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Retailers need to adapt to new digital environment

Kay Walsh, Senior Manager at Deloitte Kay Walsh, Senior Manager at Deloitte

In the face of shrinking disposable income and lacklustre consumer confidence, retailers need to be agile to respond to an increasingly digitally-driven world where customers are demanding more for less.

There's no doubt that trading conditions are tough for South African retailers and have been so for a while. Consumer confidence dipped to its lowest level in a decade in the third quarter last year, while retail sales growth fell to 2.2% in February from 6.4% in January. Economists point to rising living costs, poor job prospects and still-high levels of household indebtedness as reasons why retail sales are likely to remain subdued this year. Yet the retail sector continues to bolster the Western Cape's GDP. In 2012, the retail and wholesale industry contributed roughly R60bn to the province's GDP, representing 14% of its total economic activity.

In the wake of this difficult environment, retailers need to adapt their inventory strategy to retain a competitive edge. According to the newly released report The Seven Deadly Sins of Retail Inventory Management by professional services firm Deloitte, consumer expectations have never been higher.

As digital channels gain prominence for browsing and evaluating products and prices, and brick-and-mortar stores continue to provide the physical, in-store experience, retailers need to be aware of consumers’ evolving behaviour. The customer is now techno-savvy, has higher expectations of retail organisations, but at the same time has less disposable income. The modern buyer now has the power to search for the best available product, purchase it at the most acceptable price and obtain it at the most convenient location.

Ilse du Toit, retail sector manager in the consumer business industry at Deloitte, puts it well when she says, “Decision-making is now influenced by much more than satisfying the need for a product. Social responsibility, health awareness, social connectedness and sustainability have joined the pricing dimension when it comes to making a decision on a product or retail outlet.”

In order to provide a compelling customer experience, retailers have to develop practical and agile solutions to enhance the way in which they range, buy, promote and make products available to customers. They need to be aware of the so-called ‘deadly sins of retail inventory management,’ in order to avoid compromising the desired customer experience.

These include over-ranging or ‘lust’ (stocking whatever is available in the market that seems attractive,) over-pricing or ‘greed,’ over-buying or ‘gluttony,’ poor promotion or ‘envy,’ store service and presentation or ‘pride,’ generic assortment or ‘sloth’ (thinking that whatever worked in the past will be sufficient) and the inability to provide or ‘wrath’ (out of stock.)

As these have the potential to severely impact the customer experience and damage a brand’s reputation, a customer-orientated approach remains the main driver of success. Due to the increasing importance of technology in decision-making, the allowable margin for error no longer exists.

Retailers need to ensure their product offerings are competitive and aligned to the latest market trends, as well as evolving consumer needs and wants. By combining these strategies, retailers will be able to ensure satisfaction in the short term and brand loyalty in the long-term.

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