Why retail changes will force finance departments to evolve
Several weeks ago, news broke that the UK’s largest department store, Debenhams, went into administration after suffering a particularly dismal 2018. The 240-year-old company saw its share price drop 90% in the past year. One reason cited is its slow response to a changing consumer habit — shoppers prefer buying clothes online.
Industry observers would say this is not new. Tales of the ongoing “retail apocalypse” have been going around for a few years now. In 2017 alone, big US retailers like Macy’s, Sears, J.C. Penney, and others closed 6,885 stores, according to a report by Deloitte.
But the turf war between online and offline retailers to win over shoppers is changing. E-commerce players and brick-and-mortar retailers are realising that they must be in both offline and online spaces to create what experts call a “unified retail experience”.
“It is no longer a competition between online and offline,” wrote Robert Hetu, a research director of retail industry at Gartner and author of a recent report on retail trends. The report predicts that by 2023, e-commerce will cease to be a key differentiator in the retail industry.
“Retailers must focus on enabling technologies such as a unified retail commerce platform, which uses centralised data for inventory, pricing, loyalty, and other information to facilitate a continuous and cohesive experience,” Hetu wrote.
Consider Alibaba’s grocery stores in China. Since 2016, the largest e-commerce company in China shifted its online-only tactic to a merging of online and offline shopping. Jack Ma, the company’s chairman, calls this concept “new retail”.
Its first experiment is Hema, a hybrid creation combining a grocery store, fulfilment centre, and restaurant powered by artificial intelligence (AI). In the store, customers live in a parallel world of online and offline. They can check the nutritional content of an apple by scanning a QR code; check out by scanning their faces, which deducts the bill from their digital wallets; and pick out fresh seafood, have it cooked on-site, and have it delivered to the table by a robot.
Shoppers at Hema experience a seamless integration of its online and offline stores. Customers ordering groceries online for home delivery will have a staff member going through the supermarket’s aisles, bagging groceries, and passing the orders onto a conveyor belt to the deliverers. To date, it has opened more than 100 stores in China. Retail experience is taking on a new form in China.
“So essentially in China these giants are actively merging offline spaces into the online environment. It’s not like offline to online or online to offline. It’s more like [both] becoming one experience. So it’s much deeper than omnichannel and all these other concepts that we’ve been aware of and trying to implement for the past 15 years in the West,” said Ashley Dudarenok, founder of Alarice, a digital marketing agency in Hong Kong.
Alibaba’s grocery stores are an example of digitising and integrating inventory, supply chains, logistics, payments, delivery, and order fulfilment of retail.
In the bigger scheme of things, what’s happening in the retail landscape is another manifestation of technological changes, especially due to development in AI. “This ‘new retail’ is the integration of the technological advancements that has been happening for the past 20 years. Retail is just one aspect very close to businesses — we all understand we buy services and products,” Dudarenok said.
What this means for finance professionals
“The retail landscape is changing, not just for our company, but the global ecosystem,” said Valerie Lee, ACMA, CGMA, a general manager at Fung Group, one of the largest consumer goods supply chain companies supplying to retailers such as Walmart and Kohl’s. “What that means is, [the] finance function is no longer a back-end process.”
“Historically, the way pricing and costing is done in most companies is, we use Excel spreadsheets and we pull historical data, then we sometimes use a regression model to anticipate what’ll happen. It’s all very human-based at the moment,” she said.
In the future, with the help of data and AI in the forecasting process, Lee sees how finance professionals will be able to make recommendations to their companies on what products to sell and how much to produce.
“The finance analysis model needs to be agile and adaptive to all these changes. Because if we rely on humans, which we are at the moment, to determine the best selling price, we will never be quick enough,” she said.
Lee said her business unit is at the discovery stage of digitising its processes and learning how to have more meaningful data. “We’re actively looking into how machine learning can help us.”
— Alexis See Tho (Alexis.SeeTho@aicpa-cima.com) is an FM magazine associate editor.