The challenges facing the retail sector continue to mount, with spreading global inflation and Australia’s GDP growth looking set to slow in 2023.1
Yet the world needs retail more than ever. The industry is one of the largest private sector employers in almost every country, the main source of food and goods and a major influence on resources.
Despite this, there are many exciting prospects ahead for the retail industry. And as technologies shift, customer relationships change and expectations rise around environmental, social and governance (ESG) responsibilities, a delicate balancing act across investment tensions may be a key catalyst for growth.
Australia employs more than 1.3 million people across the $411.5 billion retail sector, accounting for 9.7% of the total workforce.3
Retailers hold significant trust from customers, with 8 out of the top 10 most trusted brands in Australia coming from the retail sector.4
Products making ESG-related claims averaged 28% cumulative growth over the past five years; and brands with ESG claims have higher loyalty, with a 34% repeat rate vs those that have lower levels at 27%.5
The three Ps: Investment tensions in the retail industry
There are a growing set of tensions shaping the retail industry today, which can be framed along three high-level forces; People, Profit and Planet.
How each retailer addresses these influences will raise unique challenges and create budding opportunities. And, to strike the right balance between each of the Ps, retailers will need to make sure their investment and resources remain aligned to their brand purpose.
People
Many retailers are realising they’ll need to adapt their people approach to combat labour shortages, wage inflation and changing customer expectations.
The pandemic showed us first-hand how critical frontline retail employees are for the smooth running of society. Retailers are understanding the value instore staff provide as key members of the local community and as authentic influencers on customer buying behaviours.
Profit
Retailers can tend to lean on short-term measures to help them through times of slowing demand. This can mean any longer-term projects like large-scale technology improvements are shelved and future benefits sacrificed.
The tension between profit, people and planet plays a big role here, with ‘people’ and ‘planet’ requiring big picture thinking and longer-term investment that can impact short-term profit margins.
Planet
Retail companies are critical to preserving the environment by reducing the negative effects of their value chain. And, customers are increasingly rewarding companies committed to protecting the planet.
However, the transition to more sustainable practices can be costly. Retailers will need to embed new strategies into their models, that can allow them to deliver on their promises and be as seamless and connected as possible.
KPMG’s Retail’s delicate balance report explores solutions for these challenges and how each of the elements interact. It discusses considerations to help find the right balance for short- and long-term business growth and profitability.
Purpose-driven retail businesses
How a retailer decides to prioritise its investments across the 3Ps comes down to one thing: their brand purpose.
Purpose allows retailers to make relevant decisions according to their unique cultures, markets and industries. It’s not a one-size-fits-all approach and the effort required for each organisation will be different.
KPMG Australia’s retail experts offer support to our client’s needs specifically centred around the 3Ps including customer experience, operational advisory, digital transformation, sustainability and more.
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How to overcome investment tensions between people, profit and planet in the retail industry.
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References
1 AFR: Economy: Maybe 2023 won’t be so bad after all – it’s a matter of perspective (afr.com)
2 Retail Trade, Australia, December 2022 | Australian Bureau of Statistics (abs.gov.au)
3 https://labourmarketinsights.gov.au/industries/industry-details?industryCode=G
5 McKinsey & Co, Customers care sustainability – and back it up with their wallet, 6 February 2023