Some retail risk therapy

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Welcome,

At the outset, we neither work for or consult to the retail industry and this posting is our opinion.

We know, a very legalistic opening but it is important we provide that clarification before we begin.  So, where do we begin?  We have all been reading or hearing about the retail industry here in Australia and the “issues” they are under.  However, I want to approach this differently as I don’t think these are issues at all.  The retail industry is going through a fundamental change in its risk profile.  And guess what?  It doesn’t look like they have been doing the tried and tested risk profiling in the lead up to now, and now they are screaming “foul”.

So, we want to help in our way.  So here are the top 5 risks for the retail industry and some thoughts on potential controls.  Personally, as a consumer, if the retail industry did not have these as their top 5 then they were not managing their business.  I know what you are saying, “how can you say that from your narrow point of view?”. “Change costs money, and with the union requirements of Australia we were hamstrung”.  Were you?  Go through life that way if you like but to me that is an excuse. But, that is just my opinion.  Back to the risks themselves.

 1. Changing Consumer Demands

Every industry needs to deal with consumer demands and changes to those demands.  No industry should take it for granted that people purchase with their feet, and their hands.  Yes, people use every possible option to purchase goods.  Surprised? The retail industry in particular has focused heavily on the first, but has lacked any consideration of the second, until now.  Look at other industries, airlines and banks for instance, they all had an online presence well before they ran into a similar issue.  What makes them so different?  This makes no sense to us, as the retail industry was a more likely candidate for online retailing.  Hence the success of Amazon.  So, a risk is now an issue.

Potential controls/mitigations:

  • Go online, but I guess most are now considering that.
  • Look at the success of Apple retail, and work through how this can be achievable for your industry.
  • Review your consumers needs (both current and future) and work through the best methods of meeting them.  For instance, consider hours of operation in todays hectic world (ie. opening from 9 to 5 takes out a massive consumer base who work during these times), consider the offerings to your consumers (ie. Bunnings model, Starbucks offering wi-fi), and consider the pricing models of your products (ie. recent Coles campaigns on pricing).

2. Evolution of Mobile Technology

The mobile phone, smartphone and now tablet technology have completely changed the availability of information and added to the consumers ability to research products.  Have a look around the department store now and many people are using these phones to compare prices to ebay or other online stores, or even other retailers.  Recently, I was looking for a certain product and whilst walking through the department store was comparing their prices to another retailer down the way.  Added to that, these technologies now provide you with augmented reality applications that can add to the shopping experience to bring the online to the offline.  Imagine walking down an aisle, looking at your phone and seeing this stores price compared to other retailers and even online offerings!  I wonder how many people have said, “I can buy that cheaper online when at the store.”  Then they go home and realise the retail version for a few dollars cheaper.  Bet you they then buy online.

Potential controls/mitigations:

  • Provide consumer experiences that bring the digital online experience to the physical world, which would also provide an attraction to consumers, such as augmented reality.
  • Consider the aggregation sites that offer a single place for consumers and make that your site, and bring it to your physical store.
  • Provide services to consumers to bring them to your retail sites such as free wi-fi and other such services.

3. Improvement in the Currency Exchange Rate

This risk is exactly as stated, and relates to the management of the movement in exchange rates on purchasing stock manufactured overseas.

Potential controls/mitigations:

  • The standard controls here around foreign exchange management and supply management apply.
  • In addition, the organisation could look at own branded product manufacturing which a number of retailers already utilise.

4. Evolution of Payment Technologies

Payment technologies are evolving every day with the most recent related to near-field technologies (NFC) providing consumers with simpler ways of purchasing products.  Organisations that do not embrace these technologies face the risk of losing customers to those that do.  For those inexperienced in this area, imagine that you see the new product on the shelf you want, and you pick it up and then you just walk out the store, your credit card or Paypal account automatically deducted.  Think one-click purchasing by Amazon but done physically.  By the way, this technology is available now.

Potential controls/mitigations:

  • The implementation of the right payment methodologies for your retail business in a time of speed and efficiency and customers wishing to service themselves.
  • The implementation of NFC technology is almost a must now.
  • Consider utilising third parties like Paypal.  You heard it here, Paypal at retailers makes sense.  Link it to Risk #5’s potential controls and you can provide the customer with an online purchase for immediate collection and pick-up, already paid with Paypal!  Take away the market from online, most people have to wait 2-3 days (internationally up to 20 days).  So provide customers the ability to pick-up 24/7.

5. Alternative Models of Retail Supply

Retail supply models need to change to adapt to risk #1. Supply in this instance being the way you provide the products to your customers, and in this we don’t just mean go online, in actual fact this risk is about evolving the physical supply methods.  Think Dell type models where the product is purchased and sent straight to the customer without a middle man, in real-time, or an approach where the consumer walks in with a device and you load the content they purchase there and then.  For many years as PC owners we all wished electronic software stores offered a service to install there and then and save us the inconvenience of installing at home to find it did not work!

Potential controls/mitigations:

  • Review your supply model and utilise methods that reduce the time of stock to customer, not the time of stock to you.
  • Consider methods that automate the stock movement to the store and then from within the store to the customer.  I recently saw a video of a store in China that had effectively a roller coaster in the store which took you to the product through the warehouse.
  • Provide the customer with the environment to search, test, and buy the product with minimal human interaction.  But when human interaction is required utilise the online environment through providing apps that link to audio/video interaction with a central team immediately and then provide the customer with physical support when required.

These are just our thoughts.

Do you agree?

Cheers

 

 

Graphics from Presentermedia.com  

 

 

 

 

 

 

 

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Scott North has extensive experience in enterprise risk management, internal audit, operational risk and compliance, risk strategy, scenario planning, technology risk, technology business analysis, systems design, financial accounting, and management accounting. Scott is a Fellow of the Australian Institute of Chartered Accountants with a Masters Degree from the University of Melbourne in Business and Information Technology. Scott is also a Fellow of the University of Melbourne.

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