HomeOPINIONRetailers are in an enviable position

Retailers are in an enviable position

There exists, within those looking into retail, a sense that they have at their fingertips a near-Orwellian understanding of who their customers are, what they buy, when and where, and a vast arsenal of tools for unlocking greater growth with this.

If we were in the US or Europe, this observation would probably hold some truth, but here in New Zealand, the reality is generally far different.

As a market, we are one of the lowest spenders on insight and analytics per head of capita in the OECD – comparatively speaking, we spend half what the US invests and a quarter of what’s committed in the UK. Indeed, our entire annual spend on all research and analytics across every market sector sits at about $117 million per annum. That’s about the turnover of two provincial New World stores.

A big part of this lack of commitment to investment comes back to some pretty ingrained cultural ideas around how well we feel we already know each other. There is a firm belief that we understand what it means to be a Kiwi – that, as a small nation, we must be fairly similar. But the numbers tell us that this is simply not true. A quarter of the entire population, and 39 percent of all Aucklanders, were born overseas. And with 200 ethnic groups living in Auckland alone, the city is now more diverse than Sydney or London.

What this all means, is that we often tend to rely on “gut feel” and intuition in how we think about business. And even when we do push into data-driven retailing, we hold ourselves back from peering too far under the hood at our customer data because we feel that the investment might not yield breakthrough change.

At least in part, customer-centricity is not fulfilling its promises because retailers are still coming to grips with two of the key tools of its delivery: data and digital.

Let’s take Tesco in the UK as a counterpoint to this – I know this is a well-worn example of data-driven retailing at work, but as someone who worked on this programme directly, I can attest to the value it created.

A simple example of data at work was around a problem they were having with a bread product called “milk loaf”. A pure profitability-based range review of the bread category recommended delisting this niche product. Customer data analysis avoided a costly mistake by showing that the milk loaf was extremely important to some of Tesco’s most valuable customers. Delisting would risk losing these customers entirely. A short-term narrow focus on one aspect of profitability ignoring the broader context of customer behaviour would have damaged profit over the long-term.

Over the course of the 10-15 years that Tesco invested in developing a data-driven retail model, net profitability for the business increased sevenfold.

Data is key to retail development because it’s a means of understanding customer behaviour – and what people have done is the best indicator of what they will do in the future. When this is combined with digital channel delivery, we gain the means by which a scalable, personalised experience can be delivered. And data and digital are not just easily integrated, but they forge a genuinely symbiotic relationship.

We are slow to adopt this data-driven model compared to overseas markets, but there are still some great examples of this at play here. BP has achieved significant success with its programme, as has Westpac. In our own customer base we recently developed a customer-centric store layout for one of New Zealand’s largest retailers, based on data. Store trials of the new layout show a huge increase in store profitability as a result of reallocating that space to more customer-focused categories.

Perhaps the most significant barrier to starting the data-driven retailing model is exactly that – starting. There is a myth that delving into customer analytics is like planning a trip to the moon, a huge undertaking. But even the first step can be tiny and even so create significant rewards.

So lets challenge ourselves to get more Orwellian. Let’s not waste the potential that data analytics can unlock for retailers both large and small. Your FMCG colleagues have high expectations of you.

This story was originally published in NZRetail magazine issue 736, March 2015.

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