Where should retailers invest for value that can endure beyond this economic downturn? Brian Kalms, managing director at AlixPartners, explores the priority areas

New data-led capabilities in customer or product management may not have always been the priority they are today.

But in 2023 and beyond they will be crucial in shaping boom-or-bust decisions, and may offer a more attractive return on digital spend than traditional enterprise resource planning solutions.

Inflation, energy costs and labour shortages continue to put pressure on retail margins. With leaner Christmas profits around the corner likely as shoppers cut back amid the cost-of-living crisis, a hard stop on investment in all digital transformation programmes will no doubt be featuring as an agenda item in retail boardrooms.

However, in these belt-tightening times, prioritising new or improved capabilities in customer management, enabled through digital initiatives, is critical. 

Rising returns a major headache 

Ahead of the holiday season, it is vital that retailers harness the disparate sets of data at their disposal to design data-driven, algorithmic interventions that can reduce return rates.

The shift from store purchases to ecommerce accelerated by the pandemic has only heightened this problem. For fashion retailers, in particular, returns cost the business dearly – typically over 40% of stock comes back in.

At a base level, identifying the impact of different customers, categories and suppliers on returns is essential, as well as where value is lost throughout the returns supply chain. 

Taking this a step further, data must be used to determine how to manage customer lifetime value and true product profitability. Evolving physical stores to act as efficient return nodes within a retailer’s supply chain network also presents an important future operating model shift for businesses with a large physical footprint. 

Use data to drive supply chain efficiencies

The global supply chain crisis has exacerbated the inefficiencies that retailers were already grappling with around inventory management, distribution, personnel and availability of data to guide decision-making. 

Asking ‘are we doing everything we can as cost effectively as possible?’ must include solving end-to-end supply chain issues as a top priority, leveraging the insight and efficiency that digital can drive. 

Aggregating and interpreting data throughout the supply chain is a complex process, but it is key to syncing and streamlining in-store and online offerings, identifying where operational costs can be removed and understanding where there is wasteful activity to address, which can yield incremental savings. 

“Ultimately, retailers must consider themselves digital businesses with stores (if they have them) as channels”

This activity should remain a priority and often sits alongside smart, price-making contractual discussions with suppliers that can also provide some financial respite and more surety for future forecasting while preserving relationships with key partners. 

These digital priorities that should be preserved, despite the inclement economic weather, further enhance the case for a broader digital-first business strategy. 

Ultimately, retailers must consider themselves digital businesses with stores (if they have them) as channels. 

Investment is, therefore, essential in order to continue delivering high-quality digital services, and should be considered as the same high-priority investment as store opening and refit.

Some retailers may, of course, decide to limp along with current systems in place but, eventually, they will need to come to terms with why the value, timeline and cost of digital investments will add up for long-term gain.  

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