Craig Rowley is a senior client partner at Korn Ferry Hay Group and global leader of its Retail practice.
Amazon, the online-only retail colossus, already has more than 350,000 employees, but this week it set set out to hire 50,000 more people in one day. Think about that. Macy’s, the nation’s largest department store chain and the place many of us have bought everything from cookware to clothing, has about 140,000 workers total.
It’s only the most recent example of retail’s topsy-turvy transformation, its biggest restructuring in half a century, disrupted by both the growth in e-commerce and fundamental shifts in buyer demographics and behavior. Amazon’s news comes on the heels of another eye-popping event, last month’s $2.1 billion announced merger of QVC and Home Shopping Network, two rival retailers synonymous with at-home shopping via cable television. Meanwhile, there were 5,300 store closing announcements through the first half of the year and nearly 15 retailers have filed for bankruptcy. The pain of the retail disruption will likely continue for three to five years, and we’ll likely see fewer total bricks-and-mortar stores and low-performing retailers either being acquired or going out of business.
It may seem all doom and gloom for everyone but Amazon and a few online-only peers, but I predict the retail industry will return to vibrancy, particularly as 79 million Millennials amp up their spending as they age. For individual retailers to survive, however, they’ll need more than a strong presence in e-commerce and Millennials to spend more—they need to adapt and be more consumer-centric.
Even Amazon, the industry’s main disruptor, isn’t immune to the need for more of a customer-centric model which focuses on customer segmentation—knowing who the customers are and what they want—and customer engagement. While Amazon has proven its strength in technology and supply-chain management, its annual Prime Day shows the company must merchandize to keep growing its revenues, which totaled $136 billion for 2016.
Technology is driving retail deeper into omni-channel, which, while likely resulting in less retail real estate, will make retailers more consumer-centric. Smart retailers can turn their stores into showrooms—showing off their wares but having the actual purchase done online—which will allow physical stores to decrease in number and size and to be more strategically located. But that’s not all: Increased use of mobile apps will influence customer interaction by providing real-time knowledge of products, prices and inventory. Embracing other strategies such as “on-demand” clothing, which not only allows for consumer-friendly customization but also can help reduce inventory. Retail operating profits will improve as stores get smaller and more efficient.
Big data and predictive analytics are necessary tools for retailers in their drive for greater customer-centricity. It’s all about identifying customers that resonate with a retailer’s offerings, and then targeting those customer segments that generate the most profitable sales. This means retailers must be technology- and data-driven, cost-conscious, and knowledgeable about who their customers are and what they want.
Retail in five years may look very different from retail today and will be nearly unrecognizable for anyone who was shopping at department stores in the 1960s. But the industry will emerge from its current disruptions, and its resurgence will belong to those that change along with the sector, such as Amazon and Wal-Mart, to name two. Other retailers that thrive through the transition will be those that know their customers best. For them, retail models that emphasize relationship-building and loyalty will help them find and serve the next generation of customers.