1.Contents Introduction......................................................................................................................................2 Key Insights.......................................................................................................................................3 Global Outlook: How Prepared Are CEOs for the Pace of Change?..............................................5 Mission Critical: Staying Competitive..............................................................................................8 The Profit Paradox: The Role of the Supply Chain.......................................................................11 Brand Reputation: Retails New Currency ...................................................................................13 The Age of the Informed Customer: How to Keep Them Coming Back.....................................15 Preparing for Change......................................................................................................................18 Conclusion......................................................................................................................................19 Survey Methodology......................................................................................................................20 Tweet this

2. 2 | Retails new imperative Yesterday supply chain was important. Tomorrow it will be mission critical. Thomas Storck, Chief Merchandising and Multichannel Officer, Galeria Kaufhof Introduction Disruption is now the new normal in retail. The massive convergence of technology and channels being driven by digitally-savvy consumers has helped turn traditional retail models upside down. This unprecedented wave of change is forcing retail industry CEOs to reevaluate their entire enterprisetheir people, processes and partners, and the technologies that support themand dramatically alter their business models to drive top- and bottom-line growth. To keep from falling behind in the new marketplace, todays leading retail CEOs are realizing that they must move beyond plugging leaks and take a more strategic approach to building a sustainable and profitable oper- ating model. This requires a shift in capital investments and business priorities as well as new ways of applying innovations, and recognizing the role that a strategically aligned supply chain plays is key not just to survival, but to the growth of the business. The need to navigate through relentless disruptions to grow market share and profit makes the road ahead a dif- ficult one. To gain deeper insights into how visionary CEOs are preparing to manage and grow their enterprises in an increasingly complex omni-channel world, JDA Software commissioned PricewaterhouseCoopers (PwC) to conduct a global CEO survey titled CEO Viewpoint: Supply Chains Critical Role in an All-Channel World. The information gathered from this global survey included feedback from 409 retail chief executives across eight markets, and more than a dozen one-on-one follow-up interviews conducted by Forbes Insights. The research raises interesting questions, and a few worrying signs, that some CEOs dont seem to grasp the magnitude and nature of the challenges ahead. Among the highlights from the findings: A majority of CEOs surveyed agree that the market is drastically changing, and align on the current state of affairs and the key issues that they must address. There is a fairly equal balance in numbers between CEOs who are optimistic about the near future and CEOs who are not. In many cases, there appears to be a disconnect between the actions required for true transformation and what companies are currently doing. 3. Copyright 2014 Forbes Insights | 3 H O W P R E P A R E D A R E C E O s F OR T H E P A C E O F C H A N G E ? Many industry experts agree that there will be more changes in the retail market in the next five years than there were in the last 50 years combined. This accelerated rate of change means the CEOs role of managing this change is more important than ever. For companies to grow profitably, CEOs have to substantially evolve their operating models to thrive in this challenging environment. A cautious, incremental approach to widespread, rapid market disruption can be deadly. One major change that is forcing retailers to not just rethink but reinvent their operating models is the death of chan- nelization. This term refers to the artificial boundaries that incremental thinking has put in place, as the line between online and physical space has increasingly blurred. As mobile commerce comes of age, shoppers are no longer just going shopping episodicallythey are always shopping. Problems arise when the customer experience does not keep up with the demands of increasingly demanding shoppers. However, many CEOs seem to be perhaps underestimating the impact of this new omni-channel environment. Indeed, only 34% of the CEOs surveyed considered the rise of omni-channel shopping to be an external threat, while only 22% said it would impact their organization. This seems to be a cause for concernas many predict that the rise of omni- channel shopping is one of the most fundamental shifts that has occurred in the industry in recent times. CEOs who dont understand omni-channels potential impact are in danger of missing the mark when it comes to future strategic planning for their enterprises. M I S S I ON CR I T I C A