1、In light of unprecedented industry disruption,a retailers actions today could determine whether it spends the next 20 years as a leader or a laggard.Here are four must-dos for retail executives.This article is a collaborative effort by Steven Begley,Becca Coggins,Carson Green,Jad Hamdan,Dymfke Kuijp

2、ers,and Franck Laizet,representing views from McKinseys Retail Practice.Retail reset:A new playbook for retail leadersIt now sounds like a clich,but that doesnt make it any less true:the retail sector has experienced as much disruption in the past five years as it has in the previous 25.Consider thi

3、s:perhaps never before in the history of the industry has every single one of retails primary stakeholder groupscustomers,suppliers,employees,and investorsdramatically changed their behavior and expectations,all at the same time.Consumers arent browsing like they used to and are abandoning their onc

4、e-preferred brands;theyre also demanding speed and sustainability.As retail ecosystems evolve,suppliers are,in many cases,becoming customers.Employees are seeking workplace flexibility,which retail jobs traditionally havent offered.And,amid all this disruption,shareholders expect profitable growth.T

5、he pace and magnitude of change have been jarring to even the most seasoned retail leaders.This confluence of challenges calls for a radical rethinking of long-held beliefs and practicesa retail reset.In this article,we explore the major trends shaking up the industry and recommend a set of focus ar

6、eas for the retail C-suite.Now is a critical juncture:a retailers actions in the next two to three years could position it for success in the next 20.Why a new playbook?Retailers pivoted fast when the COVID-19 pandemic struck,so their ability to move quickly isnt in question.But without the urgency

7、posed by mass illness and global July 20232lockdowns,only the most forward-thinking and ambitious retailers will continue to make bold moves at speed.The others,as history has shown,will destroy value.Heres what we mean:nearly one in five retailers have posted negative economic profit since 2015.1 A

8、nd while the retail sector in aggregate has created value over that time,the gap between winners and losers is widening.The top 10 percent of publicly traded retailers now account for 70 percent of the sectors economic profit(Exhibit 1).Its a winner-take-most industry.Becoming a winner isnt easy;sta

9、ying a winner is even harder.And its a particularly Herculean effort when the rules of the retail game are changing as drastically as they are right now.Lets take a closer look at how retails stakeholders are challenging retail norms.The zero consumer has emergedConsumers are increasingly shopping a

10、cross channels,showing little loyalty,and expecting fast shipping and sustainable products.Meet todays“zero consumers.”Zero boundaries.Browsing in stores used to be one of the primary ways that shoppers came across new products.But the purchase journey is now more fragmented.Nearly half of consumers

11、and approximately 70 percent of millennials and Gen Zerssay they Exhibit 1201014100201014201519202022201519202022McKinsey&CompanyShare of sector economic proft created by top decile of retailers,%The top decile of retailers creates 70 percent of the value in the sector.Share of retailers generating

12、negative economic proft,%6066701320181 Economic profit is the measure of the spread between return on invested capital and the cost of capital.3rely on social media,celebrities,and articles or blogs for purchase inspiration.2 And theyre shopping fluidly across channels.Even grocery,once a stubbornly

13、 store-based category,is becoming solidly omnichannel,with nearly 40 percent of US consumers saying they do at least some of their grocery shopping online.3Zero in the middle.Consumers are moving away from the middle of the markettheyre either scrimping or splurging.Total consumer share of wallet sp

14、ent on mid-priced goods and services has declined almost 10 percent in the past five years.4 As of April 2023,approximately 80 percent of US consumers said theyre trading down to lower-priced options.5 At the same time,in recent surveys of European and US consumers,roughly 40 percent of both populat

15、ions said they plan to splurge,especially on restaurants,travel,and apparel.Zero loyalty.About half of consumers reported switching brands in 2022,compared with only one-third in 2020.Whats more,about 90 percent said theyll keep switching.Absent truly differentiated,exclusive offerings,the retailer

16、will soon become a utilityjust a means of distribution.Zero patience.Consumers are much less willing to wait.Free standard shipping,once offered by only a few retailers,is fast becoming table stakes.Amazons delivery speed and the rise of“buy online,pick up in store”have raised consumers expectations

17、:a plurality of customers today report that three-day shipping is the slowest theyll tolerate before looking to other retailers.Net zero as a buying factor.Consumers are no longer just saying they care about sustainability and social responsibility;theyre now voting with their wallets.A recent analy

18、sis by McKinsey and NielsenIQ revealed that products making sustainability-related claims on their packaging averaged 28 percent cumulative growth over the past five years,versus 20 percent for products that made no such claims.6As retail ecosystems develop,suppliers are becoming customersRetail use

