Since the onset of Covid-19, the Australian retail sector has grappled with a challenging operating environment as retailers have been forced to respond to evolving consumer behaviours, disrupted supply chains, shifting operating models, cost challenges and talent shortages.
Despite this volatility, there are opportunities retailers can grasp that will ensure they not only survive the current turbulence but thrive. Specifically, there are seven trends that will shape Australian retail this year that, if taken advantage of, will prepare retailers to operate in the ‘next normal’.
- Covid-19 has created, cemented or accelerated new consumer purchasing behaviours, impacting trip frequency, basket size, online expenditure and spend on health. These behaviours are sticky.
- Personalisation is becoming ‘table-stakes’, and the gap between innovative retailers and laggards will widen, especially where personalisation is concerned.
- Covid has served to heighten consumer expectations of an integrated online and offline experience. Leading retailers will get the omnichannel experience right, which will have flow-on effects to redefining the role of the store.
- ESG agendas will be critically important as the pandemic continues and consumers vocalise their support. Measured ESG strategies supported by investments will increase.
- Rising costs and inflation will drive operating pressures. While we see costs gradually unwinding as supply and demand imbalances are corrected, we expect the underlying cost base to remain elevated this year.
- Both structural and cyclical supply chain disruptions will endure across the value chain, impacting on-shelf availability, working capital and complexity, forcing retailers to diversify their supply base to meet increased consumer needs.
- Australian retailers will struggle to attract and retain the best talent, with pronounced challenges in key roles. Getting the EVP right will be essential.
Each of these trends is critical for retailers to understand, but we are only scratching the surface of what’s unfolding and how businesses can successfully position for comparative advantage. Naturally, every retailer will face unique strategic, operating and financial questions. However, there are three topics that will be critical for retailers to address:
Over the past five years, advanced analytics solutions have scaled and developed considerably to provide greater processing power, storage, and more mature predictive insight technologies and leading retailers have invested with urgency into digital transformation. Alongside heightened consumer expectations and increased e-commerce transacting, this creates a breeding ground for rapid innovation and capability build. Winning retailers will win by starting small (e.g., starting with the personalisation use case) and iterating along the analytics journey.
Customer-led offer reset
Customer preferences have evolved much faster than typical BAU assortment review and product development cycles. As a result, many retailers are out of sync with the latest preferences, category winners and losers and they are yet to reset category management fundamentals in response. Retailers must get the core offer right, build their omnichannel proposition and make – and keep – clear customer ‘promises’ on such topics as fulfilment and delivery, sustainability and use of information.
Operating model of the future
We recommend three focus areas on the future operating model:
- Cost leadership (unlocking funds to invest via efficiency, not cost-cutting).
- Supply chain resilience in the short, medium and long term.
- A focus on the requirements, capabilities and talent to run organisations.
This year will be a year of continued disruptions resulting in a host of challenges as well as opportunities for retailers. It is important that retailers prepare for the ‘next normal’, think boldly, continuously innovate, and strengthen core operations to adapt to this context.
For more information, please read BCG’s report – The Next Normal: Outlook for Australian Retail in 2022.
About the authors: Abhay Varma is a managing director and partner at BCG and Sanjay Chari is a partner in BCG’s Melbourne office.