L : S TAY I N G CO M P E T I T I V E AT T H E I N F L E CT I ON P O I NT O F R E TA I L S E V O L UT I ON Charles Darwin once said, It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change. For the retail industry, responding to change means businesses must adapt to mobile shopping, multiple channels, digitally-savvy customers, globalization, political upheavals and the rise of emerging markets. The survey revealed that some companies may be underestimating opportunities to increase their competitiveness through innovative strategies that meet customers expectations across all channels or technological advancements. The top three priorities the retail chiefs listed were: Expansion into new regions and markets (48%) Expansion by opening new stores (40%) Expansion through mergers and acquisitions (32%) These priorities demonstrate that there is still a very traditional way of thinking when it comes to growth, high- lighting potential missed opportunities for the more than two-thirds of CEOs who are failing to consider enhancing their distribution capacity and supply chain as a key way to increase competitiveness. With speed and agility as a competitive differentiator, the focus on accelerating time-to-market and responsiveness through an agile, connected supply chain must closely align with growth priorities. The two-thirds of respondents who are not thinking beyond traditional growth areas would be well served to consider the words of Thomas Storck, chief merchandising and multichannel officer at Galeria Kaufhof, a German department store chain thats part of Metro Group, who mused, Yesterday supply chain was important. Tomorrow it will be mission critical. That tomorrow he spoke of has now arrived. KEY INSIGHTS 4. 4 | Retails new imperative T H E P RO F I T P A R A DO X : The r o le o f t he s u pply c hai n Are todays retail operating models, and their supply chains, positioned to help organizations grow more profitably? The answer has to be no. Only 17% of all CEOs claim that their supply chains are currently optimal. When looking at just the top 250 retailers, this percentage grows to 33%. On average, the CEOs ranked supply chain investment near the bottom of their investments, which suggests that CEOs are still not connecting supply chain optimization with the ability to successfully grow profit margins. When asked about their top risk concerns, retail chiefs named the following: Increasing competitive threats (41%) Margin erosion and cost reduction (39%) Data security threats (25%) Attracting and retaining customers (24%) These answers reveal a sizable gap between recognizing risk and employing effective strategies to address it. Ironically, despite the relatively low ranking they gave to supply chain investment, 50% of retail CEOs recognized that a supply chain can be a strategic differentiator in succeeding as a low-cost provider. B R A ND R E P UTAT I ON : R E TA I L S N E W CURR E NC Y Advances in personal device technology and the spread of social media have put serious pressure on retailers to respond to their customers demands fast and flawlessly, and their response times ultimately could enhance the brand experience or put their brand reputation at risk. However, its surprising that retail CEOs seemed to downplay the risk these technologies present to their reputation: *Only 14% of retail CEOs believed reputational damage is likely to occur *34% of CEOs believed that reputational damage will affect their organization These findings are even more surprising considering that CEOs didnt see their supply chain, which has a huge potential to burnish or destroy a retailers reputation, as possessing iron-clad reliability. And only 15% of CEOs believed their current supply chain was resilient enough to address the threat of external disruptions. These data points reveal the mixed viewpoints retailers have when it comes to the role of the supply chain as it relates to growth, costs and operational excellence. Some accept its importance but give it little focus, while others view it as a core competency that can help move the business forward. 5. Copyright 2014 Forbes Insights | 5 With the global economy still in recovery, CEOs are cautiously focusing again on growth. The future out- look to them looks positive overall, and more than 54% expressed great confidence in their companies ability to grow revenue over the next three years. However, the outlook of CEOs varied from country to country, and government policies, consumer spending patterns and retail market maturities all influenced their perspectives. In one example, German department store chain Galeria Kaufhofs Thomas Storck has a positive outlook on growth. Germany is, after all, Europes economic power- house. But even though the number of unemployed in Germany has decreased over the last several years, the consumption rate is increasing very slowly as a result of fis- cal policies that encourage savings, as he explains: Lack of growth in private consumption is the biggest exter- nal threat to our growth. That is making clear to me that when we want to grow, we have to gain additional market share. There is no natural growth in the market. GLOBAL OUTLOOK: HOW PREPARED ARE CEOS FOR The PAce of CHANGE? Figure 1. CONFIDENCE IN REVENUE GROWTH OVER THREE YEARS 3% 6% 34% 54% Very confident Somewhat confident Not very confident Not confident at all 6. 