The impact of increasing uncertainty on decision-making in retail…

We live in unprecedented times where uncertainty adds pressure to all stakeholder decision-making, and can ultimately have a negative effect on the business.. Over the past week, this pressure has been multiplied by attempts to blame a long overdue global stockmarket re-set on CoronaVirus, rather than a deterioration in business fundamentals that were evident over the past decade...

The negative effect of uncertainty is particularly important in retail, where large teams of customer-facing operatives abound..

For example, JLP finds itself in the midst of a perfect storm, the future status of Asda is under review, the Department store model is being challenged and Brick & Mortar retailers are still seeking a balance with online… 

In each of these cases, companies are involved in decision processes that are complex, and take time during which uncertainty grows…

Placed in the context of these unprecedented times, the impact of the uncertainty can adversely affect all stakeholders..

 An article in Wired quotes research on the effect of uncertainty on decision-making. In a game known as the Ellsberg paradox, players had to draw and guess whether a card was red or black. This is a decision that is typical in business, where, at first, the players were told how many red cards and black cards were in the deck, so that they could calculate the probability of the next card being a certain colour. The next gamble was more complex: subjects were only told the total number of cards in the deck. They had no idea how many red or black cards the deck contained. This changed the decision-making environment to something more like today’s unprecedented times. In doing so, it was found that the players filled in the gaps of their knowledge with fear. And it's this inexplicable fright - an irrational by-product of not knowing - that keeps people from focusing on the possibility of future rewards, thus affecting their behaviour.

[For more see The Uncertainty effect: Wired ]

A key problem with uncertainty in retail is the negative impact on management, staff, and shoppers.

All are already impacted by uncertainty-induced fear re jobs, debt and health…

Specifically in the case of company uncertainty, ‘fear’ can cause senior management to stop investing in growth, unless there is sufficient information available to assess risk (i.e. things that can go wrong), calculate their chances of occurrence and their impact on the business, and invest accordingly.

In unprecedented times, they are tempted to play safe, and can focus on failure avoidance, thus prolonging the period of uncertainty within the business....

On the other hand, staff, especially customer-facing operatives, can decide to consider their options…

In other words, those that can, leave, and those that cannot, remain on board, but obviously experience some drop in motivation, at least… The resulting fall in morale can translate to less commitment to detail in the day-job, often resulting in untidy aisles, gaps in shelves and less attention to shopper needs, thus adding to uncertainty in the aisle..  

This in turn can increase the uncertainty for the shopper that, added to their concerns re jobs and living costs, can cause them to defer purchasing where possible…

Meanwhile, suppliers, faced with their own uncertainties, tend to gravitate towards those customers that seem more secure (i.e. more certain) and allocate discretionary trade investment monies accordingly, at least until the customer has ‘sorted’ its issues and restored  some certainty to the supplier-retailer relationship…

Competitors on the other hand, have to see a rival’s uncertainty as an opportunity, if only as a source of good staff in the short term.. However, given that the City can regard corporate uncertainty as a sign of weakness and act with their feet in terms of hitting the share price, they thus create possible takeover opportunities via ‘healthier’ retailers.

The answer to uncertainty-induced risk has to be something about restoring certainty fast but realistically. In other words, clear credible aims, actions and progress need to be shared with stakeholders at all stages.

In other words, when say a takeover/merger comes onto the table, it is vital that a decision is made and communicated fast…

The consequence of avoiding the issue, or dithering, has to result in fear coming into play for all stakeholders, along with the unintended consequences of good folk leaving...

NB Given that at times of uncertainty, most people don’t find any outcomes appealing, i.e. they don’t act, they thereby inadvertently create opportunities for the few that are prepared to calculate outcomes using whatever odds are available. These people are decisive, take action and do so with very little competition..