19、d to be about buying products through supplier networks and reselling them for a profit.Today,retailersupplier relationships are about not only products but also consumer access,data,and insightsand,increasingly,suppliers are the ones buying the latter from retailers.Retailersupplier dynamics are ch

20、anging as retailers start to tap into new value pools beyond omnichannel retail,such as third-party marketplaces and retail media networks(RMNs).7 We estimate that these“beyond retail”opportunitiesincluding adjacent services,customer data monetization,and new tech assetscurrently account for less th

21、an 10 percent of retailer profits but could represent up to 40 percent by 2027.2 McKinsey US Consumer Pulse Survey,March 2022.3 McKinsey State of Grocery Consumer Survey 2023.4 Based on a joint analysis conducted by data company Affinity and McKinsey.5 Christina Adams,Kari Alldredge,and Andrew Pitak

22、os,“A monthly update on the state of the US consumer:May 2023,”McKinsey,May 23,2023.6 “Consumers care about sustainabilityand back it up with their wallets,”McKinsey,February 6,2023.7 Marco Catena,Richard Mayfield,and Rakhi Williams,“Beyond retail:Why retailers should think services and ecosystems,”

23、McKinsey,January 11,2023.4In the past five years alone,more than 20 major retailers have launched third-party marketplaces.This model gives retailers a low-stakes way to experiment with new merchandising,categories,or products before onboarding them to first-party sellingor a path to replacing first

24、-party selling altogether.RMNs,too,are increasingly popular:some are rapidly generating both significant incremental revenue(at an operating margin of more than 50 percent)and valuable new consumer insights.These emerging businesses hold promise for retailers but also present fresh nuances in how to

25、 successfully manage supplier partnerships.The work is changingand so are the workersJob openings outpace workforce availability around the world.In the United States,there are nearly twice as many job openings as unemployed workers.Wages are climbing and employees are expecting more from employers,

26、putting pressure on operating profit.At the same time,the nature of retail work is changing,both in stores and at corporate offices.The front line wants flexibilityand more.In a 2022 survey,frontline retail employees cited flexibility as the top reason for leaving a job.8 Career development opportun

27、ities were also a significant factor in frontline retention(Exhibit 2).The evolving macro environment may,of course,cause employee priorities to changebut,as they refine their talent strategies,retailers should bear in mind that whats good for workers is good for consumers:theres a positive correlat

28、ion between frontline employee satisfaction and consumer experience.Every team needs data science skills.Consider the merchandising function:traditionally,merchants and planners relied on gut instinct and pattern recognition based on years of experience.Today,leading merchants augment instinct and e

29、xperience with data science.At Amazon,almost every short-term pricing decision is algorithmic.Many longer-range decisionssuch as in merchandising,supply chain,and real estateare also informed by AI.Retail leaders of the future could very well have a data science background.If all your data science t

30、alent sits in your IT department,youre already behind.For investors,growth isnt good enoughInvestors have become accustomed to highand profitablegrowth in retail.Sector gross margins in 2021 reached their highest point since 2009,as retailers reduced promotions and markdowns amid constrained supply.

31、But rising inventory levels have forced some retailers to take heavy markdowns,and logistics costs are further cranking up P&L pressure,threatening to erode the past decades margin gains.That said,theres clear evidence that investors take a through-cycle approach to the sector.While valuation multip

32、les have remained mostly flat over the past ten years,COVID-19s disruption and impact on sector EBITDA margin revealed an investor base that looks beyond short-term shocks(Exhibit 3).Retail leaders can take some comfort in knowing that a disciplined,long-term strategy will be rewarded.However,in tod

33、ays fast-changing environment,the value of P&L agility 8 David Fuller,Bryan Logan,Pollo Suarez,and Aneliya Valkova,“How retailers can attract and retain frontline talent amid the Great Attrition,”McKinsey,August 17,2022.5and balance sheet flexibility have gone up massively;retailers need breathing r

34、oom.We would argue that the CFO skill set has never been more important for the sector.Reinvention required:Priorities for the C-suiteThese trends are gaining strength,making it urgent for retailers to act now.Yes,experimentation can be expensiveand given that interest rates are likely to remain ele

35、vated for the foreseeable future,avoiding big bets is a tempting default option for retail executives.But standing still can be a bigger risk.History tells us that retailers that take decisive action and focus on the long term outperform peers both during and after a downturn by as much as fivefold

36、in total shareholder returns.Exhibit 23432292927400102030McKinsey&Company1Defned as frontline employees at apparel,beauty,and shoe stores;automotive supply stores;big-box stores;convenience stores;department stores;discount stores;dollar stores;drugstores;full-service and sit-down restaurants;furnit

37、ure stores;grocery stores;home improvement stores;online players;and quick-service restaurants.2Question given to respondents who indicated that they are at least“somewhat likely”to leave their current jobs in next 36 months:“Below are 12 categories of reasons why people leave their jobs.Please choo