6 | Retails new imperative Executives clearly underrate the impact of the rise of the omni-channel environment: only 22% think it will have a big effect on their company. 22% 34% In China, Frederic Seiller, CEO of Luxottica Retail in Greater China, sees a bright future for the company based on that countrys high demand for luxury products. A luxury eyewear maker, Luxottica should benefit not only from the pace of growth of the Chinese economy as a whole but also from some market deficiencies. For exam- ple, while a high proportion of Asian people need vision correction, seeking out consistent eye care, including reg- ulations and annual checkups, is a practice that is still in its infancy. The approach for this market was never to make quick wins when you come in and pay for that later. Were here for the next 20, 30, 40, 50 years or more, and we need the business model to be extremely solid and the founda- tion to be solid, he says. In the United States, Ken C. Hicks, president and CEO of Foot Locker, may represent the best approach when he says, I dont worry about the economy because I cant do anything about it. In fact, many of the external factors that CEOs see as influencing their growthsuch as energy or raw material costs, stability in capital markets and regulatory environmentsstem from economic trends or politics that lie beyond their control. This underlines the necessity for CEOs to act on those factors that are within their control. Clearly, the most important of the trends shaping the industry is the rise of the omni-channel environment. And while only 34% of CEOs surveyed saw this development as a threat which is likely to occur, less than a quarter of them believe it will have a big effect on the organization. That is an alarming finding, considering that the competition in retail is not to conquer online or physical locations, but to win the greatest share of the customers wallet no matter where the purchase may occur. However, there were a handful of examples of some retail leaders who were putting tackling omni-channel at the core of their future strategy. Figure 2. EXTERNAL THREATS MOST LIKELY TO OCCUR | MOST LIKELY TO HAVE AN EFFECT ON AN ORGANIZATION IF IT OCCURRED 43% 36% 41% 27% 34% 22% 28% 21% 27% 32% 25% 29% 53% 31% 56% 26% 57% Soaring energy or raw material costs Increasing competitiveness with emerging markets Lack of stability in capital markets Increases in unexpected regulatory requirements The rise of the multichannel environment Military tensions affecting access to natural resources Business continuity issues with trading partners Natural disasters disrupting trading or manufacturing Reputational damage to our brand Exchange rate volatility 35% 34%14% 7. Copyright 2014 Forbes Insights | 7 At Foot Locker, multichannel business is the fastest- growing sector, according to Hicks. To make the experi- ence seamless, the company offers a matrix of options for customers. Physical stores often, in effect, serve as custom- ers personal distribution centers, as they choose the type of transaction that suits them: buy online and reserve in store, go to a store to order an item thats not in stock and have it shipped to you, buy online and pay cash in store, buy online and ship to the store, return goods purchased from online to the store. Hicks notes that when utilized this way, physical stores offer a leg up over purely online competition. The biggest change within the company is multichan- nel, says Galeria Kaufhofs Storck. That does not start and stop with the online shop, but goes through the whole supply chain. He is prepared to handle the challenges. The first priority, he says, is customer orientation, not only with the multichannel approach but with everything we do. To this end, Galeria Kaufhof relies heavily on cus- tomer data analytics to target customers, segmenting the market by promotion, price, people, place and product. One chief executive who is transforming his compa- nys business model to satisfy all customers is Igor Dolezel, CEO of Eldorado, the largest retailer of consumer elec- tronics and household appliances in Russia, with revenues of $3.7 billion (2012) and a presence in more than 450 Russian cities. Our main priority is the development of an omni- channel strategy. We aim to bring together the traditional retail and online retail client to get the same high level of service, regardless of where [the customer] prefers to shop, says Dolezel. Executives may be dangerously complacent about omni-channel: only cite failure to meet customer expectations across all channels as a likely challenge. 19% Figure 3. HOW LIKELY ARE THE FOLLOWING INTERNAL CHALLENGES TO OCCUR IN YOUR ORGANIZATION? 24% 23% 21% 20% 19% 18% 17% 25% 39% 41% Competitive threats Cost reduction and margin control Declining customer base or losing market share Human capital (management or shortages) Operational capacity Failing to keep pace with technological advancements Failing to meet customer expectations across all channels Lagging RD and innovation Inability to finance growth Data security threats 8. 