Disruption is the new normal and the only way to tackle it is through agility and by acting fast.
Those ideas were central to the presentation by David Bassuk and Sonia Lapinsky, respectively the global retail practice leader, and managing partner at AlixPartners.
“One in four malls is expected to close in the next five years,” Bassuk predicted. “It’s really a challenging situation for all parties involved. So where do we go? We all know that competing with traditional business models no longer works. We need to find new business models to survive and compete.
“Brands are bypassing retailers, trying to get more direct access to consumers. They are jumping into marketplaces, and finding many different ways. Retailers are embracing things like resale and rental. They are trying to change the game. Amazon launched pharmacy. Google is getting into banking. It’s kind of an endless mix of business models that are evolving. The need for agility is even more intense.”
Successful retailing being a balance of art and science is a decades-old subject, Bassuk suggested. “Let’s be honest: We have never really embraced the science part of this. The one thing the pandemic has forced us to do, though, is really understand we can work in a different way and leverage not only digital but strong analytics. We are seeing retailers and brands really engage with analytics across all aspects of their business, from design to production to planning and inventory management and everything in between. Things are being reshaped and it’s time to really shift our thinking and our business model.”
“We have worked with hundreds of retailers through disruption and in good times, and through helping to improve them and studying their behavior, we are beginning to understand what truly operating with agility means,” said Lapinsky.
She said AlixPartners developed an index, called Agility EQ, providing a methodology to “define, measure and improve your ability to react your consumers’ changing needs, nimbly and with speed.”
A first step toward achieving agility is to “obliterate” silos, she said. “There are silos everywhere. There are functional silos, channel silos, geographic silos. Whatever form they take, you need to break them down. Four things are required — aligned incentives, an integrated team, harmonized plans and accelerated decisions.”
For agility, fashion retailers also must forego the old ways of planning seasons and lines, utilizing hindsight, and with very little ability to react in real time or make any changes. “Looking backwards doesn’t work anymore. Relying on historic data can barely tell you what your consumer wanted yesterday, much less how she wants to be treated tomorrow. You’ve got to focus on the future. Digital tools are a key thing everyone should be deploying.”
The AlixPartners team learned from retail clients that 77 percent deployed digital tools during COVID-19 that they didn’t use before, and 30 percent are developing 75 percent of their line using digital tools. “When we asked them the same question eight months ago, it was 10 percent developing only 5 percent of the line. They were barely dipping their toe in it,” said Lapinsky.
Underscoring the importance of accelerated decision-making and quick action, Lapinsky observed that Target is fulfilling 95 percent of its online orders from stores. A year ago, only 50 percent of orders were fulfilled from stores.
“Before COVID-19, Target saw it coming. They saw the changing consumer. They acted with speed. They turned their stores into an optimized fulfillment fleet. Not only that, they bought Shipt to deliver same day. This clearly helped Target get through any tough times and accelerate sales beyond expectations. They embraced speed before COVID-19. You’ve got to do it now. You can’t wait for the next disruption. It’s too late.”
She commended Bed, Bath & Beyond’s chief executive officer Mark Tritton, who joined the chain about 14 months ago, for first, embracing speed. “From the very first investor day, he communicated and launched the transformation program. He immediately focused on financials to create resilience and flexibility.” He also reduced debt, improved liquidity and quickly turned around Bed, Bath & Beyond’s financial performance, Lapinsky said.
Second, “He realized he needed to break down all the silos. Starting at the very top, he made rapid leadership changes across the organization. He brought in true change agents, to collapse silos across failed digital, merchandising and marketing. This allowed the teams to collaboratively work towards creating a cohesive experience for the Bed, Bath customer.”
Thirdly, “Mark realized he needed to harness customer insights from the data, and act on them. Mark created a new set of experiences and services the consumer was demanding.” He streamlined the portfolio, unlocked value, reinvested in technology and digital capabilities, streamlined the supply chain, invested in same-day shipping, and launched a plan for new private labels to meet price points and product gaps in the assortment.
“All together, this created a comprehensive program to meet Bed, Bath’s changing consumer needs. Mark acted with agility and he understood his consumer. He launched the transformation long before COVID-19, and Bed, Bath & Beyond is a very different place today,” Lapinsky said.
Discussing innovations by other retailers, she lauded Lululemon for purchasing The Mirror, which you hang on your wall and which displays cardio and yoga classes and other exercise classes and workouts, and provides a new way of interacting with customers and understanding how they want to work out. She also cited Nike’s deployment of automation and robotics, enabling the brand to cut order time by more than 50 percent.
“This is the first time we have seen remarkable altering changes across the retail industry,” Lapinsky said. A variety of retailers, including certain department stores and specialty stores, have made dramatic changes, she said. “Can we keep this going into 2021 beyond the pandemic? That’s going to be the real test of time to see if they will come out on top.”
“A great leader is going to utilize the pandemic to drive change in their business. The question is, can they sustain it,” said Bassuk. “There is a lot of risk here. How much is the risk to snap back to the old ways, to bring all the people back, and go back to those same silos, the same old ways, versus having a leader that really embraces operating differently and embeds that in the culture?
“It isn’t about having super tech savvy people anymore. The answer is having great smart retailers, merchants and planners who really understand what the data can tell you.”