Lost in transformation? How retailers are successfully realigning their strategy

But what happens to 'old stock' - especially in times of an ongoing consumer crisis?
How is pricing influenced by the high competitive pressure?
Which sales channels are really profitable today, and which marketing and sales channels should be utilised even more?

These questions pose increasing challenges for retailers - especially because there are no universal answers and historical experience is only of limited help in decision-making.

There is no such thing as 'the' retailer - and therefore no 'one' solution

Before COVID-19, many market observers agreed that brick-and-mortar retailers (including many chain stores) were having a harder time with online retail than the comparatively young online pure players. The latter were considered to be much closer to customers and more agile in adapting to changing consumer behaviour. Lower cost structures and a focus on a small number of sales channels represented additional competitive advantages. The pandemic-related stationary lockdowns helped them to achieve a sharp increase in sales, which many considered to be sustainable.

Since COVID-19, various special effects have followed one another - stationary lockdowns, the supply chain crisis, the war in Ukraine, interest rate hikes, rising inflation and costs and the current consumer crisis have made planning more difficult for many retailers, especially as it is currently much more difficult to quantify the "normal zero" than before the pandemic.

Online retail has also come under increasing pressure. This is not only due to the current consumer restraint, but also to structural challenges: These include the continuing high returns rates and sustained rise in costs, which are putting pressure on the margins of many retailers. And while the younger online pure players were seen as strong challengers to established brick-and-mortar retailers, they themselves are now increasingly competing with new providers such as Shein and Temu. The latter are increasing industry-wide price pressure and benefiting from algorithm-driven goods purchasing, shorter production times and active customer control, for example through gamification approaches and rewards for more frequent or intensive app use. These providers - like the newly emerging online pure players a few years ago - also accept losses in order to establish themselves with customers and build brand awareness.

Nevertheless, relevant online platforms have emerged in many segments that retailers can no longer ignore. This applies to verticalised brand manufacturers as well as omnichannel retailers and smaller online players that do not generate sufficient traffic with their own online shops or want to increase their online sales. Many of them have increasingly relied on platforms such as Amazon and Zalando in recent years and are now faced with significantly higher fees.

Successful retailers rely on agile strategies with financial impact

In times of rising costs and restrained demand, financial robustness and operational excellence are more important than ever. What's more, setting the right strategic course now in particular can generate resilient competitive advantages. Measuring their financial effects and operational potential, which also take structural market change into account, plays a central role in this. Strategic, financial and operational levers should therefore always be considered in an integrated manner:

• Regular strategic positioning: market developments in the retail sector have been highly volatile since 2020 and are difficult to assess beyond the current financial year. Negotiating power with key suppliers, sales and other business partners and customers should therefore be analysed regularly, as should the development of the competitive environment, relevant consumer trends and the current insolvency situation.
• Close customer loyalty: Retailers must increasingly focus on personalised approaches in order to stand out from the competition. Artificial intelligence (AI) and comprehensive analysis of customer data make it possible to respond precisely to the needs of the target group - including changing needs - and develop customised offers. The customer data collected online in particular is a valuable asset. Retailers should use this data to optimise their marketing strategies, strengthen customer loyalty and increase the share of wallet (e.g. via personalised product recommendations/advertising).
• Profitable online retail: Due to the often (too) low margins in online retail, a transparent breakdown of revenue and cost structures is essential to clarify essential questions, such as: how can fulfilment costs and returns costs be reduced? Which sales, marketing and fulfilment partners are indispensable? How much in-house labour is required in which areas? Is it necessary to adapt established structures/right-sizing in order to make online retail profitable? Hoping for sales growth in online retail alone can be deceptive.
• Ensuring sufficient liquidity: Another success factor lies in liquidity management and optimising working capital. In times of rising interest rates, optimising working capital enables efficient use of available resources, for example through more intensive use of AI-driven forecasting models to increase inventory turnover and react more quickly to changes in customer demand behaviour down to individual product level..
• Maintaining flexibility: A sharpened view of the market and the development of scenario-based strategies promotes the ability to adapt to relevant market changes. On this basis, the company (i.e. planning, ordering behaviour, etc.) must be geared towards the greatest possible flexibility. This optimises in-season management - even in "normal times" - and stabilises the course in the event of short-term market distortions (e.g. changes in the payment behaviour of important customers, loss of top suppliers or strong fluctuations in demand).
• Adequate financier communication: Due to current market developments (including rising insolvencies), many financiers are evaluating retailers more critically than they did a few years ago. Sufficient transparency, robust financial planning and a resilient strategic roadmap underpinned by measures are therefore essential when it comes to (re-)financing discussions.