8 | Retails new imperative Retailers revenue growth will no longer come only from adding brick-and-mortar stores or from interna- tional expansionit will also require redefining the role of the store and morphing multichannel operations to allow for a more seamless shopping experience. For proof of the enormity of this business model transformation, you have only to witness the sparring of two retail giants: Amazon and Walmart, both of which are changing their business models to better compete. Amazon has long been successful because of its well- oiled, technology-based supply chain. Walmart is now boosting its technology. The countrys largest retailer, which for years didnt blink at would-be competitors, is now under such a threat from Amazon that it is frantically playing catch-up by learning the technology business, says the New York Times. This metamorphosis in retail is not a one-way street away from brick-and-mortar toward onlinebut rather a blending of the two avenues. The New York Times arti- cle describes the competition: They want to control not just Internet shopping, but all shopping. Even as Walmart pours money into technology, Amazon is building a physical presence across the nation, adding warehouses and pickup locations. Both companies moves indicate that they believe the future of commerce is not just stores and not just online, but a combination of the two. And yet, despite the example coming from Americas two largest retailers, the top priorities of chief executives show that some may not be fully incorporating the new growth imperative into their strategic initiatives. They still put traditional actions, such as expansion through adding new stores, at the top of the business priorities pyramid. This type of thinking may be missing the mark, as the new imperativepowered by online shopping goes beyond just adding stores. And priorities related to the new retail model, such as accelerating time to market and improving the supply chains responsiveness, wind up at the bottom of the pyramid. Some forward-thinking CEOs, however, do not underestimate the value of their supply chain. Our Foot Locker supply chain is changing in the face of multi- channel shopping, says Hicks. Were making it more responsive and faster. We are looking at new ideas and new ways to distribute goods, to get them not just to the store, but also to the customer. MISSION CRITICAL: STAYING COMPETITIVE Expansion into new regions and markets Expansion by opening new stores Expansion through MA, JVs and strategic alliances Investing in new product technology Up-skilling employees, attracting and retaining talent Spending capital on creating new customer experiences Decreasing our market footprint to focus on core offerings Accelerating time to market and responsiveness Building manufacturing and distribution capacity and supply chain Figure 4. Business priorities (Ranked in descending order) 9. Copyright 2014 Forbes Insights | 9 Cy Fenton, senior vice president of IT for retailer Books- A-Million and the president of Booksamillion.com, recognizes the focus Amazon has put on the supply chain. Pushing the supply chain all the way out to the very endto the local guy whos going to have one thing to sellhas put a lot of pressure on us to be able to deliver that kind of customer experience and that level of selection and price inside the context of our brand, says Fenton. There is proof that CEOs who recognize the impor- tance of the supply chain get it right. According to the survey, confidence about revenue growth correlates with the level of supply chain maturity. That confidence level is higher among the respondents with the most mature supply chain, at 97%, and lower for companies with less mature supply chains. Respondents who consider their supply chain a top priority also are more confident about their revenue growth than those for whom the supply chain is a high, medium or low priority. Of those for whom supply chain is a top priority, 65% said that they are very confident about revenue growth over the next three years, com- pared with just 43% of those for whom supply chain is a low priority. It should not come as a surprise that retailers who have a more advanced supply chain structure and those who consider it a top priority are more confident about revenue growth. The competitive edge comes from tying all the piecesoperations, marketing and IT together, sums up Eduardo Conrado, senior vice president of marketing and IT at Motorola Solutions, a technology company. Further proof of the disconnect in CEOs think- ing about the supply chain is the discrepancy in how they perceive it as a business versus a strategic priority. While the majority of CEOs rank the supply chain as a low business priority, 74% of retail companies surveyed consider their supply chain a top or high strategic priority. *Respondents who answered very confident or somewhat confident. Figure 5. LEVELS OF SUPPLY CHAIN MATURITY AND CORRELATION WITH CONFIDENCE ABOUT REVENUE GROWTH OVER THREE YEARS* Level Four 17% cross-enterprise collaboration and optimization We have technology-enabled solutions that support a collaborative supply chain strategy, resulting in real-time planning, decision making and execution of our supply chain in a manner that responds to customer needs. 97% CONFIDENT ABOUT REVENUE GROWTH Level THREE 13% external integration We have strategic partners throughout the global supply chain who collaborate on an action plan, enforce common processes and data sharing, and manage performance. 86% CONFIDENT ABOUT REVENUE GROWTH Level TWO 37% internal integration We have a company-wide process and data model, which we continuously measure at the company, process and diagnostic levels. 86% CONFIDENT ABOUT REVENUE GROWTH Level ONE 23% functional focus We have discrete supply chain processes and data flows. We manage resources at the department level and performance at the functional level. 