customer needs 
How can retailers better deal with the abovementioned challenges? We list some immediate actions that are already successfully being pursued in the market now.

Turn stores into ‘Dark Stores
A ‘dark store’ essentially deploys an underutilized (or even closed) store as a picking and delivery point for e-commerce orders. By converting your stores into small e-commerce warehouses you open up your entire store network to online shoppers. Beside boosting product availability, this can offer a fast home-delivery alternative for instance via a bicycle courier. The effects can be significant: from improved customer satisfaction and additional revenues from an instant proposition, to lower pressure on central E-DC operations and improved working capital. Benefits that can last beyond the current crisis.

To set this up, a system must be installed that creates pick orders for store staff (linked with existing ERP and WMS systems). Store employees need to be trained as order pickers and a place is required where consumers or couriers can pick up orders safely. To manage this operation, it is essential to have dashboards with real-time availability information.

Re-allocate your workforce

Chinese retailers have been successfully redeploying store staff in a radically different way. Employees were used as online influencers to reach their customers. Communication platforms such as WeChat (Chinese variant of WhatsApp) and Ding Talk were used to help multiple customers simultaneously via live streams.

This setup was pursued earlier this year by a cosmetics company called Lin Qingxuan (>2.000 employees) in the Wuhan region where all stores were closed. Using store staff as online influencers, sales levels increased by 200% compared to the previous year (source: HBR). Other examples range from re-training store staff for logistics roles to expanding customer service teams.

In case of scarcity, the solution might be found at other companies. For example, Chinese tech supermarket HEMA resolved the need for temps through using employees of restaurant, hotel & cinema chains in China.

Optimize your assortment
When Corona set foot in the UK, Amazon immediately reprioritized and switched assortments online and in their DCs. Non-vital products such as spring clothing were exchanged with high-turnover products such as soap, detergents and household products. In this way, consumers were provided with essential products, while at the same time higher efficiency levels were achieved.

Beyond the crisisimprove the profitability of your business model to hit back
The big challenge in the long term is moving towards a radical digital proposition with a profitable business model. We see 3 main themes to move to an optimized omni-channel setup:

1)Re-think your e-commerce offering 
Some key questions that should be answered are:

  • Assortment: what new products or services does your target group need? What product (combinations) do you offer? How will you deal with Low-value products that are costly to deliver at home?
  • Reach: how do you reach your target group online? what is your company’s story?  what communication channels are most effective?
  • Proposition: from what order-amount is free shipping offered? what kind of service window do you offer your customers? Like Amazon and bol.com can a subscription-based proposition increase your customers loyalty?
  • Operations: a highly efficient and cost-effective fulfilment operation is an absolute pre-requisite to achieve business profitability. How can higher degrees of mechanization and automation help improve your operation? How can (partial) outsourcing and workforce flexibilization contribute to further cost optimization and service improvements?

2)Re-define the role of the store
As e-commerce continues to grow and demand shifts from offline to online, it will put more pressure on the profitability of traditional stores. In China, retailers have already made radical choices by cancelling offline campaigns & promotions and replacing them with digital marketing, chat programs and innovative O2O (online orientation and payment, offline pick-up) partnerships. Ultimately, stores are no longer just a place for inventories and transactions, but much more than this. Advice, experience, return, pick-up, introductions, consumption and promotion can be key elements of the (new) role of the store. What do your customers need and what will you offer? How will you generate value out of this offering and channel? What value can this provide for your brands and suppliers and how will they contribute (financially)?

3)Become truly digital
Retailers such as Amazon, JD.com and Alibaba have repeatedly shown the way towards a digital future. One of the most prominent capability that sets them apart is their extreme Technology focus. They deploy highly flexible systems, tooling and dashboarding that supports their way of working and ensures IT integration for seamless omni-channel experience.  Additionally, their customer propositions are highly personalized and constantly updated by deploying advanced analytics and algorithms. All is enabled by a very flat organisation to assure maximum flexibility and fast decision making.

The Coronavirus is a tremendous challenge for all retailers, but one thing is certain: online shopping will be “the new normal”. When successfully setup, this can make the difference in how successful a retailer is coming out of this Corona crisis. And it will be worth it once the next crisis arrives.

