Retail tech projects are expensive, so organizations must embrace a cost-reduction strategy. Source: Shutterstock

Retail tech projects are expensive, so organizations must embrace a cost-reduction strategy. Source: Shutterstock

Bain: Cost transformation key to digital transformation in retail

RETAILERS understand that surviving and thriving in the digital era won’t be easy.

To hold on to their market share, retailers will need to spend a fortune on new and exciting projects that not only win hearts but also provide an edge over competitors in a crowded and constantly disrupted marketplace.

Giants such as Walmart and Tesco have been spending hundreds of millions of dollars to launch mobile apps, in-store cashier-less technology, and driverless last-mile delivery solutions.

Funding these, however, is another battle. Bain & Co’s (Bain) recent study Funding the Future of Retail Through Cost Transformation provides an interesting strategy to equip companies to fight that battle intelligently, although its success depends on collaboration among leaders and managers in the business.

Although the title leaves no room for guesses about what the think tank’s proposed solution is, it’s important to note the careful choice of words — cost-cutting v. cost transformation.

What Bain is suggesting is simply a reduction in costs, the company’s consultants suggest that success will come to those that shift to an “across-the-board” approach from a siloed one.

“A big reason most retailers miss out on these benefits is that they don’t take an enterprise-wide view of cost reduction. They focus only on a narrow part of the cost bar, largely because that has worked in the past, picking off just enough savings to maintain the status quo.

“That’s not an option anymore, given the size of the investments required and the fact that most of the low-hanging fruit was reaped during multiple cost-productivity drives in the past.”

Bain’s consultants also suggest linking cost-transformation to strategic goals ranging from the development of seamless omnichannel shopping to the mastery of new digital capabilities in areas such as personalization and advanced data analytics.

Cost-cutting v. Cost transformation in retail

With the rapid growth of technology, customers want things cheaper and more easily.

Something that’s ordered at 9 AM should be delivered in the next hour or by lunchtime at most — that’s the expectation that some services are setting (with great investments) — and others need to follow suit.

Ordering online and picking up from a retail store is another thing that seems easy but behind the scenes, requires a lot of automation, data management, analytics and predictions, and intensive artificial intelligence models.

Cost-cutting, therefore, doesn’t help retailers create a more intelligent business. It’s why they need cost transformation — so they’re able to build smarter and faster ecosystems to meet customer expectations — and exceed those expectations to delight them outright.

Bain’s report predicts that cost transformation will involve fighting costs on all fronts — internal and external 0ù including fighting pricing pressures, inflation, and minimum-wage hikes.

“The good news is that retail leaders can identify savings opportunities quickly. In a matter of weeks, they can discover the most promising “hot spots.” Data-driven executives have an advantage in finding and then realizing these savings, but not if they rely solely on benchmarking. Customer focus is key, too.”

At the end of the day, retailers must understand that delaying revolutionary projects isn’t the way to go. Instead, they’ll need to look long and hard at their own spending patterns to find ways to transform costs and pull aside resources for new projects.