Avoid painting yourself into the corner A short(ish) note on the challenges facing Retail today

Insult on top of injury

Few business domains have been so heavily affected by the COVID-19 Crisis such as Retail (ok, there is Travel, Tourism and Hospitality, but still…). This amounts to adding (very serious) insult to (an already substantial) injury, as things were not exactly rosy for quite some time now. Facing great challenges from online channels that excel on price, variety and convenience in parallel with limited if not dwindling consumer discretionary expenditure and punishing operational costs, Retailers have been faced with hard decisions for years. 

Operating as Category Ambassador

The top challenge tends to be somewhat overlooked, though dealing with it is a prerequisite for moving on to other challenges: How can I persuade people to spend money on the categories I sell? How can I achieve that against pressure from restricted consumer budgets and direct or indirect competition from other types of expenditure, or even the ‘competitive’ idea of saving money and postponing purchases, possibly forever? 

Some would assume that there are universal ‘needs’ for whatever things that you are selling, and the only thing you have to do is to make sure that you crucially grab market share from your competitors – in other words, just focus on pushing your brand. But this is wrong, because it is partial. 

In every single encounter that you have with customers, you have to act before everything as an ambassador of your respective categories. If you let this sink in, it is quite frustrating as you realize that, say, the big TV that you are selling has to compete with a 5-day family holiday in the summer - but this is how it is. Your thing has to come across as more desirable and relevant. And less guilt-laden.

Dealing with Competition

And as we said, this is only the beginning, as there is certainly more of the challenging stuff. Of course there is the constant pain of online: How can I successfully compete against online alternatives, starting from an unfavorable price positioning as pretty much a given? Setting up a similar mechanism yourself is a survival prerequisite but not a solution if you want to stick with your physical operations – which we assume that you do.

Then there are stores and brands that do things very much similar to what you do: How can I differentiate against dozens of my competitors who face the same challenges as me – and, crucially, have pretty much the same choices and weapons as me at their disposal? 

Relationship-Building

Finally, in this admittedly quite simplified model of challenges faced, there is the quality and strength of relationship that you build with your customer, and usually it boils down to this: How can I meaningfully enhance customer experience on the basis of given resources? Please do note the ‘meaningfully’ bit, because what many Retailers think is important for customers may be not even registering in real terms. Meeting rooms plagued with customer myopia and Groupthink may lead to initiatives that have absolutely zero effect (but, painfully enough, not necessarily zero cost).

Ok, now what?

We started by referring to the COVID 19 crisis, yet we are not here to discuss any operational changes that you may need to initiate at the face of the ongoing crisis– in any case, if you haven’t done anything by the time that you read these lines you are bound to be in some serious trouble today and tomorrow. No. We have to move on to the day after and see what we can do about it. 

Really Bad News

Well, there are really bad news and somewhat bad news about this. The really bad news is that things are going to be tougher. Considerably so. People will definitely have less money in their hands, and they will worry more about the future state of affairs – making spending on anything a decision that is not so easy to take light-heartedly.

Moreover, there will be increasing cultural pressure against certain aspects of consumerism, related to the wave of (presumed) realizations about priorities in life that came along with the crisis. This is bound to subside over time, but not before leaving some painful mark around. On the top of these things, side effects of geopolitical friction (e.g. push for national self-sustainability and reduction of dependence on international supply chains, outright sanctions, tariffs and trade wars etc.) may affect costs, upwards that is.

Somewhat Bad News 

The somewhat bad news?  And no, there are no ‘good news’ in the strictest of senses. The challenges that Retail will have to face in the post-crisis scenery are very much known and familiar – only of course dialed-up. Severely.  And familiar can be good – but only of you know how to handle this type of things. But let us be honest, do we now?

The problem is that Retail is bound to react in ways that are already known to create something like a downward spiral of diminishing customer engagement and revenue.  You know very well what we are talking about.  Usually the knee-jerk reaction is to cut costs across all operational and marketing functions, while cutting prices where possible. 

Cost rationalization – not what you think it means

We would be fools to argue that cost rationalization is by default a bad idea. In fact, the new evolving situation will force quite a few Retailers to approach anew the real value they are getting out of what they spend - and that can work out to their true benefit. But we all know for a fact that in most cases this will look less a rational, facts-based exercise but more like an all-out indiscriminate cost massacre.

And when you do that, you are bound to end up in a situation where people have less and less reasons to bother with your case. Which will probably lead you to consider further cost cutting, only to realize in dismay that there is not much left around to chop. Not a nice state to be in, quite frankly. 

The REAL yardstick

We argue that Retailers should judge costs and investments solely in terms of the ROE (Return on Experience) they bring to customers. And by that, we mean systems, practices and actions that create a cloud of positive experience points, enough to make customers do any of the following: 

- Visit your stores just for the kicks, because it just feels great (before actually buying anything, which will normally follow)

-  Be less troubled about the idea of spending, because buying your stuff means a lot to them - and to hell with it

- Pay a higher price for something similar to that of competitors, because what you offer goes far beyond the core product, or so it feels like

- Feel less compelled to shop around, because, after all, why bother?

- Stick with you consistently because ‘this is where the good stuff happens’

- Talk about you in a positive light, whenever given the chance, because they have a real and deep connection with you

Yes, usually these things come along with price tags but seriously great ideas, difficult as they are to come by, may be considerably cheaper or even free. So, are you ready to roll up your sleeves and focus your energy where it matters, or are you already contemplating ways to paint yourself into the corner?