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Why Retailers Must Be Willing to Self-Disrupt — Or Risk Dying

The retail industry is facing many challenges, but for those players who are willing to shake things up, the rewards are greater than ever. The digital disruption of retail has created much uncertainty but the dust is starting to settle now in 2019, according to industry research.

While the stakes are still as high as ever, there are opportunities for brands and retailers to get ahead — if they know where to direct their attention.

The top 20 companies in retail still account for 97% of the industry’s profits, according to the 2019 State of Fashion report by management consulting firm McKinsey. For everyone else, succeeding in the new landscape is a more complex matter. McKinsey and LEK Consulting have identified a number of pain points for retailers which, if tackled correctly, could produce outsized rewards.

While luxury and the North American markets are forecast to do well in 2019, mid-market and value companies might need to work smarter in order to see the same results. Brick-and-mortar stores, in particular, can provide an opportunity to win new customers and retain existing ones.

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“Retailers must adopt a mindset of ‘never being done’: format redesign should be an ongoing process of implementing solutions quickly and refining them constantly,” said Benjamin Bouraoui, an associate partner at McKinsey, in the report. “We recommend focusing on continually making one-off, high-impact changes rather than department-wide or storewide remodels.”

Store View. Christian Louboutin - Harrods, London, United Kingdom. Architect: N.a, 2016. Christian Louboutin - Harrods, London, United Kingdom. Architect: n.a, 2016.
The Christian Louboutin store space at Harrods incorporates design elements that are easy to switch out and update, according to the latest styles and customer preferences.
CREDIT: Ed Reeve/Shutterstock

Frequently, these redesigns involve utilizing the latest in technology: mobile checkout, digital access to product information and in-store digital communications between staff and customers. By blurring the lines between physical and online shopping experiences, retailers can infuse all channels with the best qualities of each method.

But the focus should be on identifying a broader customer goal, such as “help shoppers locate items more quickly,” rather than introducing a specific new tool. Retailers who keep that mission at the forefront will be better positioned to innovate, as new technology becomes available and customer desires shift. McKinsey found that regular updates and redesigns could boost sales by 10% to 15% and customer satisfaction by 20%, all within a year or less.

“Design thinking minimizes the risks because it prioritizes customer needs and the customer experience, along with the company’s financial goals,” said Bouraoui. “It seeks to understand the customer’s perspectives and build solutions around those rather than starting out with a strong hypothesis as to what the solutions should be.”

But retailers should still be prepared to embrace digital technologies, as tools to further these missions. Chris Randall, managing director and partner at LEK Consulting, advocates for a “digital-first” approach in order to keep up with the consumer, though he warns against getting too lost in the proliferation of available data.

“The increased digitization of data has led to sophisticated tools to sort it all out,” said Randall. “But brands and retailers still need to know what they’re looking for. A pragmatic way to tackle it is to break down consumer needs into various dimensions; although not every brand or retailer addresses each dimension, excelling at one can be enough to generate a following.”

A model uses the digital store assisant DETEGA on a smartphone at the EuroCIS 2019 trade fair at Messe Duesseldorf, Germany, 19 February 2019. EuroCIS is the leading trade fair for retail technology with 474 exhibitors from 37 nations and runs from 19 to 21 February 2019.EuroCIS trade fair for retail technology, Duesseldorf, Germany - 19 Feb 2019
In-store technology can strengthen brick-and-mortar, but it should be a supporting tool that doesn’t detract from the customer experience.
CREDIT: SASCHA STEINBACH/EPA-EFE/Shutterstock

These dimensions are identified as increasing transparency; educating consumers; curating the experience; and easing conversion. Traditionally, transparency has been associated with the product’s use and quality, but as sustainability and ethical responsibility become more important to consumers, brands and retailers who can incorporate these qualities stand to gain.

This theme of “self-disruption” is important in 2019. This can look different at various retailers, but ultimately means a willingness to overhaul internal protocols to keep up with the market. Those who are too attached to legacy tools and approaches may find themselves being left behind — particularly by younger demographics.

The introduction of sustainable materials, up-cycling programs and in-store activations are all ways that companies are disrupting their approaches to product and the shopping experience. The State of Fashion report found 44% of respondents believed pre-owned business models would be pivotal to the 2019 market — and this segment continues to grow, both for rental services and pre-owned e-commerce sites.

However, both consultancy firms agreed that this level of large-scale change isn’t the only way to achieve retail success. Rather, the most valuable things a retailer can do are communicate with the customer on a regular basis, be open-minded to change and nimble in response to these changing consumer needs.

“Understanding customer needs is both easy and hard,” said Randall. “It’s easy because digital technology has the potential to make it so. It’s hard because organizations must then act on what they know. But with the right framework, approach, data and organization, firms can be confident they’re creating value by responding to customer needs.”

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