Strategic planning in retail used to be so simple, didn’t it? For the decade up to 2009, more than three quarters of total value creation in the UK retail sector resulted from just three drivers: store roll out enabled by the exit of independents, like-for-like sales growth supported by credit extension, and margin expansion from the shift to Far East sourcing. Once a good formula was established, most retailers profitably maintained a plan of steady incrementalism.
Now, none of these factors endures. Not only is the outlook tougher, but it is structurally more volatile and ambiguous.
Many chief executives are whistling uneasily in the fog of consumer behaviour changes, technology innovation, industry disruption, political shocks, and even the potential for a reversal of globalisation. The traditional annual planning process – linear, incremental and numbers-based – feels futile. Forecasting and analysis seem incapable of predicting the next earthquake.
In response, wise CEOs are insisting on greater preservation of flexibility. Typically, lease lengths are being managed down, supply chains are shortening, sourcing is being diversified, and systems development is more agile. But minimising risk on its own is not enough. Hanging loose is no substitute for strategy.
In this new world, it is useful to think about strategy over two broad timeframes: the vision and the here-and-now.
The vision may need to be rethought. The classic advantages of competitive position are being challenged.
If your vision includes words like ‘leader’, ‘scale’ or ‘global’, these may no longer be strengths in a world which is unstable and unpredictable. ‘Learning’, ‘customer-focused’, and ‘fast’ are more relevant. However as Jeff Bezos points out, while much thought is applied to what might change, at least as important is what’s not going to change. Lower prices and faster fulfilment are unlikely to be unpopular with customers, so effort in these areas will still be paying off well into the future.
The here-and-now is about validating and prioritising actions, monitoring strategy execution, and being ready to course-correct. It is a continuous process, not an annual one. It’s about resetting objectives and deciding what should be stopped. It’s about self-cannibalising before others do. It’s about tolerating uncertainty and failure.
Key to this is an area badly neglected by most multi-channel retailers: experimentation. Generating, simulating, testing and exploiting innovation is critical to effective strategy development. Retailers have the advantage over many industries that prototyping is generally fast and cheap, particularly in the digital environment. But innovation should not just be about new products or services: it should be about processes, organisation and business models.
Retailers are reconciling themselves to a capricious and mercurial world. There will be some who embrace this not as a threat, but as an opportunity to upturn the established order and seize an edge. Doing so will not come from cranking the handle on a planning process which is no longer fit for purpose.
This article appeared in Retail Week, 24 February 2017