86% CONFIDENT ABOUT REVENUE GROWTH Which of the following best describes your organization in relation to its supply chain management today? (Ranked in descending order of maturity) 10. 10 | Retails new imperative I G NOR I N G CO M P E T I T I V E T H R E A T S ? Only 25% of survey respondents strongly agreed with this statement: Our supply chain operation is a competitive differentiator. Only 24% of survey respondents strongly agreed with this statement: Investing heavily in supply chain management solutions is a critical area of our financial investment for the next five years. The question thus remains whether enough companies recognize not only the importance of the supply chain but also the key requirements and investments necessary to evolve their current model. *Respondents who answered very confident or somewhat confident. Figure 6. Correlation between supply chain as strategic priority and confidence about revenue growth over three years* 6% 78% 19% 79% 51% 90% 23% Top priority Confident High priority Confident Low priority Confident Medium priority Confident 93% Where does supply chain management sit on your agenda? 11. Copyright 2014 Forbes Insights | 11 THE PROFIT PARADOX: THE ROLE OF THE SUPPLY CHAIN Top business priorities among the CEOs surveyed revolved around the growth agendaexpansion via geography, new stores, or mergers and acquisitions. They rank the expansion of manufacturing and distribution capacity and supply chain capabilities as the lowest busi- ness priority, closely followed by accelerating time to market and responsiveness. The CEOs are focusing on current capability investments in people and technology improvements to achieve growth aspirations. However, growth and efficiency need to go hand in hand, especially these days. The supply chains role has become much more important now that profits are no longer about simply opening new stores. Supply chain and the execution at the supply chain level has been the key to profitability from the dawn of retailing, says Books-A-Millions Fenton. Profitability now is about how retailers rethink the design of the store, the size, the experience and how to use it as a fulfillment center to deliver the overall expe- rience. The future of the store will require retailers to tailor every aspect of the experience to the customer and have the ability to source and fulfill products, regardless of channels: for example, allowing shoppers to buy online and pick up in store. Creating such a shopping continuum puts a strain on margins. The following survey findings illustrate this profit paradox: Cost reduction and margin control was the internal challenge cited as second most likely to occur, with 39% of retail CEOs pointing to it. Just 17% of retail CEOs reported that they have tech- nology-enabled solutions that support a collaborative supply chain strategy. Only half of retail CEOs said that supply chain is a strategic capability for a low-cost provider. Only one-quarter of CEOs stated that they will be investing heavily in supply chain management solutions in the next five years. The CEOs that Forbes Insights spoke with agreed that the role of the supply chain in keeping costs low cannot be overestimated. The supply chain is one of the most crucial elements of our businesswe quickly respond to our customers expectations, says Jacek Roszyk, CEO of Zabka Polska, a chain of convenience stores serving 800,000 customers. The company currently realizes syn- ergy between its online and offline components, has its own logistics system and can execute orders in less than 24 hours. John Donigian, divisional vice president of inventory management at True Value Company, a retailer-owned hardware cooperative, says, The supply chain is abso- lutely essential in positioning our company for profitable growth. And that is linked to our view that the supply chain is a competitive advantage that can drive growth for any company. The supply chain can then be opti- mized to execute against long-term growth strategies at the lowest cost and highest levels of efficiency, to ulti- mately deliver products at the lowest price possible to all our customersconsumers and retailers alike. The supply chain is central to achieving prof- itable growth, agrees Carl Robie, vice president of strategic sourcing and brand licensing at the TGI Fridays restaurant chain: If the supply chain organization is engaged and aligned with the plans and strategies of a company, they will be able to source, negotiate and con- tract products and services in a timely manner, and to put into place programs that will provide cost savings, avoidance or overall price certainty to support the sales and revenue goals. The earlier a supply chain team can be engaged, the better, since they will be able to put in place the right supply base to meet the financial require- ments, quality, safety and services needed for a company to achieve its financial goalsmargins, revenue, cash flow, EBITDA, COGS. . 12. 