38、se the top 3 aspects of employee experience that afect your plans to leave your current job.”Other reasons include supportive colleagues(27%),inspiring leadership(26%),sustainable workload(21%),access to resources(20%),community(19%),workplace safety(19%),and geographical ties(19%).Source:McKinsey F

39、rontline Retail Great Attrition and Great Attraction Survey,Apr 2022Top 5 reasons US frontline retail employees1 are considering leaving their jobs in next 36 months,%of respondents2The desire for more fexibility is the most common reason US frontline retail employees leave their jobs.Workplace fexi

40、bilityUnpredictable schedules and hours/availability Infexible startand stop timesLack of control over how work gets doneInadequate career growth opportunitiesLittle emphasis on knowledge,skills,and ability developmentLimited internal mobility,career coaching,and skill-acquiring opportunitiesLack of

41、 good role models for worklife balanceInability to spend time on personally meaningful pursuitsManagers not understanding of responsibilities outside workUncompetitive compensation;lack of fnancial incentivesUnderpaid for qualifcations and efortInadequate benefts(eg,healthcare,time of)Boring or unin

42、teresting workLittle social impactLack of alignment between personal values and organizational mission/purposeCareer developmentCompensationHealth and well-beingMeaningful work6The sooner a retailer reinvents its relationships with customers,suppliers,employees,and investors,the better off it will b

43、e.The following four areas should be at the top of retail executives agendas.Own the consumer relationshipStrong consumer relationships are the currency of the modern retailer.Indeed,the successful retailers of the future will be those companies that can cultivate a massiveand massively loyalset of

44、consumers,because other companies will pay for access to that customer base.As“zero consumers”begin to constitute the mainstream,retailers would do well to gauge the strength and depth of their consumer relationships.Our recommendation:pursue and measure“share of life,”instead of just share of walle

45、t.In practical terms,this means introducing more and varied ways to become indispensable in as many aspects of peoples lives as possible,while continually creating and communicating savings that are invested back into the customerthus reinforcing the loyalty loop.Retailers still need to excel at sel

46、ling products,but first-party product sales will become only one element in a broader ecosystemone that includes services,experiences,inspiration,advice,and contentto keep consumers coming back.(We discuss ecosystems in greater detail later in the article.)Exhibit 30510152005101520202220202014201620

47、182012202220202014201620182012McKinsey&Company1Based on sample of 136 large retailers with substantial North American presence,excluding quick-service restaurants.Source:Corporate Performance Analytics by McKinseyTotal retail sector,2012221Even when margins in the retail sector reached peak levels d

48、uring the COVID-19 pandemic,investor expectations remained relatively stable.Enterprise value/EBITDA,multipleEBITDA margin,%Next 12 monthsLast 12 months7Physical stores will be instrumental in helping retailers capture greater share of life and own the relationship with the zero consumer.Stores will

49、 serve as not just showrooms and service centers but also hubs for speedy fulfillment.For some retailers,two-thirds or more of e-commerce orders already touch stores;ship-from-store could account for 30 to 50 percent of physical store volume in the next several years.Retail store networks will encom

50、pass traditional stores,distribution centers,“dark”stores,e-commerce-first stores with smaller selling floors and large back rooms,and even shared fulfillment centers via alliances across retailers.Managing these more complex networks will require retailers to double down on analytical infrastructur

51、e and capability.In addition,to win greater share of life,retailers will need to evaluate business decisions using an environmental,social,and governance(ESG)lens.Theyll not only prioritize and invest in ESG-related actions but also make consumers aware of these actions.For example,winning companies

52、 will use a design-for-sustainability approach when developing new private-label products and will work with suppliers to offer“better for you”products that are sustainable and affordable.(We note that true winners will also engage their employees in sustainability and social responsibility efforts,

53、recognizing that purpose and meaningful work are significant factors in employee satisfaction and retention.)Set a vision for your retail ecosystemRecent McKinsey research has shown that consumers are willing to buy adjacent services from retailers.9 Walmart has long offered financial services;Amazo

54、n is making inroads in healthcare;leading pet retailers are providing pet grooming and veterinary services.Offerings in education,travel,and entertainment are all plausible areas into which retailers can expandand some are already doing so.Were seeing the beginnings of retail ecosystems,and the oppo

55、rtunities arent just in B2C but also in B2B:for instance,the aforementioned third-party marketplaces and RMNs,plus offerings such as business intelligence and logistics as a service.Ecosystem models will transform what it means to be a successful retailer.As a retail leader,start by defining an aspi

56、ration for your ecosystem:what new businesses and assets youll build,what your revenue and profit pools will look like,and how youll leverage and nurture supplier partnerships to scale your customer base.Treat all your suppliers as potential ecosystem partners.With retail becoming more capital inten

