Decoding the formula for superior performance has been saved
Decoding the formula for superior performance
To uncover new evidence about what makes companies successful in today’s economy, Deloitte has undertaken a comprehensive research project to identify, decode, qualify, and quantify the management practices which most contribute to sustained and superior corporate performance.
Our study reveals that strategic choices of Super Achievers have been consistent with 3 elementary rules: 1) Prioritize increasing value over reducing prices; 2) Prioritize increasing revenue over reducing costs; 3) Prioritize experimenting new ideas rapidly over developing extensive business plans.
Our three rules and growth strategy map are relevant across industries, across growing or declining markets and across markets of different maturity levels. This article focuses on the Retail industry by providing a short industry outlook, summarising key trends, challenges, and opportunities, and illustrating how the three rules are applicable to the Retail industry.
Outlook for the Retail Industry
While the European retail sector is expected to stabilise over the next 12 months, squeezed operating margins and market pressures are expected to persist in 2013. With consumers still cautious about their spending, retailers in Europe are suffering. A decline in retailers’ profitability is expected, due to a shift in consumption patterns, like the growing success of e-commerce, and the increased acceptance of discounters.
In Belgium the retail industry weathered the crisis relatively well, although purchasing ability and willingness to spend remain relatively low. Retail sales are seasonal, volatile, and very important for the Belgian economy, representing 11.2% of GDP. In terms of employment the retail sector is one of the most important in Belgium, accounting for almost 11% of total employment.
Surveyed corporate leaders are expecting the retail industry to stay the same or decline over the short term. Over the next 2 to 3 years an equal proportion of 38% of respondents believes in an improvement or maintenance of the status quo.
Key trends, challenges and opportunities
The years since the 2008 crisis have been chaotic for the global retail industry. Factors that affect retail sales, like purchasing ability and willingness to spend, were at rock bottom. But the crisis also acted as a catalyst for change and interesting opportunities have emerged in emerging countries.Key trends, challenges, and opportunities include:
• Future markets.
• Post-recession smart shopping.
• The virtual market place.
• The omni-channel.
Relevancy of the winning formula in the Retail Industry
Out of the 386 retail companies in our sample, 22 of them qualify as Super Achievers. With eleven in all, small-sized companies (less than 50 workers) were most represented. Six out of the 22 companies had more than 250 workers in 2011, and five were medium-sized companies, employing between 50 and 250 workers. The average Super Achiever in the retail industry achieved 15% revenue growth and 19% average ROA over the period 2003-2011, significantly higher than the industry averages of 4% and 6% respectively.
Surveyed and interviewed leaders in the retail industry have widely acknowledged the validity of the three rules:
100% of surveyed corporate leaders in the retail industry agree with rule #1
Many high-performing companies in the retail industry have applied our first rule by offering new delivery models (e.g., click and collect), introducing differentiating store formats (e.g., smaller city stores), serving specific niches (e.g., bio-food), or offering a compelling customer experience. Other examples include providing exclusive, sometimes temporary, assortments; offering hyper-service; 2-way interaction with customers through social media; creating a compelling integration of the physical store (with advanced payment options, easy returns, customisation, etc.); and the virtual world.
63% of surveyed corporate leaders in the retail industry agree with rule #2
While revenue growth activities are critical, it goes without saying that performance-enhancinggrowth retailers also keep an eye on cost containment, especially given the fact that labour and real-estate costs represent the biggest chunk of overhead. In the context of limited customer spending and a true omni-channel revolution, smart retailers are reviewing their business models to better deal with these changes. For example, optimising stores to integrate the physical and virtual experience, adding specific services (e.g., home-delivery or pick-up service), adopting specific technologies to better serve the client, and enhancing the customer experience. Some retailers are also collaborating with other retailers or companies in other industries to gain access to new markets or customer segments. One example is the collaboration between a sports retailer and a major supermarket chain. This allowed the supermarket chain to offer a wider assortment to its customers and increase traffic, while the sports retailer was able to obtain exposure to different and wider types of customers. Geographic expansion or tapping into specific niches are other examples of revenue-prioritising activities of leading retailers. An illustration can be found in supermarket chains that open bio-stores in or close to the city, or smaller city-stores with long opening hours. In retail fashion one can note the success of pop-up stores, which are an interesting concept to test the market in a new geography.
100% of interviewed corporate leaders in the retail industry agree with rule #3
Given the momentum in the industry, fast decision-making and testing new ideas are of vital importance in retail. Leading retailers are experimenting with new store formats, pricing and promotion activities, payment methods, flexible delivery choices, etc. As mentioned before, pop-up stores are an interesting way to test the market in a new geography, or to test a renewed concept of an existing retailer. Another example found at leading retailers is experimenting with ways to skip checkout lines, by introducing apps allowing customers to check, buy, and pay for products, and have them delivered or picked up. To be close to the customer and get access to a whole range of ideas, some leading supermarkets and grocers are crowd-sourcing, e.g. suggestions for local food.