12 | Retails new imperative According to Joseph Roussel and Shoshanah Cohen, authors of Strategic Supply Chain Management,1 industry leaders look at their supply chains from their customers perspective. Thats why these companies recognize that the supply chain must support key value propositions such as breakthrough products, distinctive services and unique customer experiences.Their supply chain systems, processes, organization and, above all, mindset mean they can create top-line growth while improving bottom-line performance. The results are clear in their business outcome, as according to Roussel and Cohen, leaders see a 20% higher profitability than others in their industry. Using the supply chain for innovation and differentiation need not stand in the way of achieving efficiencies. Metrics show that, compared with their competitors, leaders: Enjoyed 15% lower supply chain management costs Cut inventory levels in half Achieved three times shorter cash-to-cash cycle times HOW TO IMPROVE PROFITABILITY 1 Strategic Supply Chain Management: The Five Core Disciplines for Top Performance, McGraw-Hill, 2nd edition, May 2013. 13. Copyright 2014 Forbes Insights | 13 BRAND REPUTATION: RETAILS NEW CURRENCY Reputation is a brands most precious currency, yet it has fast become unstable since it has entered the hands of digital customers. Todays shoppers are connected 24/7, and that makes the stakes higher for companies when they make any miscalculations. Customers will instantly review online or retweet complaints about a product defect or decline in quality, delay in delivery, high price, stringent return policy or an ad campaign they construe as offensive, and the digital echoes often reverberate around the world. Retail executives them- selves can suffer consequences. Since the breach in reputation can happen at so many different touch points, retailers must be on the alert. That means they need to create a customer experience based on trust that will keep the customer coming back to shop rather than writing negative comments about the com- pany and its products. Meanwhile, none of the top business priorities selected in the CEO survey reflect the factors that could prevent reputational damage, such as accelerating time to market or responsiveness, up-skilling employees or revamping the supply chain. Also, as has been discussed before, retail CEOs did not rank factors connected to customer experience such as multichannel environment, which may include the ability to compare prices, product quality or shopping experiences with those of competitorsas very likely to occur or as important. Overall, retail CEOs ranked reputational damage to the brand as the least likely issue to occur. However, as the callout below shows, roughly two and a half times more respondents view reputational damage as having a great impact than see it as likely to happen. There are, however, significant geographical dif- ferences. The biggest group of respondents who feel vulnerable to reputational damage comes from China. Company size doesnt make a substantial difference; the top 250 companies by size are in line with the averages. R E P UTAT I ON A L D A M A G E TO OUR B R A ND I S L I K E LY TO OCCUR : 1 4 % R E P UTAT I ON A L D A M A G E W OU L D A F F E CT OUR OR G A N I Z AT I ON TO A G R E AT E X T E NT I F I T OCCURR E D : 3 6 % At the same time, retail chiefs were clearly aware that more dangers lurk. For example, 85% of CEOs believed their supply chain is not sufficiently resilient to survive any possible external disruptions. Such disruptions, often stemming from the weakest links in the supply chain, can lead to problems with quality and availability. In the digital age, news about these problems can instantly reach very large audiences. There is no hiding from consumers who not only shop anytime or anywhere, but also may be privy to damaging information in real-time. 14. 14 | Retails new imperative 1 5 % S TRON G LY A G R E E T H AT OUR S U P P LY C H A I N I S S U F F I C I E NT LY R E S I L I E NT TO H A ND L E A N Y P O S S I B L E E X T E RN A L D I S RU P T I ON S PwC research also confirms that disruptive events, which can have a hugely damaging effect on reputations, occur much more often than executives think. In a sur- vey conducted by PwC and the MIT Forum for Supply Chain Innovation, Making the Right Risk Decisions to Strengthen Operations Performance, 60% of respon- dents said that their performance indicators, such as delivery lead times and inventory levels, had dropped 3% or more as a result of supply chain disruptions in the past year. Forbes Insights interview with Jean-Marc Plisson, CEO of LVMHs Fresh Inc., highlights the big role that social media plays in driving trafficto the stores or to buy onlineand in defining a companys reputation. There is more communication about my brand from YouTube user to YouTube user than from me to them and them to me, says Plisson. Beauty is an industry where customers get very engaged. They love to share information about the last product they found and how much they like it. Bloggers are another example of cus- tomer-to-customer communication. Theyre replacing the newspaper-to-customer channel, in a way. To ensure consistency and quality, the company develops all of its skin care products in house and man- ufactures them in France. Fresh also relies on very carefully vetted and proven ingredient suppliers. This perfectionism about the supply chain has another added benefit on top of ensuring integrity, says Plisson: Ownership of your entire supply chain can save you time because of its reliability. 2 PwC and MIT Forum for Supply Chain Innovation, Making the Right Risk Decisions to Strengthen Operations Performance, August 2013. 