Professional services firm Deloitte has outlined the likely responses of retailers this year as financial worries continue to restrict confidence.

In their 2009 Global Powers of Retail report, in which Wal-Mart again came out on top with Australia’s Coles and Woolworths both finding a spot in the top 30 global retailers, Deloitte suggests successful retailers will find a way to enhance the customer experience, while also improving risk management systems.

Cut costs
On a global level, many retailers are finding the going tougher than for the better part of fifteen years, although supermarkets have been among the most resilient worldwide.

“Top-line growth is likely to be problematic for some time to come. Indeed, even after the global economy recovers, some retailers-especially those in the United States-will find that retail spending growth will be constrained by consumer balance sheets,” the report noted. “Thus, profitability will more likely arise from the ability to limit a variety of costs.”

The consolidation of support functions and cuts to the payroll are expected to be among ways retailers will seek to reduce costs. “In addition, they will examine their cost of goods more carefully. They will attempt to negotiate better deals with suppliers, taking advantage of the fact that a recessionary environment creates more of a buyer’s market,” the report added.

Deloitte suggest the time is perfect for businesses to focus on their core businesses, determine the most effective formats for the future and re-negotiate leases.

Risk mitigation
Retailers that were not prepared for a downturn got burned last year and risk management is more important than ever.

“Among the risks that will keep retailers awake will be disruptions to supply chains, currency volatility, natural disasters, man-made disasters, legal liability, and financial market disruption. The latter is probably of most immediate concern,” the report advises. “The recent meltdown in credit markets demonstrated the importance of having sufficient cash on hand and having strong financial service and supplier relationships.”

“Those retailers with supply chains concentrated in one location or with one major supplier may choose to re-think such business design. Diversification of sourcing will be critical.”

Customer experience

A focus on the customer experience will be one way retailers continue to seek a competitive advantage in a challenging environment. Whether it is an improvement in the store layout or design, better customer service or greater product information, retailers need to look for ways that constantly set themselves apart from the competition.

Human resource management
“Perhaps the greatest challenge for retailers, other than the economic climate, will be managing human capital in a way that generates strong results,” the Deloitte report suggests.

A brand or a company is only as good as the people that are behind it. Retailing, be it supermarkets, fast-food outlets, restaurants or clothing stores, requires the ability to attend to the needs of a diverse range of people. Without effective use of human resources, retailers inevitably fail. Training and selection are pivotal, while finding a way to motivate and get the best out of employees is essential to productivity and reducing rates of costly employee turnover.

A multi-channel approach
The retail sector has gone far beyond the traditional ‘brick-and-mortar’ storefront as the internet changes the way businesses interact with consumers. Whether it’s selling products, providing information to consumers or learning about consumers, the internet is a very powerful medium when used correctly.

It has become increasingly important for restaurants to understand how to use the internet to good effect, though it is yet to be used to a great extent by consumers with regard to supermarkets, although this could change in the decade ahead.

Smaller stores
As has been seen in Australia with growth in “express” stores, there will be a continued global shift toward smaller outlets this year. Deloitte suggest this will occur as there will be fewer regulations blocking smaller outlets, they can serve niche sectors and they offer the ability to meet the needs of local customers who do not require the range of larger stores.

Think global
The push toward retail globalisation has continued, but few have managed to reap the rewards they had anticipated due often to either a lack of understanding about the new market they enter or resistance from consumers and local retailers.

The reasons for embarking on a global expansion remain, with developing economies like China and Brazil commonly viewed as some of the most lucrative markets to enter as growth in many western countries stagnates. Strong growth in markets such as Australia relies on market share growth, with expansion overseas possibly providing the best way to boost profits in the long-term.

Many of the world’s largest retailers, particularly those that focus on food, have made considerable investments outside their home markets. In fact, eight of the world’s top ten operate in at least seven countries.

Branding
“Aside from specialty apparel and luxury retailers, branding has not always been seen as important for retailers-especially those that sell food and other mass products. Yet for these retailers, branding has never been more important,” the report states.

Thriving companies will either offer lower costs and prices due to having the most efficient supply chains and economies of scale or focus on managing their brands and the consumers experience with it.

“Indeed, the least successful retailers in recent years have been those with uncompetitive prices and undifferentiated shopping experiences,” the report concluded.

For a full copy of the research please visit: www.deloitte.com/.

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