The Future Of Retail

Absolute scale, rapid innovation and data-analytics expertise are now as important as local leadership. A look at some winning models.

- Marc-André Kamel, Suzanne Tager, Jonathon Ringer, Aaron Cheris And Charles Ormiston

The rules of retail have fundamentally changed. Success in the industry often used to hinge on being bigger than your immediate competitors. Skillful operators that were No. 1 or 2 locally tended to enjoy higher profit margins. In US grocery, for instance, retailers with powerful local relative market share historically achieved operating margins of 4 per cent or more, while rivals in weaker positions earned a fraction of that.

In this era of rising consumer demands and digital advances, however, local leadership is only part of a winning formula. For a start, to create the distinctive products, seamless service levels and meaningful brands needed to sustain a winning streak these days, retailers also have to excel at rapid innovation.

Furthermore, it is clear they must master data analytics to understand and delight customers who have become more demanding and harder to pigeonhole. The industry leaders are finding that the same data skills have become key to cost-reduction programmes in areas such as labour-cost management, supplier negotiations and reduction of inventory shrinkage. Analytics is also core to their attempts to win and retain traffic, both online and in-store.

Above all, retailers need a different type of scale to thrive in the future. The regional No. 1 or 2 will still have a solid base for competition, for sure. But for most retailers, local heft will have to go hand in hand with a more absolute type of scale — one that can fund the unprecedented investments required to stay competitive with the likes of Amazon and Alibaba as the industry digitalises.