Megatrends for retail and commerce
Today’s retailers face significant challenges as online increases its share of wallet, mall-based stores stumble, technology requirements mount, and customer engagement remains elusive for many. The business environment is clearly marked by the need to rationalize store counts, headcount, and product count.
As management faces up to these challenges, they seek purposeful justification of expenditures, higher shareholder returns, and greater customer engagement.
SafeRock has identified three megatrends for management should consider while seeking its goals. These megatrends are profitable customer engagement, open payments, and unified commerce.
Megatrend #1: Profitable Customer Engagement
Management focus can create profitable customer engagement and increase shareholder value. To navigate this, management has to be laser focused on improving customer engagement, providing shoppers with greater convenience while increasing ROI from marketing investments. When managers operate in silos, this can reduce ROI. Marketing, merchandising, or IT can successfully drive a promotion initiative, but effective execution depends on support provided by the executive in charge.
Hudson’s Bay Company, using marketing gross margin and sales ROI analytics, improved promotion effectiveness while achieving an impressive 19.5% compounded same-store sales growth over four years.
Megatrend #2: Open Payments
The e-commerce ecosystem will benefit from an opening up of payments and transactions. An example is the European Union’s PSD (Payment Services Directive), designed to create consumer benefits including faster payments, wider choice of payment services, and lower costs. Similarly, the FCC and White House are coordinating action to open up cable boxes to market competition, leading to lower prices and more innovative products so American families can pay less and also integrate cable and satellite content with online and streaming content. Competition at content touchpoints will foster innovation and greater benefits.
Megatrend #3: Unified Commerce
Unlike consumers who move effortlessly between online and offline shopping, most retailers are still siloed in their approach to brick-and-mortar and digital operations. Management lacks a unified, ROI-focused view about this, so their decisions are hard to support with data. There are also IT and process inefficiencies that eat up scarce resources. To be nimble and stay focused on the consumer, businesses need to further harmonize ecommerce with physical stores.
As consumers rapidly grow their use of online channels, the analytic ability to measure consumer results across channels is becoming increasingly important. However, SafeRock believes that the current data does not accurately show the consumers’ ability to shop and spend (i.e. their omnichannel wallet). This lack of understanding of the true omnichannel sales potential limits the retailer’s ability to serve the shopper. With better analytics, the retailer can grow its business, increase loyalty, and also improve service.
Retailers need KPIs that focus on incremental return on incremental investment – which is a sound proxy for EBIT contribution. By using this and similar KPIs, they can improve performance across product categories and marketing programs, and unify channel data that is increasingly fragmented and difficult to analyze.
Companies are stumbling. For retailers looking to unify store and online, we recommend focused investments in analytics that increase marketing GMROI in a systematic way across all sales channels. This will help management understand how each department is contributing to earnings before interest and tax (EBIT) and help improve shareholder value.
With no standard for extracting omnichannel insights, SafeRock sees an opportunity for a more customer-oriented index that directly measure the profitability of consumer behavior. For brands and retailers, this will translate to a unified, more profitable relationship with the consumer.