It’s tough at the top: why CEOs and the new PM may share a challenging future
11th January 2019 4 minutes read
In the past few weeks the widening gap between traditional and non-traditional retailers has become ever more apparent. While a leading global online retailer has reached a new benchmark of trading at $1,000 per share, a family favourite department store has revealed a first quarter loss of $230 million. Investors wiped $4.6 billion from the overall US department store sector over just two days in early May and 1stquarter figures from Macy’s, Kohl’s, Dillard’s, Nordstrom and JC Penny were below most analysts’ forecasts.
As the FT reported, these latter figures suggest that: “Wall Street has still not got a handle on how fast things are deteriorating in the [department store] sector”.
All of this suggests that despite the many recent dire warnings about why retail needs radical change, leaders are still looking in the wrong places for solutions. The nightmare scenario is not just on the horizon, or even just around the corner. It’s already here and it’s creating havoc and destroying value.
Quite simply, many retailers have failed to race ahead of the pain barrier and now it’s catching up with them. So is the same situation facing retailers in the UK? And what steps should new and existing retail CEOs be taking to mitigate the risks?
We undertook Phase 1 of The DNA of the Retailers of Tomorrowreport in collaboration with the World Retail Congress, Planet Retail RNG, EY and TrueStart to help retailers make sense of the current status of transformation and begin to map out strategic imperatives and operational capabilities required to face the future.
Through over 100 interviews with global retail boards, we were able to identify the 10 DNA BLOCKS OF TRANSFORMATION™, which are seen as critical to the success of organisational transformation in retail.
It was clear from our research that many retailers have recognised the need to adopt new technologies to power multichannel global retailing, strong and reliable supply chains and personalised loyalty schemes, which will enable them to meet the changing requirements of customers.
Yet while they may know the WHAT and the WHY, what’s missing in many cases is the HOW. It’s our belief that many retailers are still looking for answers within traditional models, rather than understanding more about what industry disrupters are doing to win customer’s and their loyalty.
One of the key issues is leadership. Our own analysis into the backgrounds of 32 CEOs from the UK’s largest retailers (£1bn+ revenue) found that 31% gained their expertise mainly through store operations, a quarter had only experienced working for a single retail business throughout their career, 91% were male and 97% were white.
This analysis does not present a cohort of leaders ready to understand the demands of a shifting global consumer demographic, especially when targeting overseas markets. Also, with so many having only worked in a limited number of traditional retailers, do they have the experience and expertise to understand how disrupters are attracting consumers away from traditional retail models?
Consider the impact on the UK grocery and fashion businesses by non-UK disruptive brands and you can see where all of this is heading. Consider also the global brands that are surely posed to break into the UK market and those from the online world eying physical store expansion.
There is also a clear need for these leaders to understand the necessity for major investment in new technologies. Arguably, all five of the Operational Capabilities outlined in Phase 1 of our report are dependent on this:
Investment in new technologies doesn’t come cheap, but not understanding its impact on the health and wealth of tomorrow’s successful UK retail brands is potentially suicidal.
Of course the big challenge for UK retailers is that many of them are already standing on a burning platform. They face the same headwinds as US counterparts in terms of needing to deliver revenues and profits day to day while still finding the means to invest in the new world. And they need to do all of this at a massive pace of change.
As stated by Lord Stuart Rose, Chair of Ocado Group plc and an advisory board member for The DNA of the Retailers of Tomorrow, “understanding the complexity of transformation is the most difficult challenge most retailers are facing. Those who are successful in mastering this will be the retailers of the future.”
This is expanded on by fellow advisory board member and Chair of US International Economic Policy Committee, Paul Charron, in an interview with the Robin Report: “If you walk into any retail company and you look at its financials and at the world it will be competing in over the coming 5 to 10 years, you will probably conclude that they need a revolution. And for a successful revolution, for the most part, you need new leadership.”
The need for traditional retailers to evaluate their organisational design, operating models and leadership and move forward with their transformation strategies is clear. Fortunately for these traditional retailers, they also have a great opportunity to learn from true retail disrupters who can help provide the blueprint for a successful rebuild.
As a Co-founder of Green Park, I have been working with clients for over ten years to help identify their market challenges and implement responsive and sustainable organisational design and leadership strategies. Through The DNA Series we have gained a unique insight into the struggles faced by the retail sector, in addition to the vast array of opportunities waiting to be seized by retailers bold enough, ambitious enough and smart enough to take them.
Having outlined the current market challenges and identified the 10 DNA Blocks of Transformation™ in Phase 1 of The DNA of the Retailers of Tomorrow, Phase 2 will highlight HOW retailers get to the next stage. We will analyse what has worked for the world’s most successful consumer disruptors and identify what can be learnt, applied and adapted by traditional retailers. Having given them the tools to compete and build a sustainable business model, the only question left for traditional retailers will be: who is brave enough to seize the day and who will get left behind?