15. Copyright 2014 Forbes Insights | 15 THE AGE OF THE INFORMED CUSTOMER: HOW TO KEEP THEM COMING BACK Todays customers are often all-knowing about avail- able assortment or pricing and intolerant of a retailer who cannot deliver the product they want, how and where they want it. Successful transactions are no longer about thinking in channels, but about looking at every interaction touch pointsynchronizing a consistent, end-to-end experience. Today the customer gets everything, everywhere, at every time. There is radical transparency in the market also pricewise. We have to comply with that, and we do, says Storck of Galeria Kaufhof. The CEO survey showed a disconnect between current business priorities and the investments needed to meet multichannel demands. On one hand, retailers recognized that their greatest threats are losing customers and failing to meet customer demands across all chan- nels. On the other hand, they seemed to underestimate the importance of their workforcethe people who keep their customers happy (Fig. 7). Figure 7. WOULD AFFECT OUR ORGANIZATION TO A GREAT EXTENT IF IT OCCURRED 29% 28% 27% 27% 26% 25% 25% 32% 32% 37% Declining customer base or losing market share Competitive threats Failing to meet customer expectations across all channels Cost reduction and margin control Operational capacity Data security threats Lagging research, development and innovation Failing to keep pace with technological advancements Human capital strategy Inability to finance growth 16. 16 | Retails new imperative One retail executive whos putting human capi- tal front and center is Thomas Storck. He stresses the importance of ensuring that employees, those on the floor space and in other areas, stay ahead of the customer. The customer today is better informed than some of our employees, and we have to make surewith train- ing and other incentivesthat our employees use the same technology as our customers and are still ahead of the customer with information and product knowledge, adds Storck. Motorola Solutions Conrado points out that there are generational differences in how customers expect to receive this information. Members of Gen X and Gen Y tend to look for information independently on their mobile devices. However, the baby boomers and earlier generations expect the store associate to provide that information. With the younger generations in mind, Books-A- Million has created a mobile site where customers can look up a particular title on the page and click a but- ton labeled Find this in my local store. The GPS can then locate the closest store that carries the book, as well as where the book is in the store. The site also displays information about pricing, both in the store and online. The customer is king is the prevalent motto of the executives that Forbes Insights spoke with for this report. We have a saying that we will do anything for a customer, says Monte Wiese, senior vice president of supply chain at grocer Hy-Vee. The supply chain at Hy-Vee plays a key role in driving our growth strategy by being excellent at the fundamentals of balancing high fill rates and high inventory turns. We strive to be first to market with new items and have a very good track record with this. We need to be responsive to our customers needs and procure various regional products that may be popular in our eight-state territory. Fumio Takashima is the president and CEO of BALS Corporation in Japan, a furniture and sundry goods chain, which aims to appeal to people who feel like they are 25. In the case of BALS, branding is the most important factor to appeal to customers, says Takashima. The com- pany does not have its own factories, but uses outside partners for discrete manufacturing. Figure 8. Top actions to stay competitive (Ranked in descending order) Maximizing product availability Improving how we use merchandising and positioning Increasing consumer choice through combined in-store and online selling Offering different prices to different customer segments Effectively leveraging promotions to maximize margins Customizing and personalizing the shopping experience 17. Copyright 2014 Forbes Insights | 17 Takashima is fully cognizant of his reliance on the supply chain for quality and timeliness. We are always trying to perfect our supply chain system to better meet our customer demands, he says. Using our supply chain management system to weigh the time lag of the sales and production lead time is supported by our experience. We consider it to be our unique strength. It can also be the risk factor if we fail to manage and miscalculate the lead time. Satisfying the customer also means having the right product. Maximizing product availability is the top- ranked action required to gain a competitive advantage in dynamic sourcing and fulfillment. Customers haveand expectaccess to online information about product offerings, so businesses have no choice but to provide that information. The digital era has enforced customer equality in terms of prod- uct offerings. I have a store here on 34th Street [in New York City], says Hicks, and it has one of my largest assortments in the company, but I also have a store in a small mall in St. Louis, and it has basically the same assortment. And product availability means nothing without visibility. That means putting a focus on a single view of the inventory across all channels, and then ultimately creating links to the supply chain to allow delivery, either at home or in the store. The visibility of each link of the supply chain has become a must for all-channel shopping and for the informed consumer. Sums up Hicks: The biggest challenges are staying current with whats happening and having the informa- tion and systems to support that. 18. 