As consumer spending moves to digital, retail CFOs must develop new strategies for managing CAPEX and OPEX.
Shopping has never been easier for consumers. But for executives behind the scenes, digital advances have created complexity. It takes an omnichannel approach to meet these new consumer demands, requiring companies to retool their strategies and operating models in areas such as marketing, merchandising, store operations, and IT.
Omni-channel — the seamless integration of physical and digital worlds to create an outstanding, cohesive shopping experience.
As the Covid-struck retail world has digitized hastily, the tools and structure of retail organizations have changed dramatically. Numerous retailers have significantly reorganized their merchant and marketing teams to consolidate or coordinate their online and store strategies across the organization. Retail software providing information technology organizations, once considered back-office utilities, have concurrently become strategic business partners.
These changes, in turn, have driven multiple new capital requirements. This creates a unique set of challenges for the CFO in migrating from historical investments to expenditures that will better support e-commerce and omnichannel enablement that will help reduce the overheads incurred from having more stores, carrying extra inventory, and relying heavily on single-channel distribution capabilities.
A greater return on capital in the Omni-channel era necessitates the need to adopt a multi-pronged approach and new ways of thinking.
The Seamless Omni-channel Customer Experience is not just evolving, it is expanding.
The growth of digital commerce is far outpacing traditional retail. This trend seems sure to continue as retail emerges out of the pandemic impact increasing the competition and putting additional pressure on their margins. Consumers can now shop through various channels, often using six or more touchpoints before making a purchase. Retailers broadly agree their organizations must deliver a consistent experience across each touchpoint.
Virtually all omnichannel capabilities require technology investments. Most are not channel-specific but instead impact the entire technology infrastructure. CFOs, however, are still determining how to best define the impact of these investments’ on sales by channel, which then makes measuring return on capital that much harder to calculate — especially at the channel level, due to lack of clarity around performance and management accountability.
As channels have blurred, time-tested retail metrics have lost some of their meaning and value. For example:
Each channel yields data that makes it easier to track customer behaviour, and marketers are using emerging sales attribution models to better allocate marketing spend. These models — single-channel, last-click, multi-touch, multi-channel, and the like — could be adapted for broader use in informing capital decisions as well. By getting more specific about where and how sales originate, finance teams can better estimate the real margins and profits from different touchpoints. This will lead to more informed decisions on how to deploy scarce capital.
Enabling omnichannel strategy through technology and measuring the impact
Capital allocations should align with business strategy, but technology changes so rapidly that it is tempting to take a wait-and-see approach. Delays, however, could put a retailer at a competitive disadvantage. Unified inventory management systems and integrated distributed order management systems are examples of platforms that harmonize order fulfillment, regardless of channel. Mobile investments can help retailers combine new digital strategies while providing experiences unique to mobile.
Other investments include:
The question is, which options are the most advantageous, and how do you measure the impact? In an omnichannel environment, parsing out returns and costs across the business becomes trickier:
The ongoing demand for investment coupled with less predictable returns on capital creates tensions for CFOs that will continue to increase as more consumer spending migrates to digital.
An approach to taking the lead
To implement a successful omni-channel strategy, retail CFOs should consider the following strategies:
Striking a balance
The transformative effects of digitization in retail will continue in the foreseeable future. The finance teams will need to redeploy capital from stores and inventory to riskier, hard-to-measure investments in new enabling technologies and related processes. As the leaders of finance organizations, retail CFOs will need to develop new tools, techniques, and skills to stay at the forefront of this revolution while still delivering attractive returns on capital.