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Driving shareholder value in the retail industry

8 Feb 2005

Forty-four percent of all US retailer shareholder value depends on the perceived value of future growth, and in South Africa, the figure varies from 50 to 60%. Non-delivery on these growth expectations could have disastrous effects on share prices... so how is this growth to be achieved in the face of the growing number of challenges in this space?

Retailers have several specific challenges to overcome in the new age retail environment if they are to remain competitive and deliver value to their shareholders. That's the view of Accenture partner, Arnold Urson. "While current trading performance of SA retailers remains positive, customers continue to be more demanding, products more commoditised, good space more difficult to source and competitors more prevalent. Retail groups are aggressively fine-tuning and expanding their offerings."

Accenture's experience and research has shown that high-performing businesses have performed well according to certain metrics:

They have delivered strong returns to shareholders despite the challenging market conditions in the past three to seven years.

They did not necessarily demonstrate the highest absolute revenue growth but they did show significant revenue growth (usually above the median) over time.

They were better able to weather the downturn and delivered consistent returns over cost of capital (usually above the median).

Accenture's research has further indicated that this is because high performers have mastered certain skills.

Obsessive Customer focus:

High performers have a rich understanding of their target customers.

They have an ability to translate insight/interaction into economic value.

They have a differentiated customer strategy.

Innovation and execution to value:

High performers have a strong capacity for meaningful innovation and business model renewal.

They have robust structures and processes to drive agile commercialisation and execution of innovation.

Operational excellence:

High performers have scaleable, efficient, and adaptive infrastructure.

They have achieved functional integration and excellence.

They exhibit information and technology appreciation and leverage.

Alliance and collaboration capability:

High performers show competence in selection, structure, and management of strategic alliances.

They have expertise in capturing internal synergies and promoting collaboration.

Talent management:

Across all the areas described above, high performers have perfected the arts of:

Performance based culture.

Effective talent lifecycle management.

"While it is unrealistic to expect to be the best at all these competencies, a minimum threshold needs to be achieved in order to survive, with clear differentiation achieved in at least one, in order to be a high performer. Global examples include Walmart in operational excellence, Zara in Innovation and execution to value, Starbucks in alliance and collaboration and Aldi in customer focus," says Urson.

"There are two additional areas that need to be focused on. The first is measuring and exploiting 'intangibles' such as intellectual property, brand, human capital, and relationships. The second is what Accenture refers to as the 'secret sauce' - not overdoing what you are world-class best at, and thus 'under-cooking' the other ingredients necessary to sustain high performance."

Urson believes there are some key imperatives for local retailers:

The traditional strategic focus on merchandise needs to be complemented with a strong customer mindset. Implementation of new customer orientated structures and processes together with Business Intelligence solutions can enable this.

The art of retailing needs to be nurtured and complemented with Scientific Retailing practices to support fact-based decision making. New generation IT solutions resulting in the availability of vast amounts of accurate data, together with IT-based BI tools to analyse and present it, make this achievable.

The IT capability is often an unexploited asset, despite the large investment in this area. The secret lies in the business value orientated mindset and supportive structures that needs to be in place to enable this.

"The players in the local market which are addressing these imperatives will achieve a significant competitive edge, and would be well positioned to meet the high future growth expectations of shareholders," Urson concludes.