Retail is a brutal business to be in: high fixed costs, high working capital intensity, fickle customers, and low barriers to entry make the sector a case study for the worst-possible chances for business success, according to analysts, academics, and history.

And lately, retail has become almost impossibly more brutal.

These are unprecedented times of rapid and deep changes for customers and society, driven primarily by technology, economic volatility, and political uncertainty (e.g. Brexit, US elections).

For Retailers and Brands, these are dangerous times of disruption and of tectonic shifts in structures, formats, and channels. A new epoch of retail has arrived, wherein, once again, only those most agile / most adaptable to change will survive.

Amongst the new realities keeping retailers up at night and dragging down already thin margins:

• Economic forces. For customers, the definition of “value” has changed as a consequence of economic forces like recession and austerity politics. The data points to growing numbers of customers concerned about price. As one supermarket CEO puts it, the “lower third of price-sensitive customers has become the lower half”.
• Food price deflation. Deflation in both fresh and commodity pricing has continued for more than 3 years in the UK and now for 2 years in the US, hurting top-line growth for both retailers and brands, and igniting what analysts are calling “grocery price wars”.
• Disruptive price innovators. Hard discounters like Aldi and Lidl are becoming more aggressive every passing day. Our European partners’ experience suggests that this variation of discount format might impact the global industry even more significantly than has Walmart, and within a shorter time period as well because this approach impacts the mid to upper tier of shoppers as much as it does the price-sensitive.
• Arguably, in today’s multichannel, post-recession world, retailers face a binary decision (relative to competition) to either be cheaper or more relevant (as any middle position is short lived and profit starved). Being cheaper means beating Wal*Mart, Rakuten, Amazon and others at their own disruptive model game, which is highly improbable. Being more relevant means understanding Customers better than others do, and from this delivering an experience that Customers personally value. The problem is that Amazon is both cheaper and more relevant.
• E-commerce. Online and mobile will account for 24% of global chain retail sales in 2020. E-commerce represents a structural shift at the very foundation of a retailer’s or brand’s existence, from simply producing and distributing products, to delivering a valuable and personally relevant “experience” wherever the customer is in space and time. And most of the growth in ecommerce will not be through today’s pure-plays or in bricks&mortar.coms, but rather through 3^rd party marketplace ‘aggregators’, introducing yet another form of competition for the embattled retail industry.
• Higher operating costs, especially for store labour. Staff turnover combined with a smaller pool of qualified workers is driving up wages. Retailers spend a significant amount of their revenues on labour, so increases hit their already-thin margins in a more forceful way.
• Customers are increasingly demanding a faster, simpler, less-painful shopping experience. Chains are allocating larger shares of their capital budgets to enabling technology and repositioning existing stores to be more attractive to convenience-seekers and Millennials. Underperforming assets – particularly big boxes – are being shuttered at a faster pace.

The best of times for Retailers and Brands

On the other hand, the opportunities for business growth arising from these challenges are immense. History has proven that those organisations who have the agility to take advantage of the emergence of the plethora of new markets, channels, products, and customer segments will thrive. [Conversely, those resistant to change have perished (see A&P) or have become museum retailers (see Sears and JCPenney lately), where shoppers occasionally look in to see their quaint offerings but don’t buy.]

Seeing a tremendously fertile (and frightening) environment for change, even the hard-nosed, raised-in-the-business retailer leaders are realising that they must become more science-driven and more customer-aware if they want to even survive, let alone seize upon any opportunities for growth.

Agility is exactly the capability that retailers need, driven optimally by using data and science to delight customers. Retailers and brands must embody a cultural and mind shift to putting Customers First; this is how they become empowered to seize on the opportunities now presented, and how they enable themselves to thrive therefrom. To change best and with purpose, it must be via Customer First – to deeply understand customers, to strategically invest in what matters most to them, to improve the shopping experience, and to personalise conversations with the most precious assets of the business – its customers.

The higher purpose behind Customer First

Delighting customers using a loyalty approach – what we call Customer First – is not just some warm, fuzzy, altruistic thing (although a Customer First organisation will feel better to its employees as a place to work and Customers will enjoy better experiences), but is, rather, a growth-driving, growth-sustaining machine proven to generate profit when executed optimally.

Customer First delivers profit and margin growth by focussing on growing top line sales first. Sales growth, as every good retailer knows, covers many sins: it improves the percentages on the measures retailers care about most (e.g., store labour percentage, OG&A expense percentage). Greater sales directly translate into greater purchasing leverage on suppliers. Simply, growing sales via Customer First grows greater shareholder value.

More importantly, beyond projecting well-being for Customers, Customer First protects jobs and well-being for employees of the business. In this protective role, Customer First becomes a moral obligation for the business and a moral responsibility for its leaders – and this is the highest purpose.

The new reality is that change is here to stay, perhaps more fiercely than ever. Those of us who understand this reality, who accept it and adapt quickly, will emerge profoundly the better for it. Better in terms of our market value and employability as a business and as individuals. Better because we don’t squander precious time and energy resisting the inevitable. And certainly better when it comes to the health, happiness, and well-being of ourselves, and for Customers.