Droves of retailers have gone multichannel because that’s where the customer is going, but it’s not necessarily where the profit is coming from.
Mature retailers need digital channels to fuel growth. However, they struggle to make money in these channels due to price pressure that is driven by information transparency and the high cost to serve. The digital boom also has massively increased online supply, while there has only been a small increase in demand, creating overcapacity.
Two misperceptions have given retailers false comfort in the digital world:
Thinking that the cost to serve through digital would be less than in store.
Believing that digital pure plays would be profitable when they reached a certain size.
Retailers must figure out how to make digital profitable, and it can’t just be about cost reduction.
Retailers can ratchet up their competitiveness to survive digital disruption. Here’s how:
Look at the sum, not the parts
Take a collective, holistic view of your business to unearth new ideas for how to save costs. Silos make it difficult to see beyond channels.
Get costs in line
Reinvest cost savings in activities that will drive competitive advantage and revenue growth.
Look to the broader ecosystem to see where partners can bring products or capabilities to complement your strengths. For example, savvy retailers tap into a network of partners to help manage the cost profile and enhance the customer experience.
Dan Smythe is a managing director in Accenture Strategy’s Retail Industry practice. Over the past years, he has been leading numerous, large-scale programs focusing on COGS reduction, vendor negotiation, category profitability, inventory management, marketing, merchandising, integrated planning and store operations. Dan holds an MBA from the University of Chicago Graduate School of Business. He is based in Boston, MA.
Jay Hentschel is a managing director in Accenture Strategy’s Retail Industry practice. He has over twenty years of experience working with retail clients on significant, multi-year transformational programs. Jay also volunteers on the Retail Advisory Committee for the New York City Investment Fund and has authored numerous article. He holds an MBA with distinction from Columbia University and is based in New York City, NY.