AlixPartners Talks Retail Disruption, Takes Different Spin on ‘Digital First’
Making a mindset shift to become a digital-first retailer could be crucial for the industry’s stability in the future, noted analysts from AlixPartners, who also discussed paths of least resistance for achieving it during WWD’s Apparel & Retail CEO Summit.
During the session “Digital-First Retail: A Path to Profitable Omnichannel Growth,” David Bassuk, global retail practice leader at AlixPartners, and Sonia Lapinsky, managing director at AlixPartners, applied a surfing analogy to explain the importance of a digital-first approach in retail. Lapinsky said “digital-first is going to be your ‘surfing’ to get through these waves and waves of disruption that have been facing the retail industry.”
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Citing supply chain increases, inflation and raising labor wage rates, Lapinsky said the “new consumer” has amplified all these disruptions. Referred to as the “Me-Centric Consumer” — or shoppers who buy what they want, when they want and how they want it — Lapinsky said this emerging behavior has shifted the tide to consumers, who now have all the power. This consumer no longer listens to the merchant and instead places their focus on influencers or reviews, making loyalty an even harder push for retailers.
Through studying disruption and economic cycles for several years, the firm found that the magnitude and frequency of disruption are only going to accelerate, Lapinsky emphasized.
The shift to online, which Lapinsky said happened over a decade ago, and online penetration, which has been gradually increasing ever since, has caused retailers to scramble to meet consumers’ heightened expectations. Retailers’ existing pressure to “increase penetration at the expense of profitability” increased dramatically during the pandemic, which resulted in retailers offering services such as buy online, pick up in store; curbside, or ship-from-store, while ignoring the impacts of those services on the bottom line.
But retail executives, largely, have not yet reacted to these concerns. In AlixPartners’ survey of hundreds of executives, nearly half of them think online penetration is accretive to their profitability. Lapinsky also noted that nearly all of the retail executives they spoke with cannot account for the “true cost or impact of omni on their profit and loss [P&L] statement.”
Bassuk said for traditional retailers to consider a mindset shift they should ask, “What if you were an online business that happened to have stores?”
Digital-first retail, or DFR, is comprised of four pillars that “unlock the value of DFR,” according to Bassuk: customer, experience, fulfillment, and offering. The firm’s solution is how retailers act on these four parts and blend them together.
Data supports this approach. The firm said that for its customer pillar, 79 percent of U.S. consumers shop online multiple times per month. Regarding experiences, 71 percent read a product review online before buying an item, and 28 percent ask store employees for advice, compared to 48 percent in 2019. As far as offerings, 83 percent of consumers will switch retailers if a product is not available, and for fulfillment, 66 percent of customers price-check an item online before buying it.
Overall, using customer data to drive actions, not just decisions; retailers’ redefining and rethinking their top five customer journeys; tiering offerings to new levels and waves, and optimizing “Omni Economic Value” — which is the incremental value of how much margin and profitability you can get by redefining how retailers’ service a customer or fulfill a product from its origin point — can help retailers embrace a comprehensive digital-first mindset.
Lapinsky said that DFR in action requires “changing behaviors, metrics and KPIs [key performance indicators] across every aspect of the business” and added that “if you’re not measuring the right thing, you’re never going to improve, you’re never going to impact that profitability while servicing this new customer.”
Instead of looking linearly at comp-store sales metrics or aspects of marketing or ad spend, which “doesn’t tell us anything about how valuable our customer is, or whether we’re making a meaningful impact,” Lapinsky said retailers should shift their focus elsewhere “and actually gaining some of that loyalty back.”
“Why aren’t we talking about customer lifetime profitability? Why aren’t we using metrics like that? We’ve got to make this shift across every function within the organization. And not only that, we have to be entirely much more cross-functional and collaborative. We need to harness and integrate disparate data sources, and we need to collaborate to drive these actionable insights.”
Sounds like a challenge. But AlixPartners’ DFR Simulator, a tool the firm has been “implementing with several retailers to help them make better decisions about omni and understand the true impact of those decisions on their profitability,” can help organize a multitude of data sources, clarify metrics and understand how each data source influence one another through built-in interdependency that shows the impacts of pulling specific levers to increase profitability.
Putting it plainly, most retailers are not harnessing their data to inform profit-driving decisions, and the DFR Simulator can cull multiple sources of data from distribution centers, e-commerce channels, sales, consumer data, etc., allowing retailers to make better decisions.
Bassuk used Ulta as an example of this “in action,” noting that the beauty retailer’s profitability has well outpaced the industry’s declines. Ulta has put a winning variety of factors into motion: The brand uses BOPIS to incentivize customers to shop in-store; 95 percent of products are sold to its loyalty members; 1 in 4 online purchases are picked up in-store, which lowers supply chain costs, and Ulta’s Glamlab app is ranked as number 33 in in the app store’s shopping category.
Summing it up, AlixPartners closed by reiterating that retailers need to surf the waves of disruption, should embrace a digital-first mindset shift, and turn insights into actions — and focus those actions on profitability.