There has been a wide variety of results posted by major high street retailers since the end of 2022, many highlighting strong turnover numbers, often driven by inflationary pricing – but unit sales being lower. The outlook for 2023 was an evolving picture. At the start of the year, many retailers expected a very difficult trading year with high interest rates, continued inflation and ongoing issues with supply chain. That picture seems to be softening with some early optimism that 2023 may be better than first expected.
What does this mean for strategic planning and investment in 2023?
Many CIO’s we have spoken to are continuing their longer-term investment programmes to modernise and increase their competitiveness in the market, whilst being smart with resources by investing in growing in house capability. We believe that advice still stands with most retail brands continuing their major change and transformation programmes but now looking at cost optimisation and margin optimisation in other parts of the business, particularly in supply chain.
What areas of change and transformation should the retail sector prioritise?
1. AI Platforms
With transport costs continuing to rise, there is a high demand from the market for product companies to be more sustainable, a need to move to localised production and increased product quality (consumers want products to last longer). There is opportunity to rethink the manufacturing process and invest in that local capability. This is where technology can help. Many retailers are investing in AI platforms to drive better decision making, to reduce time-to-market and reduce returns / waste. Project One has been working with customers to mobilise data governance – whilst the technology is an important aspect, the key to good AI is good quality, well managed data and that is something that needs strong business ownership of the data. Many organisations see data ownership as an ‘IT problem’. We have been working to instil the concept that everyone in the business owns the data and has an obligation to ensure it is of high quality.
This year, we should start to see something of a ‘return to the high-street’, with many retailers suggesting consumers have missed the ritual of browsing physical stores. Online shopping is now well established, and it is almost a novelty to visit a store for a much more complete customer experience.
Online is of course here to stay and driving growth for many retailers, however, after recently visited the one particular development – Battersea shopping centre – a huge investment in physical shopping and you can see it is being positioned as a ‘destination’ with mixed use businesses. It houses a cinema; high-street shops; services; food and beverage – an experience that cannot be replicated online. Although the customer experience is significantly more engaging, there is of course a much higher cost involved, so it remains to be seen if these retail experiences pay off.
Most of our Project One retail customers are hedging their bets and investing in both physical and online experiences. Our experts have been helping our customers understand how technology underpins a seamless transition from online to store.
2. Mergers and acquisitions
With 2021 and 2022 seeing many high street brands sold or disappearing, we believe this trend will continue into 2023. Many traditional brands have value in their products and their position in the market, but they cannot compete with outdated supply chain and high costs. Brands merging and IT consolidation to optimise margin will continue to be a focus for groups which have already invested in new platforms and are looking to add new brands to their portfolios.
Project One can help you understand which technology platforms and programmes should continue as strategic initiatives and where the risks and pitfalls lie. Many M&A transactions do not unlock the technological benefits expected because the due diligence does not have the right level of assessment expertise
3. Cost reduction / cost optimisation
It goes without saying that cost reduction and margin protection will be key this year for all retailers. Protecting the consumer from unaffordable price rises has been a successful way to gain market share over the last two years.
Understanding your portfolio spend and the value you get from each pound spent on technology initiatives is key to understanding basic cost saving opportunities – what can we do better within the scope of what we already do and deliver?
Being more analytical with your investment portfolio means challenging the business on the ‘value’ side of the equation – if we invest this money, what can we get in return? What commitment will the business make to realising the value.
Project One consultants have been working with companies to look at their strategy and portfolio and helping them ask the tough questions using data and simple methods to evaluate cost vs value.
This activity will be critical for 2023 as budgets are reduced.
All of these require a structured approach to change; business change, people change, and digital transformation.
How can Project One help your retail business navigate a challenging 2023?
With each of the ‘top 4’ focus areas Project One has expertise to help with practical initiatives to unlock value in your organisation. Please do contact us to discuss how our retail experts can help your business in 2023.
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