Strategies for Retail Survival in the Amazon Era

Retailing is in free fall. Sears is holding on by a thread. JC Penney has been troubled for years, and has flirted with bankruptcy. Shopping centers are closing, and those that are surviving are fighting to bring in physical customers.

But while retail is ailing, it is not dead. Unquestionably, Amazon and other online shopping e-tailers represent disruptive innovation. To survive, brick-and-mortar retailers need their own disruptive, creative strategies.

 In Winning in an era of unprecedented disruption: a perspective on U.S. retail, McKinsey and Company, the international consulting firm that specializes in retail, says the U.S. retail industry is experiencing disruption – in reinvention – at an unprecedented speed. “ It’s not a story about the malaise of an entire sector but rather a tale of two worlds. A confluence of trends which change the playing field, forcing retailers easier to adapt and innovate to suffer painful losses or imminent demise.”

The article goes on to highlight: “in order to win in this era of disruption, retailers can no longer rely on the traditional talent profiles; they need to hire the would-be disruptors. This means acquiring new skills, including data science, software development, and advanced analytics. And is retailers expand into becoming service and experience providers, they also need expertise in new industries.”

McKinsey offers five important strategies, or imperatives, for companies that aim to be tomorrow’s retail winners.

Its first imperative is “Reimagine the store.” McKinsey believes that the basis of retail competition is shifting from price and product superiority to “privileged insights and customer experience.” They suggest that stores tightly integrated with online channels. This would enable “online sales while simultaneously offering experiential features and cutting-edge technology that sets the store apart.”

Its second imperative is “Sweat your tech and analytics spend.” McKinsey writes that technology and advanced analytics create massive retail opportunities. Under this imperative is “personalized marketing,” which ”can unlock enormous value: retailers have seen sales uplift of 10 to 30 percent and as much as five percent improvement in customer acquisition.” They point out that retailers that are technology leaders can generate two to five percent more earnings before income and taxes (EBIT) than the technology laggards.

Imperative number three: “Pursue partnerships as a new way to compete.” McKinsey suggests that if retailers have cash and capabilities, they can create their own “ecosystems.” They present the following scenario. A drugstore chain would partner with the health insurer, a chain of fitness centers, a physician–referral service and a health focused tech company. “Such an ecosystem would offer a single, comprehensive network for a consumer’s health and wellness needs.” They point out that part of the strategy would be a re-imagination of the retailer’s business model where, for example, the ecosystem might offer rentals, subscriptions, ad space, or digital goods all holding significant potential revenue streams through new ways of reaching the customer.

Imperative number four: “Become an agile talent first organization.” McKinsey equates agility with speed. “Agile companies are three times faster in going from ideation to implementation, and two times more likely to take bold risks to transform the customer experience.” Agility is reflective from talent throughout the organization. McKinsey suggests looking for candidates in non-traditional places. “Retailers must create a culture for new talent profiles to succeed in the organization, and offer creative options and approaches (such as virtual working environments) to support different ways of working.”

Finally, McKinsey suggests: “Take a 360-degree view risk.” They urge retailers to cultivate strong risk-identification and risk-management capabilities. “Retailers must develop strategies for data protection and digital resilience, the hallmarks of which include in engaged and aware frontline staff, differentiated protection for the most important assets, and active defenses that can be deployed in real time.”

McKinsey sums up by saying, “every retailer must decide whether or not to get ahead of the curve and redefine its strategy and operating model to win in this era of disruption.”