Retail’s Evolution: A Shift From Sales to Profit

Retail’s Evolution: A Shift From Sales to Profit

Our Chief Scientist, Michael Ross, joined Accenture’s Simon Blosse to discuss “Scientific Retailing” during Essential Retail’s Retail Ramble Podcast hosted by EIC, Caroline Baldwin. The conversation provided insights on the evolution of data-driven retail profit. From the early days of the industry, which featured solely brick-and-mortar players with an overall singular and static strategy, to today’s data-driven industry that encompasses multiple channels with an agile and customer-responsive mindset, we are observing the evolution in decision-making. Retail has transformed from a focus on sales and revenue to aiming at a more profitable and sustainable way of doing business while staying competitive.

Industry aficionado of more than twenty years, Ross commences the talk looking back at the retail of 100 years ago. Back then, he explains, a successful retailer was the one who found a successful way of doing business and then replicated that formula in other locations. Via geographic expansion, these traditional industry players were able to sell more and grow their businesses. Ross points out that such an approach was “conceptually very easy, operationally very complex, but as a way to grow your business it’s a very simple strategy.”

When we look at retail’s current state, and how many traditional retailers are actually closing down stores, one cannot help but conclude the old way of growing the retail business is antiquated and no longer viable in this changed industry… and the reason why is not difficult to understand.

The way contemporary consumers shop has now shifted radically, as they do so across a range of devices. The buyer has captured the upper hand.  She has become able to choose from brands and stores from all across the globe, and that has completely rendered retailers to a customer-centric decision-making.

Indeed, that is easily agreed upon. From a consumer standpoint, try to remember when was the last time you were excited about your favorite brand opening a new store near you. It is much easier to remember when you last visited their webpage, or their app.

Additionally, a subsequent result of the shift in consumer behavior is the overwhelming collection of consumer data, which both Ross and Blosse agree to be pilling up into a “huge library” in every organization. And although all of this data is the backbone of effective decision making, the industry still struggles with “having people to index it correctly, making sure it’s usable and then also having people that are effectively reading them.” (Blosse)

In agreement with Blosse, Ross explains that he now tends to be approached by many retailers who have a plethora of data, but do not know what to do with it. He argues that although there are many varying perceptions of what is going wrong and needs to be fixed within each retail organization, there seems to be one common concern—and that is with respect to business agility. Again, that is not difficult to understand, especially when most of the industry players are competing with the data-savvy and extremely agile behemoth, Amazon.

Amidst their inability to dive both fast and deep into their data to make profitable and competitive decisions, retailers have pushed for promotions and price cuts, which is naturally unsustainable. What we observe here is an industry that has maintained its initial strategy of expanding via increasing sales. As Blosse explains, “there has always been this focus on increasing numbers, increasing sales, increasing customers, but the reality is those aren’t always going to be the ones that drive more money.”

All of this being said, retail has witnessed a massive response to the realization that focusing on revenue in detriment of retail profit is not the way to handle the competition, but instead with customer-centric, data-oriented decision making. The industry is seeing the appointment of data-related titles and job descriptions (within traditional retail positions). Ultimately, what that means for retail is decision makers (most of whom have no background in data science) are now seeking solutions that allow them to assess all the “books in their library.” This enables them to expand their businesses based on a holistic understanding of their organization and, most importantly, their customers, with the depth and agility of their competitors, including Amazon.

To listen to the full podcast, please click here.

Learn more about how DynamicAction could improve your retail profit by optimizing every part of your retail organization.