As featured on BusinessMirror: Retail’s delicate balance
Retailers have proven their resilience time and again, and they are poised to do the same in 2023. However, understanding the interplay between a growing set of tensions shaping the industry can help retailers do more than merely survive strong headwinds.
Economic and geopolitical challenges that began in 2022 have spilled over into the new year.
Spreading global inflation means households have less buying power and business margins are under pressure. Tighter monetary policies from central banks have increased the cost of capital. And recession — albeit softer than anticipated — is on the horizon in many economies.
To claim that the world needs retail to prevail against these latest headwinds is not hyperbole.
In every country, the industry is among the largest private sector employers, the primary source of food and other necessary goods, and a major influence on natural and other resources all along the value chain. Nowhere was the size and breadth of the industry more visible than at the gathering of more than 35,000 professionals from 75-plus countries in January for National Retail Federation (NRF) 2023, the NRF’s Big Show conference and largest global retail event.
Despite the obvious challenges, retailers are just as excited as ever about the future of the industry.
With ongoing margin compression and decreased access to affordable capital a topic often referenced during NRF 2023, retailers are considering how to afford — and target — investing for the future.
For retailers to continue their growth trajectory, they must recognize the high-level forces at play in the industry, and the tensions between them.
These tensions — and harmonies — include protecting margins and growing under harsh economic realities; the rising importance of people, from consumers to employees; and the new reality that sustainability can’t be set aside when market conditions take a turn for the worse.
In the Philippines, retail also remains as a key sector that affects the country’s economy. However, the drastic changes brought about by the social realities of the last two years immensely challenged the industry to cope and adapt. Moreover, the transition to more sustainable retail practices, with ESG becoming one of the top priorities for most organizations, can be challenging unless they are embedded in the whole value creation model.
KPMG in the Philippines Advisory Principal and Head of Retail Jerome Andrew H. Garcia shares that “in order to grow and be responsive to changing customer needs and behaviors, retailers will need to continuously adapt, implementing new business models and strategies that are relevant, innovative and sustainable.”
Given the current challenge of recruiting and retaining talents in the retail sector, technology investments have shown positive results in easing business pressure by enhancing productivity and efficiency. Such innovations free employees of clerical and repetitive labor so they can concentrate on what really matters: improving the customer experience.
Jerome Andrew H. Garcia
Advisory Principal and Head of Retail
KPMG in the Philippines
People take precedence in 2023
While the “three 3Ps” of people, planet, and profit were all widely addressed at NRF 2023, there was one clear theme at the top of the retailer executive agenda: people.
True, the effort to win the consumer’s attention and loyalty continues to dominate conversations, especially as retailers try to grow market share in a more challenging market environment in 2023. But the spotlight that has shone on retail employees since the COVID-19 pandemic is still bright. What many thought were temporary conditions at the height of the pandemic now appear to be more structural, as labor shortages and the accompanying wage inflation continue, the expectations of the role of retailers in communities have increased.
Retail leaders are having to adapt their thinking around talent management, recruitment, and corporate culture. To help combat attrition, more retailers have introduced policies and benefits to support employee health and well-being. They’re also launching new training and upskilling programs that can both engage employees and help fill new roles with existing employees. New technologies in the hands of employees and direct automation, on the retail floor or within the supply chain, allow retailers to do more with less. Kiosks, self-checkout and returns, automated distributions centers and many more efficiencies will become commonplace.
The divide remains between corporate and front-of-store employees which was exacerbated when the pandemic created a stark contrast between those who could and could not work from home. However, the unique value of the in-store employee continues to rise, with front-line workers becoming authentic key opinion leaders (KOLs) with ability to influence consumer buying behaviors.
Retailers can find equilibrium through a fourth “P”: Purpose
The original “four Ps” of retail’s mix — product, price, place and promotion — were introduced in the 1950s. Their relevance remains and may even gather increased attention in today’s market. While still critical, we believe it’s more effective to see the interaction between them when rolled up to people, planet, and profit.
The ability to identify and manage the tensions between these areas while embracing harmonies defines a business that is set up for future success. Finding the right equilibrium across these tensions and ensuring the integrity of retail business is not distorted by these forces, will vary by organization. This effort to reconcile tensions and harmonies translates into the “purpose” of organizations.
Corporate purpose — the well-worn construct to prioritize goals by first defining a company’s “reason to exist” — once focused primarily on maximizing shareholder returns. Now that management’s ability to drive long-term value increasingly involves addressing all stakeholder needs, people and planet have joined profit as considerations in establishing purpose.
Likewise, a company’s purpose helps it reconcile the tensions between the three Ps. Purpose gives retail companies permission to implement a business model that pulls in one direction or another. It allows retailers to make choices relevant to their unique cultures, markets, and industries, and to be evaluated on their consistency and adherence to the direction chosen.
With the framework in hand and purpose as a guiding light, retail leaders can better determine the strategies, activities, technologies, and talent that will sustain profitability and lead to long-term success.
The excerpt was taken from the KPMG Thought Leadership publication: https://kpmg.com/xx/en/home/insights/2023/01/retails-delicate-balance.html
© 2023 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.