Retail trends – COVID-19 impacts drive transformation

You won’t find too many jokes about ‘digital transformation’. It’s a serious business. And if you ask who is doing it, every corporate will raise their hands – but there’s little agreement around exactly what it is, the implications for the organisation, how to go about it. RMB’s recent retail client webinar, featuring Wits’ Prof Brian Armstrong, provided strong direction.

Amid the COVID-19 pandemic turmoil, retailers are some of the most visibly impacted businesses. As suppliers of essential grocery, medical, apparel and other goods – the items needed for everyday living – they have had to move quickly to address many unexpected demands, from online shopping to sanitization and supply chain challenges.

Now, with a glimpse of what it means to transform, consumer trends point to a future where digital may play an even bigger role. What awaits?

“Disruption and digital transformation are very broad terms. To move forward, business leaders in retail and other sectors want a clear and practical overview of what awaits and how to measure their responses,” says Debbie Law, Sector Head for Retail at RMB. “Prof Armstrong brings a wealth of insight to these topics—and some pragmatic solutions.”

“COVID-19, Eskom’s failure. These are shocks to the system,” says Armstrong. “They are causing businesses to reforecast, rebudget and restrategise. Technological change is also a profound disruption but is some ways it’s not the same. In many cases, it’s taken for granted and businesses just carry on. Yet it’s accelerating and it’s relentless. It can be hard to see past this persistent grind to appreciate the real impact of disruption on business and industry. This makes it important for a business to understand the shape of disruption – how it works, how to respond to it, and why it matters,” says Armstrong.

KEY SOUTH AFRICAN TRENDS AMID COVID – JULY 2020

• Consumers are spending less due to falling income, rising unemployment, etc
• There are purchasing triggers – consumers are put off by the fear of contracting COVID-19
• Higher precautionary savings due to heightened macroeconomic uncertainty, job insecurity
• Price sensitivity is noticeable
• ‘Healthification’ – increased demand for organic food
• Online buying and delivery continue to be embraced
• Regional malls favoured over supermalls focus on convenience shopping

Exponential thinking required

He highlights the 6 Ds of Tech Disruption’ as a guide to the change we are seeing right now. The Ds move from digitisation, the transition from physical to digital (think sound, images, biotechnology), to deception, or denial – the early stages of exponential growth that incumbents often do not notice. Then comes the disruption (bye-bye newspapers, CDs, Kodak), demonetisation (the cost of cloud storage and computing power just keep dropping) and dematerialisation (radio, GPS, maps now all fit on your smartphone).

Even slow rates of decline can be very disruptive as illustrated by the fate of telco incumbents that did not shift fast enough in response to technological change. Side-stepping the pain of disruption requires exponential thinking.

Strategic and deliberate change

“Just mastering the technology is not good enough,” says Armstrong. “Businesses need to change how they do business but also, in many instances, what business they do.”

He offers two examples. The South African Post Office is failing is because its core function – managing mail – has dematerialised. It will need to reinvent itself by diversifying, creating new products for new market segments. And consider the automotive sector: electric vehicles (EVs) last longer and need less maintenance. So even if incumbents manage to keep pace with design and technology, they face a huge profit loss in terms of aftersales and service. This calls for new business models and offerings.

“It’s all about how and when we respond,” says Armstrong. “Digital transformation is the process of moving from A to B; it’s taking a deliberate, scientific approach to achieve digital maturity that will enable transformation and make it sustainable.”

Key factors driving maturity include strategy, leadership, culture, innovation model and risk appetite, business alignment and adoption, investment and ROI, compliance and risk, operating model and organisation.

A deliberate scientific approach – it’s multi-factored

Transformation cannot be left to the technologists alone. Responding to technological change often involves responses which are about business strategy, business models, organisational models, culture, leadership, customer insight and alignment, and much more.

Armstrong suggests following classical business and changes management models, such as Kotter’s 8-step change model, or more “digitally” tailored versions such as Westerman’s Digital Transformation Compass.

This proposes four main phases of the digital transformation journey, namely:

• Frame the digital challenge by understanding the opportunities and threats and benchmarking the organisation’s digital maturity.
• Focus investment – create a roadmap, put in governance structures and fund your transformation.
• Mobilise the organisation – engage the workforce, evolve the organisation toward a more innovative culture.
• Sustain the transition – build the necessary skills, create reward structures to overcome barriers, and monitor and measure progress.

The way forward

In 2001, Steve Ballmer of Microsoft said: “Google’s not a real company; it’s a house of cards”. In 2008, Jim Keyes, CEO of Blockbuster, said: “Neither RedBox nor Netflix are even on the radar screen in terms of competition”. Today, we predict the future with greater caution. For businesses across industries, being part of a digital future requires a clear understanding of the opportunity and measured, strategic action to grasp it,” says Law.