2016 Retail and Distribution Industry Outlook, shopping with mobile

Perspectives

2016 Retail and Distribution Industry Outlook

Interview with Rod Sides

Improving existing distribution systems, appropriately incorporating digital technology into the physical store experience, and identifying innovative ways to leverage existing real estate will be critical success factors for retailers in 2016, says Rod Sides, vice chairman, US Retail and Distribution leader, Deloitte Consulting LLP. Here, Sides shares his thoughts on growth opportunities and industry trends for retail and distribution firms in 2016.

Where do you see the opportunities for growth in your sector?

Retailers with optimized distribution systems and enhanced supply chains will be at a competitive advantage in the coming year. While supply chain and distribution costs are not necessarily rising, consumers increasingly expect faster delivery—at the same price points. This pressure is due to both increased consumer demand and competition from digital retailers with lower overhead. Where we have seen the most significant shift in consumer expectations is with regard to shipping: Our annual holiday survey indicated loud and clear that consumers do not want to pay for it.1 Smart retailers, then, are investing in their supply chains to provide faster and more efficient fulfillment.

Forward-looking retailers are not only improving their distribution and supply chains—they are identifying alternative fulfillment methods and leveraging their existing real estate. A more distributed supply chain network may be warranted. Moving forward, retailers should consider dedicating more of their supply chain network space to fulfillment (e.g., customers buying online and picking up in stores) and shipment processing, incorporating digital, and advanced technologies for efficiency and to improve the customer experience.

Another opportunity for retailers is to leverage their existing physical store space through partnerships. Alliances that use the store-within-a-store concept not only enable the retailer to offer a wider range of products and services—they can expand customer reach and monetize existing real estate. The coming age of the eco-system has the potential to dramatically shift the face of brick and mortar retailing.

Rod Sides and Susan K. Hogan, Deloitte’s 2015 annual holiday survey: Embracing retail disruption, Deloitte University Press, October 26, 2015, http://dupress.com/articles/holiday-retail-sales-consumer-survey/.

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Key takeaway:

Retailers should revisit the role their physical store plays in the consumer’s shopping journey and how existing physical store space is being utilized and leveraged.

What should businesses be mindful of as they plan for growth?

Content curation is one of retailers’ biggest pain points and perhaps the biggest issue our clients will continue to face over the next two to three years. Retailers now recognize that creating a seamless omni-channel customer experience is probably not doable, sets unrealistic expectations, and may not even be optimal, so they’re now looking at each step of the customer journey, such as localization of merchandise and personalized communications. This one-to-one marketing—providing a personalized and relevant experience for each customer—requires more content and curation. While digital technology enables the creation of targeted messages, you still need to get the content and images correct for each media outlet, and synchronize this content with the consumer’s in-store experience.

Most retailers are investing in content management systems, but the manner in which they are addressing this issue tends to be insular, focusing on the stories they want to tell, when they should be asking themselves: What are the stories consumers want to hear?

Complicating matters even further is the decreasing reliance on retailer-generated content and increasing influence of user-generated content and peer networks. In 2013, when Deloitte’s Digital retail practice started exploring which content drives consumer action, we found the majority of consumer action was still driven by retailer advertising.2 Two years later, with the increase in social media and user-generated content, the influence of retailer-generated content had declined to less than a third.3 Mining consumer insights, to help understand the story consumers want to hear will be critical in the coming year for retailers.

With more data mining and increased digital communications comes more risk. Cyber security will continue to cut across all aspects of the business: disruption, convergence of digital online, social, new ecosystems, and mining customer insights. Cyber continues to be a major concern for retailers and is now a board level issue.

2 Kasey Lobaugh, Jeff Simpson, and Lokesh Ohri, The new digital divide: Retailers, shoppers, and the digital influence factor, Deloitte Consulting, LLP, 2013, www2.deloitte.com/content/dam/Deloitte/us/Documents/consumer-business/us-rd-thenewdigitaldivide-041814.pdf.

3 Kasey Lobaugh, Jeff Simpson, and Lokesh Ohri, Navigating the new digital divide: Capitalizing on digital influence in retail, Deloitte Consulting LLP, 2015, www2.deloitte.com/content/dam/Deloitte/us/Documents/consumer-business/us-cb-navigating-the-new-digital-divide-051315.pdf.

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Key takeaway:

While digital technology enables the creation of targeted messages, you still need to get the content and images correct for each media outlet, and synchronize this content with the consumer’s in-store experience.

What is the next big thing? What markets do you see emerging in the sector?

Expect to see retailers continue to upgrade technology. Beyond reconfiguring the store base, brick-and-mortar retailers will strive to identify ways to dominate the intersection of digital and physical. Since infusion of digital with the physical experience is critical, so is technology modernization.

Cloud computing is central to modernization—and a key issue for our retail customers, since retailers often lag behind other industries in embracing cloud technology. IT departments will no longer look at cloud technology as simply a cost savings technique but begin to realize that cloud technologies can enable more rapid adoption of the latest solutions, harnessing the increasing power of technologies. In the coming year, expect to see retailers accelerate their move to the cloud.

Additionally, this coming year will usher in much more rapid consumer adoption of mobile payment technologies driven in part by competing payment platform introductions. While not exponential, this adoption will be more pronounced than what we have seen in the past.

Agility is also key, as is speed to market. Traditional retailers must work to move ideas from concept to reality much faster, instituting new features as quickly as the online competitors, rolling out these new ideas in weeks, not years. With the market becoming more fragmented, speed and agility will become a clear differentiator for retail.

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Key takeaway:

With the market becoming more fragmented, speed and agility will become a clear differentiator for retail.

Explore additional resources and insights

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Look again

In today’s rapidly evolving marketplace environment, key business issues are converging with impacts felt across multiple industry sectors. What are the key trends, challenges, and opportunities that may affect your business and influence your strategy? Look for more perspectives and insights from some of Deloitte’s forward thinkers.

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