For years now, you have been hearing about the disruption that digitalization, ecommerce and rapidly changing tastes of an increasingly restless consumer are imposing on the retail industry.
Those pressures mean a growing number of initiatives and rollouts designed to more frequently adapt the point of sales to changing customer requirements. In our recent survey of 100 retail brands on project management and collaboration, 52% of executives confirmed that they have seen an increase in the number of projects they have to manage.
Along with the increase in the pace of change in the industry, we have seen plenty of examples of retail brands that just a few years ago seemed unassailable and are now suddenly on the brink of extinction. On the other hand, sweeping generalizations on the state of turmoil of the industry fail to capture the fact that not all companies respond to the same threats in the same way.
Take, for example, digitalization and the massive migration to online of an entire generation of shoppers. While many retailers have failed to grapple with this tsunami, some, such as Best Buy, have invested in their processes and infrastructure and turned what was once considered a weakness, physical stores, into a vital omnichannel asset.
When it comes to consumer tastes, a deep and early understanding of how your core customers’ preferences are changing is key. When that insight is coupled with the strategic will and operational capability to quickly rollout new formats, experiment with the offering and rapidly wind down failing concepts, retailers can sustain success. Starbucks is an example of a successful turnaround based on this capability.
Best Buy: From ecommerce laggard to omnichannel leader
Image by Mike Mozart/CC
In November 2008, consumer electronic retailer Circuit City declared bankruptcy and went into Chapter 11 protection, starting a chain of events that eventually led to its laying off its entire workforce of 30,000 and closing all of its stores.
Circuit City’s demise was in part caused by the emergence of Best Buy’s big-box dominance. Just a few years ago, in the early 2010s, Best Buy seemed to be heading in the same direction, facing powerful competition from Amazon and experiencing a migration of consumers to online retail which was causing declining revenues.
Under the leadership of CEO Hubert Joly, Best Buy launched several programs under the “Renew Blue” strategic turnaround initiative.It reset its prices to match competition, closed low-performing stores, cut down administrative and corporate expenses significantly and it invested heavily in ramping up its ecommerce offering and omnichannel capability. Best Buy was eventually able to avoid the destiny of Circuit City and Radioshack and achieve growing return on assets, margins and stock price.
Source: Forbes online
This was not just a cost-cutting exercise. It was critical to make the right investments to stimulate top-line growth. A key element in the Best Buy turnaround strategy was the overhaul of its ecommerce logistics and its re-positioning as an omnichannel leader.
With 23 distribution centers in the United States mostly dedicated to serving stores, Best Buy was not able to reliably fulfill ecommerce orders if a product was not in stock in the few centers dedicated to online sales. The company shifted to a model where orders are directly shipped from stores to consumers, fully leveraging the size and reach of its physical store network. This meant a massive rollout of new infrastructure, equipment, software, processes and training across stores that ultimately enabled Best Buy to turn the table on online competition.
Asked in a interview by Re/Code whether he was just as happy if a consumer never went into a Best Buy store but only bought from its website, Mr. Joly replied:
We love to serve you the way you’d like to be served.
Commenting about matching online competitors’ prices:
We’ve taken price off the table. And therefore the customers can take advantage of the service we provide: the advice, the Geek Squad, and the advantage of being able to pick up [online orders] in the stores. Or, if they didn’t like a product, they can return it to the store. So, we have unique things to offer that combine online and offline assets.
As Natalie Gagliordi of ZDNet put it in a recent article:
Joly credited Best Buy’s omnichannel efforts to merge in-store and digital operations as ‘what has allowed us to consistently outperform the market.
Starbucks: Experimenting with concept innovation
Image by Todd Huffman/CC
The financial crisis of 2008 hit Starbucks hard. The company was already on a dangerous path before the crisis hit. It had grown overextended with too many underperforming stores. It had an increasingly unfocused offering, with stores selling anything from CDs to books. It had been losing ground to a customer base that was looking for artisanal coffeehouses and roasters. When consumers tightened the belt, Starbucks was on the brink of disaster.
As Howard Schultz, Starbucks charismatic CEO and founder told the New York Times,
We lost our way. We went back to start-up mode, hand-to-hand combat every day.
Mr. Schultz did what was necessary by cutting staff and closing almost 1000 stores. He also refocused the company on the core product, an exceptional cup of coffee. The company took the emphatic step of closing all of its 7,100 US stores on the same day to run re-training sessions for all its baristas.
Mr. Shcultz had also recognized that a new wave of changes were about to take the retail world by storm and articulated his insight in an interview with Inc.com:
There’s been a real sea change in consumer behavior. And those companies that are consumer based must appeal to the consumer in a different way today than they did two or three years ago. And it’s not all based on value. Cutting prices or putting things on sale is not sustainable business strategy.
That meant never stopping investing in and experimenting with new retail concepts and store formats to appeal to shifting consumer tastes. In 2010 Starbucks opened 15th Avenue Coffee & Tea, an entirely new concept featuring the look of a local craft coffee shop and locally sourced dairy and baked products.
Image by Jeff Wilcox/CC
More recently in late 2014, Starbucks launched the upscale Reserve Roastery and Tasting Room megastore with plans to “open at least 100 stores designed to highlight rare coffees exclusively starting in Chicago, Los Angeles, New York, San Francisco and Washington D.C.” and with an additional Roastery planned for Asia in 2016.
All the while, in the background, the company modernized its IT infrastructure, installed new POS systems, constantly tweaked its stores design, signage, furniture and layout in search of winning formulas.
In both cases, at the heart of the respective turnarounds was a willingness to take radical, discontinuous decisions. Cost-cutting and incremental changes were simply not going to be enough.
Introducing discontinuity means taking a radical turn towards a new strategic direction, sometimes against the conventional wisdom. It means investing in growth, while cutting ruthlessly what is not working. It means equipping your teams and employees with tools that give them the agility to execute aggressive change plans.
Some of One2Team’s largest and most successful customers are large multi-site retailers. By working closely with them, we have learned to appreciate the challenges of an industry that is undergoing a massive transformation, with multiple projects, pilots and concurrent deployments underway at any given time that put a strain on project management resources.
In our survey of 100 large European retailers on project management and collaboration, 77% of respondents said believe that implementing a collaborative tool shared by all stakeholders would improve deployment effectiveness.
By having helped major retailers manage large-scale deployment projects such as store re-branding launches, store openings and new concept rollouts, we appreciate the scale of the logistical challenges that Starbucks and Best Buy faced. We have built the One2Team for Retail solution to address them.
Reach out to our team to engage in the discussion on how One2Team can help you improve your business agility.