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The Great Retail Restructuring of 2020.

Phil Thorne 09/09/2020·7 min read

In the year 3 B.C. (Before Covid, i.e. 2017), pundits started claiming the “retail apocalypse” was upon us. By 2019 the prophets of doom were clamoring daily; 9,300 stores closed in the US, malls and department stores were on their deathbeds, and nostalgic brands like Toys R Us evaporated along with our childhood memories of them.

Yet, despite the headlines, no meteorite had hit retail. Total retail sales had actually been growing ~4% per year pre-pandemic.

Perhaps prompted by the doomsayers, a hotbed of innovation and changing consumer trends has sprung up and instead started to drive rapid structural change. Overleveraged, stagnant retailers failed to adapt. Covid has been the reckoning.

2020 is forcing the “Great Retail Restructuring,” changes in approach and business model to be able to survive and thrive in the new decade and beyond.

At the moment retailers are taking the three obvious steps.

Reorganize.

Most companies have experienced a shift in departmental priority, regardless of their size. Walmart, for example, has realized that departments like logistics, real estate, store planning, and merchandising are less essential than they were in an omnichannel world, whilst others like data science and e-commerce are suddenly over-stretched and under-trained.

Right-size.

Real estate portfolios, workforces, and capital structure are all under review and seeing large cuts as companies resize themselves for a shifting demand.

Refocus.

In most cases, this is talking about the new radical and accelerated way that consumers shop and buy. It’s no longer just about omnichannel acquisition of customers, but also the increased ways they want to be served and fulfilled. Safety, curbside, and delivery are all becoming increasingly important.

Reorganize, right-size, and refocus are all moves from Crisis 101, a frequently used mechanical approach for resetting companies. But this time is different – businesses now have to navigate operating at mass-scale in a landscape that shifts rapidly. A new paradigm has emerged which determines those racing ahead today and those that have been successful in the last volatile decade: an agile mindset.

Agile’s more than an adjective – it’s a new way of operating.

Many a company has spoken in their most recent earnings statements of the need to be more agile or bring agility into their operations. But it feels more of an emotive statement at the moment; a need to adjust and adapt nimbly to the changing environment much like the fastest-growing startups do.

The traditional notion of ‘agile’ was born out of software development back in the 90s, but its focus on iterative optimization of quality whilst keeping resource lean has seen it expand into service delivery in general. Its basic principles are well encapsulated by Steve Denning’s 3 laws.

The law of the team.

Reorganization makes little sense when you don’t factor in agile’s law of the team. Silos need to be broken down to be more cross-functional, team members need focus but also a sense of the progress that they are making at tasks in hand.

Autonomous, cross-functional teams working in short cycles on granular, focused, tasks have shown themselves to be not just 10-20% better, but x2, x3, or even x10 better in terms of performance. They’ve also shown themselves to be more human, more collaborative, and more engaged.

Teams working in short cycles on granular tasks can accommodate constantly shifting requirements and priorities, so are able to respond with immediacy to deliver high-quality on-demand. Reorging previously used to require huge HR and change management teams and lengthy training programs – agile teams mean this is all achieved as an intrinsic part of the delivery process.

The law of the network.

The past few decades have seen companies scaling up – whether that’s into new markets, new platforms, or into sprawling parent companies – but still continuing to operate as they did when they were small and local.

The only difference is bloated layers of middle management layered onto the organization, whose role is to coordinate the one-size-fits-all approach of the center. The localized quirks and nuances that made the brand delightful to customers get drowned as a company scales.

Right-sizing only makes sense when you understand the “law of the network.” Organizations consist of teams sharing a common mindset, interacting and working with each other to solve common problems for the customer. When thinking like a network or organism, fitness matters. It’s about finding gains and savings from continuous efficiencies in the right places, rather than large scale cost-cutting which takes a line-of-best-fit approach and fails to accommodate important nuance and variation at the local level.

In much the same way that the networked nature of the internet means information is immediately accessible wherever it is needed and ideas can ‘go viral’ rapidly, innovation and successful initiatives are organically favored and adopted whilst bad practice fails to thrive.

Rather than being dependent on informational gatekeepers and needing excessive oversight and intervention, teams can tap into a hive-mind of intelligence that teaches them constantly how to improve and ensures they iterate towards ever-improving service.

The law of the customer.

Many attribute current difficulties to an increasingly fickle consumer. Whilst there are indeed arguments for this, it stops businesses from appropriately scrutinizing their own role. The pandemic may have happened overnight, but the growth of e-commerce, and mobile adoption didn’t. Many just failed to adapt to the customer.

Refocusing only makes sense when you follow the “law of the customer”, who increasingly want instant, frictionless and intimate relationships with your brand and you to keep up with their changing needs.

Retailers like Amazon and Zara have emerged as icons of agile success, using mass-scale technology that knows customers better than they know themselves. When a business starts to operate in an agile manner, it can be both globally expansive and personally local. A shared customer-focused purpose of the organization that quickly adapts with changing preferences is no-longer a mere brand exercise, but a fundamental point-of-difference that dictates which businesses will survive.

In the next few weeks, we’ll be exploring how retailers can take on this critical Great Retail Restructuring, using an agile approach that ensures immediate and efficient success, and builds for a stronger and resilient future. Looking at the three laws of agile in more depth, we’ll explore how retailers can quickly pivot to being more agile in their management:

  1. The law of the small team – How can area leaders be the pivotal masters of rapidly driving the cross-functional teams to success?
  2. The law of the network – Is it possible to easily refresh the interactions between Centre and Frontline to move from hierarchical siloes to an integrated network?
  3. The law of the customer – What would thinking like a product developer with a continuous growth mindset deliver in terms of value for both customers and the business?

Companies like Apple, Amazon, Microsoft, Google, have innovated and developed new products rapidly, transformed industries, and captured vast market shares over the last decade while other companies were dithering over what their 5-year plan should be. Although following the example such giants may seem out of reach, Agile principles are, as we will go on to describe, relatively easy to adopt. Microsoft adopted them in less than a year.

Agility has moved from being a nice to have to a necessity. Those that don’t build this capability into their management will be quickly left behind – but thankfully our series of deep-dives into the practical applications of each of the principles will give you a blueprint of the first steps to take. Our blog next week will be looking at the law of the small team and the modern role area leaders can play – make sure you sign up to the newsletter below to ensure you don’t miss it.

 

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