Redefining Retail Success: Aligning Your Operating Model with Market Trends
Is your retail business keeping pace with the rapid evolution of the market? As the retail landscape undergoes transformative changes driven by shifting consumer preferences and technological advancements, it’s essential for companies to reassess their operating models to remain competitive.
Current Trends and Facts
The retail industry is experiencing unprecedented changes:
- E-commerce Boom: Online sales in the MENA region are expected to reach $57 billion by 2026. The Saudi Arabia eCommerce market is estimated to grow at a CAGR of 15.01% from 2024 to 2029, with a projected market size of $27.37 billion by 2029.
- Consumer Behavior Shifts: Generation Z and millennials are more connected, less loyal, and demand seamless omnichannel experiences. 82% of these consumers use smartphones for purchasing decisions.
- Disrupted Ways of Working: Customers have higher technology expectations, such as Internet-based online shopping, e-commerce, and “click and collect” services.
These trends underscore the urgency for retailers to adopt agile, omnichannel operating models and leverage automation to meet new consumer expectations and market dynamics.
Retailers have endured these trends for years, but most have responded by making incremental changes rather than embracing them as opportunities to fully rethink their operating models. This passivity has translated to painting around the edges to cut spending while underinvesting in foundational capabilities such as IT, digital, and talent.
Evolving Customer Preferences
Customers are evolving with new preferences and needs; key drivers are summarized below:
- Effortless Shopping: The increasing use of mobile devices makes products and information accessible from everywhere. Consumers demand easy shopping experiences.
- Instant Availability: Consumers expect just-in-time delivery. With all information available at every point, customers want to shop anywhere and anytime, both online and offline.
- Personalization: Customers no longer accept off-the-shelf products. They want to buy products and services tailored to their individual needs.
- Experiential Shopping: Customers seek not just a product or a brand but also remarkable and individualized experiences. As technology becomes more important, real-life, personalized experiences gain significance.
- Brand Loyalty: Consumers are far less loyal to brands these days and are increasingly willing to try new products.
- Influencer Marketing: More customers use reviews within communities and product promotions by influencers as their primary sources for information about products.
The Operating Model Pillars
To navigate these changes, retailers should focus on three foundational pillars:
- Skill Management: Investing in the right talent and reskilling existing employees.
- Agility and Omnichannel Integration: Creating a flexible, customer-centric operational framework.
- Automation: Implementing process automation to enhance efficiency and accuracy.
These foundational moves can help retailers adapt their operating models to match the unprecedented challenges that lie ahead.
Designing the Target Operating Model
- Skill Management
- Identify Capability Gaps: Map current capabilities and future requirements, then plan to bridge the gap. Reskilling programs, though resource-intensive, typically have an ROI that is 1.5 to 3.0 times higher than recruitment.
- Reskilling Programs: Develop scalable training programs. For example, Walmart’s $4 billion investment in reskilling through initiatives like Pathways and Walmart Academy.
- Attract and Retain Talent: Hire for critical roles that cannot be filled from within and maintain a conducive environment for employee growth.
- Agility and Omnichannel Integration
- Structure and Roles: Adapt organizational structures frequently to remain agile and adjust to changing trends.
- Digital Leadership: Create roles such as Chief Customer Officer to integrate online and offline efforts. For example, Under Armour created the role of Chief Experience Officer, responsible for global retail and e-commerce business as part of the overall consumer experience and digital strategy.
- Cross-Functional Teams: Implement agile methodologies, such as providing full ownership of specific activities or full responsibility for revenue and operations for a set of stores.
- Automation
- Process Simplification: Redesign processes to eliminate unnecessary steps and increase speed. This can typically cut the number of steps by 25% and increase the speed of operations and decisions.
- Robotic Process Automation (RPA): Automate routine tasks to save time and increase accuracy.
- Artificial Intelligence (AI): Apply AI to core processes to enhance decision-making and efficiency while complementing human intelligence.
Approach to Assess and Address Each Pillar
- Assessment: Conduct a comprehensive audit of the current operating model.
- Strategic Alignment: Ensure the new model aligns with your strategic goals and market trends.
- Holistic Planning: Integrate organizational, operational, and cultural changes.
- Resource Allocation: Ensure the availability of required skills and resources.
- Change Facilitation: Identify and empower change leaders within the organization.
- Customer-Centric Strategy: Incorporate new requirements for a modern, customer-centric, sustainable, technology-driven organization into your strategy and leadership concepts.
Implementation
Implementing a new operating model involves:
- Customer-Centric Focus: Put the customer first and build a customer-centric organization. Align all processes and KPIs to meet customer needs.
- Breaking Down Silos: Break up old structures and foster cross-functional collaboration. Empower employees from different departments and with different skill sets to work together towards one common goal.
- Digitalization: Utilize technology to break up silos, improve the backbone, speed up processes, and standardize and automate easy and repetitive tasks.
- Data Utilization: Become a data-driven organization and make data and analytics a part of the business strategy, systems, processes, and culture.
- Agility in Execution: Implement fast, flexible planning, budgeting, and decision-making processes enabled by lean structures.
- Knowledge Sharing: Encourage continuous learning and knowledge exchange among employees to create a knowledge-sharing culture.
- Talent Acquisition: Win the “war for talent” by offering an attractive work environment.
- Customized Approach: Tailor the operating model to fit your company’s unique business context.
Conclusion
Retailers must embrace change to thrive in today’s market. By redefining their operating models, businesses can achieve sustainable growth and gain a competitive edge. Investing in talent, embracing agility, and leveraging automation are crucial steps in this transformation.
While many retailers are adopting new technologies and evolving their strategies and business models, they often lag in adapting their operating models. Successful transformations require aligning changes across strategy, business model, and operating model. A retailer’s strategy must account for market trends and define a clear vision for the future, followed by an adaptable business model. The operating model must then be implemented accordingly. The synergy between these dimensions is essential for a successful transformation.
At SharkBX, we specialize in helping businesses like yours navigate market challenges and achieve sustainable growth. Our comprehensive services—from research and setup to operational streamlining—ensure a seamless transformation process. Contact us today to learn how we can help you design and implement a target operating model tailored to your needs.
Let’s build your target operating model together.