Reinventing Cost & Productivity for Retail: Key Lessons

It’s no secret retailers’ earnings are under pressure, and they need to take decisive action now to protect their earnings and balance sheets. Just since January, there have been announcements of 3 large billion dollar plus retailers exploring debt restructuring strategies to protect liquidity. Numerous others are reporting substantial declines in earnings due to weak Q4 sales and margins.

How should this decisive action be taken? As we discussed in a previous LinkedIn post, there’s growing urgency for retailers to protect earnings and liquidity by making permanent, structural improvements in their entire operating cost infrastructure and margins, while significantly improving their management of inventory investments to reduce working capital and related debt needs. An increasingly effective and beneficial way to achieve these improvements is through Accenture’s Cost & Productivity Reinvention (C&PR) methodology, which strengthens retailers' entire P&L and balance sheets by permanently unlocking margin and operating expense savings, while providing fuel for strategic growth initiatives.

In this follow-up post, we explore some lessons leaders can learn from retailers that have reinvented their cost and productivity profiles and reaped the rewards. Specifically, we look at the keys to architecting the journey and enabling the journey that drove these retailers’ success. Both of these dimensions are critical, because C&PR isn’t an incremental change in how a retailer does business, and it’s not a one-time cost takeout initiative. Rather, it’s a fundamental change/improvement in a retailer’s capabilities and operations that generates long-term, sustainable benefits as it transforms its economic operating model.

Architecting the Journey

Fundamental to success is is that a CP&R program be architected so the right foundation is in place to drive long-term results. Our work with numerous retailers and consumer product companies in effectively architecting the journey includes four key elements (Figure 1).

Figure 1: Architecting the C&PR journey

#1 - Executive Sponsorship

C&PR requires strong, active “Executive Sponsor” leadership from the C-suite, typically the CEO or CFO, or, at times, a chief transformation officer. This signals to the rest of the company that this program is vital to the company—not just a “flavor of the month” initiative—and that those at the top are truly committed to making it successful, not just signing the memo announcing the initiative. Executive sponsors must ultimately make the tough choices that are a part of every C&PR program. And they need to make people accountable for the change and deal with the pushback from various areas of the company that will inevitably arise and ensure that these functional leaders who are pushing back understand that they do not have the option of “ opting out”. We know that reinforcing the need for “support from the top” by now has become almost cliché when talking about transformative change. But the fact is, big programs continue to fail or achieve suboptimal results—over and over—when top executives aren’t visibly and unshakably bought into them and visibly ensuring cross-functional buy in and commitment to the entire initiative.

#2 - Functional Engagement

C&PR isn’t a silo’d project, but rather, a cross-functional one. Most change recommendations impact both upstream functions such as merchandising, store operations and possibly visual merchandising, while at times impacting finance, procurement and IT. While these functions may not be required at the front end of the journey, as the program progresses, changes in how people work and policies impacting other functions enablement may be needed to sustain it.

#3 - Structure the Program

A C&PR initiative typically has many moving parts. Thus, it requires a robust structure to effectively manage it and ensure it remains pointed in the right direction. This includes having the right governance structure and the appropriate cadence of meetings of key leaders that both drive and impact success of the initiative. Importantly, the structure of the program is not just about having meetings, but that those meetings must be built and run in such a way that the teams are effectively and transparently tackling important issues, such as communicating effectively, identifying and managing resistance and roadblocks, and thinking about what investment the program might need (such as resources or technology).

#4 - Reinvestment

C&PR isn’t just a narrowly defined cost improvement play. Rather, one of the fundamental goals of C&PR is to transform retailers’ economic operating structure to provide significant improvements in earnings and cash flow, some of which should be reinvested into crucial strategic growth initiatives or other important areas—such as improving compensation of key people, investing in game-changing technologies, building new or upgrading existing stores to improve the customer experience.

Enabling the Journey

With the foundation of the C&PR journey built, retailers then must put in place the key enablers that are needed to implement it and see it through to completion and success. These enablers are vital to not just gaining the upfront and ongoing buy-in from the retailer’s cross-functional leaders and staff, but also to ensuring that changes made are not just “on paper” but are having a true impact on the company’s P&L.

?Figure 2: Enabling the C&PR journey

#5 - Brand the Program

Branding is powerful—it helps shape people’s opinions, influence their emotions, sway their decisions, and motivate them to action to the success of the C&PR initiative. It helps engage involved and impacted personnel, gain their hearts and minds, and convey to them the purpose and importance of the changes. One retailer we worked with recently called its program “Smart Spend”; another named its “Fuel for Growth.” In these and other cases, the branding of the program was important to establishing the connection between the program and the company’s overall vision—so people could clearly understand why they were doing what they were asked to do.

#6 - Reward Success

Reward is a great motivator—it appeals to people’s need to be recognized for their accomplishments, which fuels a desire to do even more. But in the case of C&PR, rewarding success doesn't necessarily mean a person who saved the company a specified amount should be financially rewarded. Sometimes, a reward could be recognizing people in a broader setting—such as giving teams or individuals that are going above and beyond the chance to present the initiative results to the board or the executive sponsor. In turn, the visibility these people get, and the experience and skills they gain through their involvement in the program, can be important to their career advancement—a much more meaningful reward than a monetary gesture.

#7 - Tie Savings to P&L

The importance of this element to the overall success of the initiative cannot be understated. And it’s where we see many retailers’ typical cost transformation initiatives fall short: They identify changes that generate savings “on paper,” but those savings never get translated to the P&L. This is why finance must be intimately involved in the C&PR program—to be able to confirm that the results of the approved changes are reflected on the bottom line. It’s about making people accountable for doing what they say they’ll do, and not just identifying theoretical savings.

#8 - Change Management

Another term that has lost its significance over time due to overuse and misuse is change management. Every company says it “does change management” as part of change initiatives. We’ve often found that many companies’ change management teams have never been through significant and cross-functional changes effectively. Change management activities must ultimately get each responsible company employee to internalize and “own the change,” to know they are ultimately accountable for making the change happen—and once the company commits to the program, there’s no opting out. This applies equally to a loading dock worker in the DC and the responsible merchandising executive. If there are bumps in the road, which always happens, people must work through them and get “ to the finish line” so that the benefits get realized.

Conclusion

In our previous post, we noted how 2024 will be a big test for retailers, as profitability and liquidity will be difficult to maintain due to the fatigued and stressed consumer as well as the key macro-economic factors that impact retail. This makes the rationale for pursuing a C&PR program to effectively transform retailer economic operating models even more compelling.

For retailers going down this path, it’s critical to ensure their program includes all eight elements of architecting and enabling the journey we just discussed. The absence of some of these elements can have a significant, negative impact on the program’s success.???????

It’s not easy. Across the many retailers and consumer companies we have worked with, some had only a few of these elements in place, while others had them in place, but without integrating them cohesively and sustainably.

The good news is, when retailers have successfully reinvented their cost and productivity profiles, they are reaping the benefits. These organizations are well-positioned to weather what could be a turbulent couple of years and come out on the other side stronger and more resilient.

Authors - Praveen Kishorepuria Antony Karabus