Retailers need a new mantra – “How to own the change and not let the change own you.”

Across Australia, retailers are facing strong headwinds – a cocktail of rising inflation, increasing interest rates, a hike in the minimum wage and the highest food costs in over a decade. In the words of one ABC analyst, “As the world becomes more uncertain and interest rates rise, we’re flying a little blind.”

Retailers excel at flying blind – the pandemic, supply chain woes and food shortages have shown us that if anyone can thrive in a crisis, it is retailers. However, the sheer number of factors contributing to the current economic uncertainty suggests that retailers looking to ‘thrive not just survive’ in the next 12 months need to consider sustainable structural change. By structural change, I mean the way they are set up, but also in their deep-rooted way of operating when it comes to investment in employees and project delivery. In our view, there are three key mantras that need to be applied.  

  1. Make it easier to deliver value to your customers

Prior to the pandemic, the retail industry was enjoying a heady growth trajectory with approximately AUD $329.6 billion turnover in 2019. That’s AUD $9 billion more than the value recorded in the previous year. More recently, the Australian Bureau of Statistics (ABS) released figures for April (2022) showing turnover in the retail sector is up 9.6 percent compared to this time last year, which was off the back of a strong March performance where figures reached record levels. However, amid the challenges felt by the ASX this week, some of Australia’s biggest retailers in Wesfarmers, JB Hi-Fi and Harvey Norman have taken significant hits to their share prices. This tells us no retailer is safe from uncertainty.

So, what should retailers do? Firstly, they need to identify how they generate value for their customers. This isn’t just value in terms of ‘dollars and cents’ based on what customers buy, it is value in terms of what customers value in their experiences. Once this is understood, they must clearly understand how their structural set up (i.e. their operating model) facilitates or inhibits this delivery of value.

Examples of this include putting hand-offs between Teams at critical points in a customer’s experience, often resulting in information not being passed between teams and requested twice from the Customer. Or underinvestment in capability that is key to customer value, such as data intelligence or last mile distribution.

This exercise allows retailers to identify not only how value is created but also the true cost of delivering this value. I have worked with countless Executives who, having been through this exercise and say “we spend that, on that?!” in sheer disbelief. This is not about promoting ruthless cost-cutting; it is in fact the opposite – championing being deliberate about where you invest headcount, and the value it delivers.

It is worth noting that pulling this picture together requires a strong tripartite relationship between organisation design, data insights and change management capabilities, which are often in scarce supply in retail organisations.

2. Invest in your employees

People are retailers’ greatest expense – if you take retailers like Coles and Woolworths, together they are one of Australia’s biggest employers. With the recent rise in the minimum wage, there are increasing pressures for retailers to deliver more, with less people.

Investing in people while under considerable economic pressure might sound counterintuitive, hear me out.

The cost to replace an employee range anywhere from 30-400% of their salary. This is due to a combination of time to hire, lost productivity and time to upskill a new employee to the same standard. Throw high performers into the mix with estimates that they can deliver approximately 400% more productivity than an average employee, and you’ve got a very strong business case for not only retaining but investing in your existing people. This goes beyond attractive remuneration; it looks like well thought-through career opportunities that grow and challenge employees in new and different ways. The bonus business by-product of this is that engaged employees are more productive and empowered, and therefore tend to create better experiences for customers.

3. Do it once and do it well

Many Australian retailers have been forced into considerable technology and systems investments, with the pandemic highlighting cracks in legacy systems falling short of customer expectations. With this has come a tidal wave of capital spend, and some of the biggest projects retail organisations have ever needed to deliver.  

Retailers are brilliant at delivering quickly, and due to their ‘daily trade’ mindset and shareholder reporting, oftentimes need to favour short-term over long-term thinking. These additional realities make multi-year programmes of work anomalies in a retail environment. For this reason, retailers should carefully consider the real timelines to deliver these projects in upfront planning, and the associated investment to support these timeframes.

In addition, they must consider the scale of changes beyond getting the system in place – to realise the full potential of benefits they require behaviour change, culture change, redefinition of processes and upskilling in new ways of working. Retailers need to ensure they invest in the right capabilities (beyond systems implementation expertise) to ensure these big programmes of work are delivered once and delivered well.

The retail sector faces challenges that calls for them to understand how they deliver value, and how they can think differently to forge organisational resilience in the face of uncertain times ahead.

Melissa Kirby is the head of Melbourne from Q5.