Retail finance leaders are modifying or changing little in their financial operations despite profound and accelerating changes in the retail landscape worldwide, according to research by EY and the Retail Industry Leaders Association, a US trade association.
Empowered by digital technology, consumers are increasingly shopping online and competitors are springing up with disruptive business models. Well-known brick-and-mortar brands have gone bust, while many more will be able to survive only if they can move online in ways that complement their physical presence. But few of the finance executives who participated in the 2018 Retail Accounting Policy Survey have begun to automate their finance functions. Finance executives of 40 retailers participated in the survey.
To keep pace with this quickly changing retail landscape, investment in technology and automation that connects all of the moving parts will be essential for finance functions to add value to their organisations.
Also, the skillset of the accounting expert has been shifting in the last few years and will continue to do so in the future. Retailers' accounting teams will be required to have excellent analytical skills combined with retail experience and understanding of the technological landscape on the market.
"This mindset shift has happened in some retailers, but not all," said Cecilia Locati, FCMA, CGMA, an internal controls and fraud prevention consultant.
Resistance to change may come from an old school of thought, where finance is seen as a compliance, must-have requirement rather than a business partner able to add value on strategic decisions, she said.
It may also come from a reluctance to invest heavily into IT, project and change management, and training, Locati said. A struggling retailer may not prioritise improved accounting practices, even though it would help with strategic decision-making. Thriving retailers may not have an incentive to fix what appears to not be broken, she added. And some finance departments of quickly expanding retailers may be just keeping up by managing emergencies.
Also, Locati said, improvements and benefits brought by highly automated systems are difficult to quantify in terms of return on investment (ROI). Cost savings can be calculated, but it can be difficult to factor into the ROI calculation a quantification of the competitive advantage that can be achieved by being able to make better strategic decisions. An example would be optimising inventory purchasing decisions based on real-time customer data.
Top retail accounting challenges
Locati, who consults for manufacturing, retail, entertainment, and media production businesses, and EY consider these the top challenges for retailers:
- Failure to implement tools such as robotics, machine learning, and artificial intelligence. These tools could automate repetitive, time-consuming tasks in the finance function and help management accountants and finance professionals get a handle on the impact the e-commerce explosion is having on their brick-and-mortar businesses. This could free them to come up with data-based strategies that develop new revenue streams. But only 15% of respondents in the EY survey allocate online sales to specific stores, for example, the shop closest to the address of the customer. And just 15% of respondents use robotic process automation, and 17% said they use radio-frequency identification to update inventory quantities rather than count them manually.
- Continuous growth in e-commerce will raise the overall number of transactions, which will challenge the finance functions as the volume of data to be processed, analysed, and reconciled will be higher. Without investments in process automation, this increased volume will translate into increased costs to manage data and a higher likelihood of accounting errors.
- High transaction volume combined with low automated processes is an area of risk. Investing in process automation would help decrease the risk of inaccurate financial statements and the consequential issues caused by it, such as increased scrutiny by auditors, errors, frauds, financial scandals, and fines.
- Interfacing systems with vendors and other third-party systems to exchange data as businesses increasingly automate their systems. To ensure accurate accounting data, strong controls around system interfaces and manual download/upload of data between systems should be implemented.
- Retailers with more basic IT systems might not be able to provide granular real-time accounting data to their business partners. This might cost them strategic partnerships and a loss of competitive advantage.
- Developing the skillset of the finance talent internally or recruiting new talent.
— Paul Gosling is a freelance writer based in the UK. To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, an FM magazine senior editor, at Sabine.Vollmer@aicpa-cima.com.