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Florin Rotar profiles the Swedish retail sector and assesses the challenges it is facing
Like most developed economies, Sweden has been facing a difficult macroeconomic environment. This has certainly had an impact on the challenges and opportunities of Swedish retailers: in 2009, GNP is estimated to fall by more than four per cent. Unemployment has almost doubled and is expected to peak at over 10 per cent, and the critical export industry is expected to drop by over 13 per cent. On top of this, the normal challenges of modern retailing have not lessened: the consumers are ever more demanding, the home market is largely saturated and in some sectors significantly consolidated, products are facing increasing commoditisation, the return on space is decreasing, and the march of discounted merchandisers has accelerated.
Despite these facts, some have been faring surprisingly well. In fact, we believe that understanding and realising the drivers for success will become increasingly important; high performers will be able to further accelerate their leadership as the economy recovers.
There are three dimensions of innovation, which are important to success and a sustainable growth agenda: product innovation, channel innovation and brand innovation.
On the product innovation side, a number of Swedish retailers have been adding products and services to increase their share-of-wallet of existing customers in existing formats (for example, moving from product retailers to general merchandisers or service providers; fashion retailers becoming lifestyle retailers; variety stores becoming department stores or out-of-town destinations). Fashion retailer J Lindeberg’s extensions into sport clothing and H&M’s famous, and much copied, collaboration with high-end designers are examples.
In the most successful cases, several of these formats have also propelled channel innovation and blurred the distinction between store, catalogue, online, telephone and kiosk: whether a consumer views a product online, orders it over the phone or sees it in a store, one expects the experience will be the same or very similar and above all interchangeable. For example, it should be possible to buy a shirt via the mail order channel in Sweden, but be able to exchange it in a Norwegian store, receive a goodwill voucher that can be used online, and later receive personal lifestyle marketing finely tuned to the image that those transactions have generated.
Channel and product innovation often mandates a distinctive market positioning where the attitudes, behaviours and values of core customers are well understood and maintained. This we call brand innovation. This requires strategic information, such as the customers values and expectations, their purchase selection criteria, self-image, drivers for sympathy and antipathy, but also tactical information such as demographics and typical behaviour (average basket of goods, purchase frequency, time spent in store). Here, the key for success is making a conscious choice, as offering ‘a little bit to everyone’ has – in some high-profile cases – become ‘nobody’s brand’ and has had the opposite effect.
To our knowledge, there are few if any Swedish retailers that have reached the pinnacle of these capabilities, which we call the ‘connected retailer’. Some have been able to identify attractive customer segments with sufficient critical mass and sufficient buying power, define and execute a consistent concept and experience across their various channels and position themselves as a brand with clear consistency between the consumer target and the marketing mix.
Although important, a thorough understanding of the market and the business drivers is not sufficient for getting results. For example: the previously mentioned insight into customer attitudes and behaviours typically requires near real-time business intelligence and an in-depth understanding, on a per process basis, of the lag time to action (the time between knowing something and being able to do something about it). The sophisticated multichannel example requires a supply chain which can operate seamlessly across channels and integrate data and services across all points of contact, having ready access to the same level of inventory visibility, product knowledge, promotions, customer information, loyalty program information and the like.
Taking a market strategy and mapping the business drivers to a real-world IT strategy, an attainable enterprise architecture, and a reallife solution has generally not been a trivial task for CIOs and CTOs, especially given the budget situation that most IT departments have been faced with. It has become increasingly important to think big, start small and scale fast and to have a clear business case-driven approach in all stages of this journey. This is where the business drivers need to be enabled and driven through IT.
At Avanade, we typically recommend that once business drivers are well known and understood, one follows a three step approach to start making the vision real. The first step is using a capability map to translate the business drivers to a number of prioritised must-have capabilities around connecting with customers, connecting the stores or connecting the enterprise. These may for example be ‘improving customer loyalty’ or ‘achieving 360-degree digital marketing’ or ‘increasing efficiency via a store manager workbench’ and are typically derived from a SWOT analysis of the current situation. Measuring and benchmarking against industry peers is recommended in this step.
The second step requires mapping of each capability into a technology-agnostic solution blueprint. Using digital marketing as an example to illustrate the approach, an initial task is to map and understand the ecosystem, which is often very different from the banner and search approach of the past and can include dozens of areas such as social computing, micro-casting, e-advocacy, syndication, tagging RFID-based near field communication and the like.
The next task is to redefine the traditional model where IT, marketing and consumers are typically disconnected (technology-wise, channel architecture requirements are driven top-down by IT and analytics decoupled from core infrastructure after the channel is created) into a model where analytics is integrated and the channel definition is bottom-up analytically driven based on the consumer’s behaviour in near real time.
This could mean that the properties for a channel would be built intelligently around a user’s profile and would continuously refine targeted and optimised content for that specific user. This may mean content being behaviour-targeted, advertisements tuned based on multivariate testing, and two-way communication through social networking.
The third step is designing an architecture which implements those scenarios. Many Swedish, indeed numerous European or global, retailers are struggling in this respect. Sometimes the IT legacy of the past, for example with a large dependency on batch processing, makes change difficult. Often retailers may have a collection of technologies or platforms, which means implementing orthogonal processes difficult and costly. Organisations using the Microsoft platform (SharePoint Server, Silverlight, Commerce Server, BizTalk Server, FAST) certainly have a much easier integration job as well as a highly capable platform. Independent research ranks Microsoft high for enterprise content management, search and e-commerce. Nevertheless, we have found that having a structured and proven reference architecture can aid in providing clarity, a tried and tested guidance and thus lower the implementation risk and accelerate project delivery.
Successful Swedish retailers have shown remarkable agility in understanding the vision of the ‘connected retailer’ and some have also started to implement elements of this vision. Making the vision real is however not without its challenges. Those who follow a structured approach for the implementation and understand how to fully harness the power of the technology platform will be able to further accelerate their leadership as the economic environment is recovering. The stakes are high, the obstacles not trivial, but the opportunities for the high performers are near endless!
Florin Rotar is CTO for the Nordic region with Avanade.
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