18 | Retails new imperative PREPARING FOR CHANGE When asked why they do not give priority to the supply chain, respondents to the survey say that their sup- ply chain operations are in better shape than other areas. That may be the case, but the survey revealed that just 17% of companies have their supply chains operating at the highest level of maturity, which means much work still remains. For executives wary of change, good advice comes from Michael Hoffmann, CEO of Lekkerland, a logistics expert company: Its a problem if you are not prepared to develop yourself further, if you lose that sense of urgency and the willingness to review constantly what you do and how you can do things better. Creating the right sense of urgency in our orga- nizationto continuously see how we can serve our customers betterthats a management job. It starts with me, and it requires all of the management to be always on alert and not to rest on our laurels. Figure 9. SUPPLY CHAIN NOT A TOP PRIORITY BECAUSE (TOP THREE REASONS) 14% 18% 30% Its in better shape than other areas of our business It would require too much change across our business (retraining staff and/or upgrading technology) Its too tactical 19. Copyright 2014 Forbes Insights | 19 CONCLUSION Unprecedented technological advances driven by an empowered consumer will continue to shake the foundations of todays retail business model. Embattled CEOs who are thinking tactically will continue to play catch-up, while forward-thinking CEOs will drive a new wave of change. With the new disruptive era of retail upon us, retail chief executives must adopt a new operating model with the supply chain at its heart in order to be responsive and agile enough to deliver a multidimensional shopping experience. Can you promise the product in a time frame that will secure the sale, and whats the impact on the margin when you deliver what the customer wants? The transformation of the retail environment along the excitement of preparing for a new, more complex world order brings with it a complete reevaluation of growth strategies, aligned to the right investment priorities and taking account of where supply chain fits into the agenda. CEOs must rethink their strategies to address the challenges of todays retail market and the key success factors for the customer-centric omni-channel retail environment. This means reassessing the viability of their models, determining whether they have the right people and processes and tools, and looking beyond the traditional means of growth to become more competitive and exceed shoppers demands. To explore this topic further, click here. 20. 20 | Retails new imperative 67% JDA Software commissioned PwCs International Survey Unit to conduct an online global survey of 409 retail chief executives. Of the companies, 76 had revenues of $1 billion or more, 139 companies were between $250 million and $1 billion, and the remaining companies had revenues between $5 million and $250 million. The executives represented all major subsectors of the retail industry, with the big- gest groups coming from category specialists (86) and non-store retail (53). The survey targeted the following countries: Australia, Canada, China, Germany, Russia, South Africa, the United Kingdom and the United States. SURVEY METHODOLOGY ACKNOWLEDGMENTS . JDA and Forbes Insights would like to thank the following executives for sharing their time and expertise: Eduardo Conrado, SVP of Marketing and IT, Motorola Solutions, USA Igor Dolezel, CEO, Eldorado, Russia Jack Donigian, Divisional Vice President of Inventory Management, True Value Company, USA Cy Fenton, SVP of IT, Books-A-Million, and President, Booksamillion.com, USA Ken C. Hicks, President and CEO, Foot Locker, USA Michael Hoffmann, CEO, Lekkerland, Germany Jean-Marc Plisson, CEO, LVMHs Fresh Inc., France Carl Robie, VP of Strategic Sourcing and Brand Licensing, TGI Fridays, USA Jacyk Roszyk, CEO, Zabka Polska, Poland Fredric Seiller, CEO, Luxottica Retail in Greater China, China Thomas Storck, Chief Merchandising and Multichannel Officer, Galeria Kaufhof, Germany Fumio Takashima, President and CEO, BALS Corporation, Japan Monte Wiese, SVP of Supply Chain, Hy-Vee, USA . 21. ABOUT FORBES INSIGHTS Forbes Insights is the strategic research and thought leadership practice of Forbes Media, publisher of Forbes magazine and Forbes.com, whose combined media properties reach nearly 50 million business decision makers worldwide on a monthly basis. Taking advantage of a proprietary database of senior-level executives in the Forbes community, Forbes Insights conducts research on a host of topics of interest to C-level executives, senior marketing professionals, small business owners and those who aspire to positions of leadership, as well as providing deep insights into issues and trends surrounding wealth creation and wealth management. Bruce Rogers CHIEF INSIGHTS OFFICER Brenna Sniderman SENIOR DIRECTOR Kasia Moreno EDITORIAL DIRECTORReport Author Brian McLeod Director Matthew Muszala MANAGER Lawrence Bowden MANAGER, EMEA Dianne Athey DESIGNER 60 Fifth Avenue, New York, NY 10011 | 212.366.8890 | www.forbes.com/forbesinsights