Growth is hard to find in today’s retail environment.
Leaders of major retail organizations are quite familiar with the industry’s hyper-competitive and ever-changing nature. The pressures to keep up in this space are rapidly changing and are driven by many different factors:
- The increasing role of digital sales. Retailers have been challenged to retain sales as they shift online and, frequently, to Amazon. According to Statista, in 2017, 9% of US retail sales were digital ($409B), of which ~45% came from Amazon.
- The decline of store construction. At the same time, the physical store landscape has fundamentally changed as retailers have slowed or stopped new store construction. Nearly 8,000 stores were forecasted to close in 2017, representing 147M square feet of lost physical space.
- New entrants. Small digital pure-play retailers have been successful new entrants to this space. Consider the example of Chewy.com, an online retailer of pet food, treats, and supplies that has seen its revenue grow 6x, from ~$400M in 2015 to a reported $2.6B in 2018, only one year after its acquisition by PetSmart in 2017 .
This retail environment has made finding growth a top-of-mind challenge for leaders. Many have doubled-down on initiatives such as assortment breadth, product innovation, store and digital experience to acquire new customers and sales. However, few have found success.
A shift to a customer-centric mindset can unlock growth.
At Ovative Group, we believe that the first step to growth in today’s retail environment is a mindset shift to a customer-centric approach. Focusing on the customer is not a new concept. In fact, many retailers would argue that they’re very focused on their customers. However, their focus is inhibited by a lack of shared enterprise customer goals that are understood and utilized across the organization. A truly customer-centric approach allows retailers to breakdown two key barriers in their organization:
- A sales dollar focus. Most retailers organize their businesses around driving sales dollars rather than customer growth. Without an explicit focus on customer goals, teams don’t clearly understand how their initiatives impact customer growth, how customer numbers tie to sales dollars, and therefore, how to make effective decisions to drive customer growth.
- Siloed approaches. The typical retail organization operates in silos across merchandising, marketing, stores, digital, etc. These silos create internal competition and disconnected strategies that reduce focus on a retailer’s greatest asset – the customer. Siloed approaches also create disparate messages to the customer across products, functions, and marketing channels. Uncoordinated messaging and diluted go-to market strategies reduce customer affinity and loyalty to a retailer’s brands and products.
By orienting an entire organization around a single set of customer-focused metrics, retailers can ensure strategies are developed end-to-end with a cohesive customer-centric focus. This focus will lead to a stable customer base, basket growth, and ultimately, new customers.
A customer-centric shift is unlocked by aligned metrics.
To successfully focus on the customer, retailers must have:
- A clear understanding of the health of their customer file and their most valuable customer segments including retained, reactivated, and new customers
- Clear growth goals laddering up to enterprise sales goals, organized by customer segment
- Commitment from the leadership team that customer growth goals are the primary focus of the organization
- Complementary customer data and reporting capabilities that support effective measurement
- A process to organize, design, fund, and measure enterprise growth strategies against customer goals
Featured case study: Putting the customer first at a clothing retailer
In partnership with Ovative Group, a clothing retailer recently embraced the customer-centric growth approach. They found they were acquiring ~20% fewer new customers compared to just two years ago. With this information in hand, they identified and prioritized initiatives focused on targeting new customer acquisition, while balancing focus on their existing base.
Today, with centralized owners, they have begun to champion loyalty, SKU expansion, and media optimization activities designed to acquire additional customers, and increase the value of existing customers. These enterprise-wide initiatives will be enabled by new customer-centric data and measurement capabilities.
Activating on a customer-centric approach and new customer growth goals
Empowered by customer-centric goals, an organization can identify their largest gaps to achieving both short and long-term growth. Is new customer growth a challenge? Or is a high-value customer segment seeing declines in AOV? Based on these challenges, leaders from across the organization can identify and prioritize customer-centric initiatives, build cross-functional teams to implement, and measure impact. As the customer-centric growth approach becomes more ingrained in the enterprise, organizational structure and incentive schemes should be aligned to act as a further catalyst to the customer-centric mindset.
The retail landscape will continue to evolve as new disruptions emerge and new competitors enter the space. By centering on the customer through aligned enterprise goals, measurement, and strategies, retailers can ensure they’re keeping up with the expectations of their customers.