Driving the coronavirus recovery in retail - cost or digital transformation?

By Paul Mason, Founder and Chairman, PMC Retail

A “new normal” may be on the way.

Apart from the grocers, most of UK retail has been firmly shut since the lockdown began. Many retailers have even closed their e-commerce operations. Despite government support schemes, this has brought unprecedented financial pain to the retail sector with no revenue coming in but many bills still to pay.

The conversation has now turned firmly towards how the lockdown might be gradually eased. Although this will pose a whole new set of challenges for retailers in getting all of their trading channels up and running, it does present the opportunity to begin the recovery phase. However, the “new normal’ will be radically different.

Stores will be opened in a phased way over the coming weeks and months, but some may never open again as retailers seek ways to exit unprofitable stores. A few may abandon physical retailing altogether. 

The operational changes undertaken by the grocers around queue management and social distancing in-store will have to be adapted for other categories. Customers’ behaviours may well have irrevocably changed, with a different perspective on the shopping missions they are prepared to take and a huge permanent leap forward in online shopping.

Impact on the strategies of retail CIOs

Against this backdrop, how will the strategy of the retail CIO have to change? Until late March, it is highly likely that the strategy centred around digital transformation. Should that still be the case during the recovery phase, or must there be a lurch towards cost transformation in order to mitigate financial pain?

Retail IT strategy

The answer is that both are critically important. Although retailers are always cost conscious (and usually pretty good at driving deals), a top to bottom operational and cost review is essential. 

As for those digital transformation programmes, some of the cost savings delivered will need to be invested in putting the foot hard on the accelerator pedal.

Cost transformation

Undoubtedly, retail CIOs will have negotiated short term deals with their suppliers to temporarily reduce costs or defer payment or both whilst trading is dramatically reduced.

What is required next is a forensic – but strategic – step back to look at the IT cost base. Other than the obvious longer term negotiations with those suppliers, what are the key areas that should be looked at? A number of key areas stand out and retailers should:

·      Cut out what’s no longer required. If the business is smaller than it used to be (fewer stores, fewer people), identify the technology that can be removed – tills, desktops, laptops, handhelds, licences, storage, the list goes on.

·      Think about your target unit cost of IT operation per transaction across your channels. Challenging your teams to think about embedded unit costs is a great way to think about how things are done, rather than just how much they cost in aggregate.

·      Right-size the IT team to fit the new level of workload generated by a smaller business and, potentially, a smaller workload. Does the support team need to be as big as it was? If the project workload is reduced, what is the impact on project resource requirements.

·      Consider targeted outsourcing for what remains. Buying into shared services rather than dedicated services could bring material cost savings and a more flexible service that can be dialled up or down in line with trading patterns and project demands.

·      Think again about offshore services. Another layer of savings might be possible if services can be delivered offshore. The cost of essential projects could be significantly reduced by moving development and testing offshore.

·      Look at supplier consolidation. Widening the scope of key supplier relationships could open up a win/win scenario for both parties and bring material cost savings opportunities.

·      Learn the lessons of lockdown and revisit the resilience of key systems and their suitability for operating in BCP-mode. This might be an area in which to invest savings made elsewhere.

Caveat emptor

Remember, it’s not only retailers that have been damaged by being unable to trade during lockdown. IT services and professional services companies will also have taken a big hit. 

Therefore, carry out due diligence on both existing and new suppliers. Do they have the reserves to trade through to a recovery or are they on the edge? How effective were their BCP plans through the lockdown. Surprisingly, some very big IT companies were unable to fully implement home working.

Digital transformation

Digital transformation programmes need to be reviewed and reprioritised. Given the changes in customer behaviour and expectations, are those programmes still targeted on delivering the right transformation? 

In the world of the “new normal’, what channels are you actually going to be trading in and what is the target experience you are going to deliver across those channels. Is the interaction between channels going to remain the same or will it change? That target experience might well have changed radically with new factors becoming important to your customers like safety or supply chain transparency. 

The role and importance that your store and staff will play in this new normal will also inevitably change. Are your staff really trained and tooled up to do what will be required of them? Are your stores designed and digitally enabled to meet the demands of the new norm?

Whatever the digital transformation becomes, the emphasis must be on prioritising and accelerating delivery. Your recovery – or even your survival – depends on it.

Typically, delivering IT-enabled change in retail is challenging. Change can be complex and there are lots of agendas to reconcile. However, consider this: It is almost certain that more change has been delivered in your business in the last few weeks than in the last 10 years.

Your business has learned to think the unthinkable, shoot dozens of holy cows, trial and pilot at speed and adopt radical change at lightning speed. Look at how to maintain this momentum through agile thinking, agile delivery and being prepared to trial/fail/improve/perfect/roll-out fast.

Lockdown has trained your business to do it!