57、sive,investing deeply in an ecosystem requires balance sheet scale and resilient revenue pools.Therefore,activating an ecosystem model might involve forming new collaborations and joint ventures,entering into profit-sharing agreements,and defining new“currencies”to trade in(such as privileged consum

58、er access),as well as pursuing M&A.Youll also need new talent.Building breakout businesses requires a different approach and a dedicated C-suite leader,which often means going outside traditional retail talent pools.For example,few merchants will have the in-depth media buying and planning expertise

59、 required to run an RMN and lead discussions with suppliers agencies.8Overhaul your employee value propositionWinners will be the companies that get the talent equation right,both on the front line and at headquarters.To attract and retain frontline talent,retailers must find creative ways to offer

60、flexibility and make frontline work more engaging.Some retailers are already experimenting with gig work,and workforce management platforms are adding gig-like offerings such as shift bidding and“instant pay”options.The upside is substantial:weve found that at stores with the best employee retention

61、 rates,same-store sales growth is two to five percentage points higher than average.The savings from reduced attrition can then be reinvested back into the front line in the form of higher pay,better benefits,and learning and development programs.In the corporate center,as facility with data science

62、 becomes table stakes,incrementalismone data science hire at a timewont work.Attracting the best talent will require building a community of practitioners and developing analytical talent to be corporate leaders.Weve found that a few elements are critical to building data science capabilities:bringi

63、ng analytical rigor to merchant teams by upskilling employees who already have an analytics background;aggressively recruiting early-tenure data science cohorts;and developing a nuanced retention,promotion,and review process tailored to analytics talent.Find new sources of fuelWinners will interroga

64、te their value creation algorithm,balancing a focus on growth with a focus on margin and ROIC.Internal funding,such as reinvestment from productivity initiatives or advertising and data partnership income from an RMN,can provide fuel for new growth.However,if youre a retailer intending to use this m

65、oment of disruption as an opportunity to leapfrog your competitors,all forms of capital should be in the consideration setpublic markets,private equity or credit,venture capital(VC),minority partnership stakesto inject flexibility into your financial model and enable you to invest in growth-accelera

66、ting efforts,even amid macroeconomic turmoil.Alternative investors(one example being Insight Partners,which invested$500 million in Saks in 2021)can be a source of not only capital but also unique execution expertise to manage growth and turnaround in high-pressure,low-margin environments.Experience

67、d investors can provide an outside-in view of your growth plan and bring a VC-like mentality that looks to propel innovation instead of focusing only on quarterly results.Of course,alternative sources of capital often come with different costs and constructs,so a high-performing CFO and finance orga

68、nization are must-haves.Crucial enablers:AI and analyticsTo get the most out of implementing the above imperatives,retailers should embed digital capabilities and advanced analytics throughout the business:digital leaders deliver over 2.5 times the TSR performance of their peers.In retail,digital le

69、aders have invested in a range of AI and analytics use cases,from customer-facing to back-end operations.Leading retailers increasingly use analytics to inform and partially automate merchant decisions on assortment,pricing,promotions,and more.Marketers benefit as well,9using new levels of customer

70、insight to personalize experiences and offers in real time.Generative AI is now helping retailers create compelling copy and visual assets,improve customer service online and on the phone,or even provide virtual personal-stylist services.Equally critical are the back-end applications of AI:optimizin

71、g complex omnichannel supply chains,managing a“gig-ified”workforce,and automating repetitive tasks.There are already commercially available AI solutions that can halve the time spent on store tasks in some retail sectors.Retailers that are truly capitalizing on data and analytics are sweating these

72、assets:theyre treating data and insights as a product.Theyre monetizing customer-centric insights either directly via paid subscription or indirectly as part of joint business planning with vendorssecuring winwin outcomes for both parties.To be clear,what were recommending arent baby steps but giant

73、 leaps.The retailers best positioned for success are those that have already made headway on these priorities and are committed to reinventing not just their own companies but retail as an industry.For those retailers,the potential for value creation is limitless.Steven Begley is a partner in McKins

74、eys New York office;Becca Coggins is a senior partner in the Chicago office;Carson Green is an associate partner in the Washington,DC,office;Jad Hamdan is a consultant in the Denver office;Dymfke Kuijpers is a senior partner in the Singapore office;and Franck Laizet is a senior partner in the Paris office.The authors wish to thank Praveen Adhi,Marco Catena,Bo Finneman,Catherine Fong,David Fuller,Quentin George,Himangi Gupta,Bryan Logan,Angus McOuat,Susan Nolen Foushee,and Jason Rico Saavedra for their contributions to this article.Copyright 2023 McKinsey&Company.All rights reserved.