By Dennis Armstrong
Developing a strategy in retail is a vexing problem. Retail rookies, those new to retail, would say the challenge of developing retail strategy is simple: apply one of the traditional strategic models (e.g. Micheal Porter’s Competitive Strategy).
Retail veterans would say retail strategy is an oxymoron! In reality, retail strategy is a lot like landing a fighter jet on an aircraft carrier in the middle of a bad storm in the Pacific. The carrier keeps rolling and pitching, representing the retail environment, while the aircraft, representing the retailer, is buffeted by the wind and rain and the pilot, the retail senior leadership team, is constantly adjusting airspeed, altitude, and many other controls just to try to hit the deck.
6 Factors to Address in Your Retail Strategy
The factors that must be addressed in developing a retail strategy are many but often include:
- The economy: The rapid and constant changes in the economy and world events have a significant impact on consumer sentiment and spending. These changes typically hit retailers first.
- The consumer: Consumer preferences, fashion, and product trends significantly influence where consumers spend their money and what they spend their money on.
- The supply chain: COVID highlighted the challenges in the complexity of retailers’ demand planning and supply chain and logistics. With talent and fully articulated and connected systems in short supply, a once predictable and taken for granted product flow process is now a required competency for retailers.
- The shopping channel and experience: COVID, again, accelerated the move to digital and ship-to-home. Consumers are overwhelmed with choice of shopping channel (brick and mortar, e-commerce, buy online and pick up in store, and home delivery) and bombarded by digital ads, print, radio , and TV. At the same time, retailers compete for customers in a typically thin margin business that makes in-store experience difficult to deliver and online experience expensive to manage.
- The competition: The old adages “shop and copy” and “stack it high and watch it fly” are still relevant today. Your competition can, and does, shop your store to see what you’re selling, at what price, and how you visually merchandise in store and online. This creates a hyper-competitive environment with secrets hard to hide.
- The talent: Retailers hunt for talent in a competitive market where they have “home office” functions like finance, marketing, IT, supply chain, and HR that exist in non-retail companies and retail-specific functions like merchandising, buying and demand planning, among others.
The negative impact of these trends, and others, can be seen with the many well-known historic and iconic brands, such as Marshall Fields, Lord & Taylor, and more recently Big Lot’s and Rue 21, that rest in bankruptcy, while others are on terminal life support, such as Sears and Roebuck.
Priorities for an Effective Retail Strategy
So, what can you do to develop an effective retail strategy? Prioritize these five elements:
1. Focus on the customer first.
The most successful retailers have a relentless focus on their customers.
- What do they want?
- Why do they shop us?
- What differentiates us from other retailers in our competitive set?
- What are we known for?
- How are our customers evolving so we can have what they want before they know it?
2. Ensure all your processes, systems, and people are aligned to support the strategy.
A strategy is just a plan. Without effective and efficient processes, systems, and people aligned to support the strategy, there will be no effective execution of the strategy.
Key questions to consider include:
- What’s working or not working with our systems and processes?
- What are the priorities to address that can be funded to improve execution?
3. Define your KPIs and religiously focus on meeting or beating your goals.
Retail, like other industries, is a metric rich environment. This makes it only more difficult to define and focus on the Key Performance Indicators (KPIs) that drive your business. Typically, there are drivers and outcome metrics in retail that are important for leadership and all associates to understand.
For example, sales is a key retail success outcome metric, but the drivers are traffic, conversion rate, and average transaction value. Within each of the drivers, there are additional leading indicators.
Make the time to define what’s important to your business and ensure all leaders and associates understand the levers to pull to drive your KPI’s.
4. Focus on “getting the right people on the bus in the right places.”
Talent wins. People create strategy and make it happen. Without the right people in the right places at the right time, your strategy will only be a SPOT: a Strategic Plan on The shelf.
It all starts with the senior leadership team and cascades from there. Great talent attracts great talent and enables strategy and execution. This applies from the top of the house to the front-line store leaders and hourly associates in the stores, distribution center, and call centers.
5. Anticipate change and a have a plan B and C.
Louis Pasteur once said, “Chance favors the prepared mind.” Due to the myriad of factors that impact retail strategy, engage in scenario planning when developing your desired strategy so that you have a back-up plan.
The landscape changes quickly in retail, and it’s hard to cancel product orders and pull back on print marketing based on your original plan and strategy, so develop several scenarios once you have your strategy and plan. This will enable you to remain agile during changes and challenges and quickly pivot to alternatives to continue to drive traffic and sales during unpredictable or lean environments.
Can you develop an effective winning strategy in retail? Just look at Costco in big box retail and Aldi in grocery. They have a strategy that is focused on their customer, all resources are aligned to focus on and deliver what the customer wants, they have the right talent in the right places, and they are always prepared to pivot when the environment changes.
This is why I love retail. You get to see your report card every day, even hourly, and assess how well you did against your plan. There will be wins and misses, but with a well thought out strategy and an agile mindset you can weather the ups and downs and continually improve.
Are you curious if your retail strategy has areas of opportunity or concern? Are you looking to think differently about your strategy or your organization’s competitive advantage? Download the Strategy Self-Assessment to help better leverage your retail strategy.
Download the Strategy Self-Assessment
Dennis Armstrong was Chief Human Resources Officer at Blain’s Supply and Blain’s Farm and since August 2016, where he introduced many effective HR systems and processes to support Blain’s growth strategy. He is currently a Talent Transformation Strategist reporting to Mark Hasting, CEO & President at Blain’s. Dennis has a broad background in human resources and has been in several operating positions throughout his career. Dennis has a Master’s and Ph. D. in industrial and organization psychology from the Illinois Institute of Technology, and a BS from Old Dominion University.