Contact
Jasper van Rijn
Partner at IG&H
E: jasper.vanrijn@igh.com T: +31653376760

Maarten Vaessen
Partner at IG&H
E: maarten.vaessen@igh.com T: +31653571666

Author: Evelien Kip (evelien.kip@igh.com)

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Dutch retailers still rated higher than Amazon and Alibaba

By IGH, News, Retail, Retail

Coolblue has the best customer experience in the Netherlands, according to research by consultancy firm IG&H among 2000 consumers. De Bijenkorf and Bol.com follow second and third. It is surprising that there are no foreign retail chains in the top 5. “Web shops like Amazon and Alibaba do not yet understand the Dutch consumer”, is what retail experts Joris de Bruin and Evelien Kip of IG&H tell us.

“According to the survey, web shops such as Amazon and Alibaba, which are considered the biggest competitors to Dutch shops, do not yet meet the customers’ demands. They can be experienced as confusing and making a purchase often turns out to be unnecessarily complex. This is partly due to the fact of a perceived language gap, and not meeting the high standards Dutch customers have towards user-friendliness of online stores” retail expert De Bruin says.

Previous IG&H research showed that retailers with a relentless focus on personal attention, the right ambiance and inspiring the customer, are most appreciated. “Online, this is what is meant by a user-friendly, attractive website with decision making support. This must be aimed at providing the customer with the right information in order to make the best choice quickly and carefree. Coolblue does this exceptionally well: good filters, extensive product reviews and top-10 choice lists,” says De Bruin. The top 3 is complemented by Albert Heijn and de Bijenkorf, who inspire the customer and create a good atmosphere as well.

It is also worth mentioning that highly-valued web shops outperform the others by means of surprising customers. De Bruin mentions de Bijenkorf and Coolblue as an example. “de Bijenkorf packages all ordered products in a nice box and puts a bow around it for a premium shopping experience. Coolblue has a different approach and provides the packaging with some helpful tips or a dose of humor. It is this kind of small detail that positively surprises the customer. It surpasses customer expectations and that is crucial for a web shop to stand out in the market”.

“Consumer has high expectations for daily groceries”

It is surprising that the supermarkets score just as high as the middle- and high-end retailers on expectations. “Customers do not make a distinction between ‘daily shopping’ or more ‘incidental’ purchases. In both cases, customers remain to have high expectations”, says Kip. In terms of expectations, AH.nl is number 4 and Jumbo is number 6.

On the seventh place we have welcomed a foreign player: Amazon. “Customer expectations for foreign retail chains are not high. Alibaba in particular has a rather low score. Consumers still associate the brand with long lead times and affordable products. The hilarious videos on YouTube in which curious consumers are surprised with a bad buy only confirm that image”, she says.

“Customers expect little service from discount retailers”

Action is number ten, and a retailer operating in the discount, value-for-money segment. “We see the complete opposite as with the retailers from the more expensive segments; a good customer experience is not what the customer expects. The question is whether that is bad. One customer probably gave the best answer: “Action is only about offering the lowest price.” If they continue to meet their strong price proposition, it will not harm them. However, if the general customer expectations in the area of Customer Experience increase further, the question is whether retailers such as Action can adjust in time”, warns De Bruin.

Written by: Evelien Kip (Consultant Retail) and Joris de Bruijn (Manager Retail).
Photo: CoolBlue

Ruud Schoenmakers: ‘Retailers are becoming digital businesses’

By News, Retail

The retail market is changing enormously, partially due to the growing success of digital platforms such as Amazon. At the same time, technology is developing further and further and customers are making more online purchases. How can retailers respond to this? Ruud Schoenmakers, IG&H’s new retail partner, shows us.

How will the retail sector look in 10 years?

“Developments are happening so rapidly, it’s actually impossible to look that far ahead anymore. Newcomers, sometimes industry outsiders, are making increasingly large impacts on customer expectations and ‘what it takes to win’ within retail. Until recently it was still possible to downplay these developments. However, these days are now truly behind us.

For example, supermarkets in major cities never used to view restaurants as competition. However, with the current growing success of platforms such as takeaway.com and UberEats, it’s becoming apparent that traditional parties are being affected and need to adjust their business models.”

What is the central challenge facing existing retailers?

“It requires a lot of attention and energy to ensure that the current operation runs smoothly. At the same time, it is becoming increasingly important to change rapidly and to innovate in order to remain relevant to the market.

It is extremely difficult to do two things at once. The question of how to combine these issues in a controllable manner without being hampered by the enormous complexity is causing headaches for many executives.”

What do retailers need to focus on?

“Just like in other industries, such as financial services, there needs to be a realization that the transition towards becoming a digital business is both essential and existential. The moment that you lose clients to new competitors, technology and data science capabilities become your best friend.

At the moment, I would dare to estimate that most retailers currently allocate 90% of their budget to simply keeping the current systems up and running. A mere fraction is used for exceptional, let alone innovative, solutions.

This is not a sustainable state of affairs. It is essential that retailers set up their organizations to be flexible in order to respond to the changing customer demands. Software that supports them in this can lead to a breakthrough, including the high performance, low code platform OutSystems as well as the use of cloud solutions.”

How important will data science become for ‘physical stores’?

“Shop assortments are currently quite static and homogeneous. Data science allows retailers to frequently check what the optimal assortment is for individual locations, leading to optimal turnover and profit margins.

Moreover, data science combined with technology allows retailers to make the switch to real one-on-one interaction with individual consumers via all channels. This is a totally different ballgame to the impersonal and primarily product-based mass communication. Isn’t it a shame that I, a man, keep seeing handbag commercials? It’s a total waste of marketing money!”

How much will organizations have to change internally?

“Successful transformation into a digital business requires different skills, leadership, governance, attitudes, and behaviour. This transition is substantial, impactful, and requires care.

I am very proud of the fact that we at IG&H, as sector insiders, not only can sharpen strategies, but also implement them. A new way of working also requires different behaviour. Our organization’s transformation professionals help executives and employees sustainably adjust their daily work methodology. What’s more, our technology experts can implement the required software so that it stays fast and flexible in the future.”

IG&H and GroupLife combine forces

By Banking, Health, Insurance, News, Pensions, Retail

Consultancy firms IG&H and GroupLife are moving forward together under the name IG&H, resulting in a specialized consulting group that is able to help realize business and technology transformations from start to finish.

Both companies have in-depth sectoral knowledge, close customer relationships, high quality people and service. By combining their expertise in strategy, organizational transformation, data analytics and technology, they will be able to more effectively help organizations with transformative matters. The new consortium includes more than 220 specialized professionals.

Execution of strategy requires integral approach

Jan van Hasenbroek, managing partner IG&H: “The rapid developments in the technology sector have an enormous impact on the business models of our clients. In order to remain successful in the future, our vision must include addressing organization and technology together. This will lead to corporate strategies being immediately operable, providing concrete results and sustainable organizational transformation. GroupLife has an impressive track record and a proven methodology in business modelling, implementation of technological platforms, and data management. That’s why a collaboration fits well within IG&H’s strategy to continually strengthen its technological ecosystem.”

Wim Groenen and Tom Bottinga, co-founders of GroupLife: “In previous projects with joint clients, we discovered that we had similar ideas about how to address complex business transformations. IG&H knows how to combine its expertise in strategy, data analytics, technology and organizational transformation with sector knowledge. We are delighted with the collaboration and together with IG&H we can make an even greater contribution to the success of our clients.”

About IG&H

IG&H is committed to help leading organisations in the financial services, retail and healthcare sectors. With 160 involved and enterprising professionals, the consultancy and implementation firm, based in Utrecht, helps organizations take steps towards radical customer centricity. They set high standards for themselves and their way of working. With in-depth knowledge and a personal approach, they aid their clients to help them improve the sector. IG&H is recognized as a ‘Great Place to Work’ and puts a lot of emphasis on a high net promotor score.

New innovations are rapidly changing the game of omnichannel business

By News, Retail, Retail

Looking at the retail innovations and trends in Asia and the US, we see a breakthrough in the retailers-customer dialogue; it will change radically in the next few years! Most disruptive innovations are 100% technology driven and we see some are about to become mature enough to be adopted by mainstream retailers.

How to embrace and take advantage of these innovations to increase customer service, while reducing the inefficiencies of current omnichannel commerce?

[Click here to read the article]