KPMG global chair of consumer & retail, Willy Kruh is “sick and tired” of hearing about disruption.
“A lot of retailers use disruption as a verb and a reference to the future: ‘We’re being disrupted’. As I speak to them, I tell them it is a noun. You are disrupted and you were disrupted,” says Kruh.
“We are already disrupted and CEOs need to listen to the market, look outward and focus on their business.”
In an interview with Inside Retail Asia, Kruh was frank about the attitude of too many CEOs who still did not ‘get’ the pace of change underway now and their lack of preparedness for it.
The quicker they understand that and act upon that, the better. Because if they don’t they are going to be left behind, he warns.
“You need to move forward and find out what your strategies are, and your tactics – don’t just talk about innovation, or digital, or whatever. Execute on the tactics you’ve got.”
Many retailers globally, Kruh warns, have failed to understand the seismic shift in attitude between boomers and Gen X and millennials: buying a house later, getting married later, having children later, not buying a car, believing in experience and purpose.
“It’s not about who has the money, it is about who is spawning the money. Too many retailers, too many consumer product companies, have a strategy which is still a boomer strategy. And the CEOs, their mentality is still: ‘I’ve been in this business for 40 years and I did my apprenticeship when things were like this’.
“I wish it was still like that, but it’s not. They’re talking about digital strategy as if it’s something esoteric.”
Kruh cites the quote ‘The pace of change has never been faster, yet it will never be as slow again as it is today’. “So you better get on that train!”
The great disconnect
Last year, KPMG released a report titled Think Like a Startup advocating retailers create a blank canvas and recreate themselves.
The call to arms was to ask: if you had to start over again, what would you do with your business? How would you use technology today? How would you look at demographics? How would you look at multiple layers of consumers?
This year, in another report No Normal is the New Normal, 65 per cent of CEOs interviewed globally agreed that there will be more transformation during the next two to three years than there was in the last 50 years.
“Yet a significant 40 per cent said: ‘I think I’ll be fine – it’s those guys over there who will have a problem’. So there is a disconnect. They are saying ‘yes, I believe in innovation. Yes, I believe in digital. Yes, the world is turning upside down… But I think our strategies have got it covered.”
Kruh is adamant a wake-up call is needed. “They’re getting the need for AI or the use of data or customer experience or knowing there is a new metric in play: customer experience per square foot.”
Who is getting it right?
Kruh believes of all retailers, the new generation of marketplace platforms are on point.
“I’m a big fan of JD and Alibaba. And Tencent. They are taking what they have learned in the online world and understanding millennials and their behaviour and they are very effectively transforming them into the offline world. They are incredibly targeted.
“Amazon is making money in a lot of parts. There are small grocery retailers like Wegmans in New York state that are spectacular. Aldi, as they go throughout the world, are doing a spectacular job in market penetration and understanding the consumer and bringing consumers price and experience.
“Yum China after a little bit of a slowdown has picked up again. They were opening 500 stores a year in China and was really doing it right. Under a standalone Chinese company, they have truly found their way again.”
Kruh says society is at an inflection point on a scale not seen before. “We are in the midst of three revolutions – geographic and geopolitical, demographic and technological – that are colliding with each other and turning the world upside down. And companies are faced with a landscape that they are not used to.”
He is referring to the rapid urbanisation of populations in countries like China and Vietnam,
The addition of 1 billion new consumers by 2030 with fast-rising disposable incomes in China, India, Brazil.
“Add to that the impact of Brexit, the TPP… everything has a domino effect. Then, you have millennials as a demographic: Uber, craft beer, Airbnb, Apple – they are all driven by millennials. Their desire for experience, for a company with a purpose, their decreasing attention span – and the fact that 84 per cent of them don’t trust traditional advertising.
“Are you as a company communicating on social media? Are you using influencers? Do you understand the bulk of new mums are millennials, and so if you are Nestle, are you communicating with them? Do you understand about customer experience? Do you understand that today’s consumer is Tinderised? They want tailored solutions, they want simplicity.
“Once, when you went into a men’s apparel store you compared that experience with another men’s apparel store you’ve tried. Today if you travel Singapore Airlines, if you like that experience you want it from your men’s apparel store. It’s the same from an employee’s standpoint. You want companies who create an experience for you and who listen to you.”
Luxury in China
The luxury sector in China fascinates Kruh. “I see the luxury sector continuing to flourish. I can tell they are trying to reinvent themselves and put products out quicker, use influencers to a greater extent, understand how to use social media better. There is a shorter life to the product cycle. They are finding new ways, so I see continued stability in the luxury sector.”
But in the broader China retail market, Kruh sees a pain point for consumer packaged goods companies who were unprepared for the current pace of change.
There was a time when there was a huge demand for brands and if you had an international reputation, you did extremely well, because there was a thirst for those brands among Chinese.
“In the last few years you’ve seen, one by one, Chinese competitors come along with better prices, who understand the market better and are moving into fourth- and fifth-tier cities, and who understand the supply chain. A lot of the big, branded companies are having difficulty with that competition. Even though they’ve started to understand them – and a couple are starting to do well again, but the competition is heavier.
“I think there is a proliferation of smaller, startup brands that are directly competing with the larger companies. Their footprints will get smaller and there will be a greater need to bring new products and freshness into the equation.”
Comparing Asia and North America
Kruh sees a stark contrast between the Asian and North American retail markets and store numbers: North America is significantly overstored and Asia understored.
He compares the current North American situation with 2008, when there was, at the time, the greatest number of store closures in the region’s history, due to the recession.
“You could understand that, because people were not going to buy as much; they couldn’t afford to. Last year, stock markets were up, homes were worth a lot more, economic confidence was great, the US had the lowest unemployment in 20 years – and yet you have 35 per cent more stores closing in North America.
“How does that make sense? It’s because a lot of retailers aren’t getting what’s hitting them. Footprints are too big and they are overstored. It’s a natural evolution of transformation, not being prepared and having the wrong footprint. And really, the competition is coming in.”
By 2020 – that’s just two short years away – the retail industry landscape could look very different in the US.
Of the KPMG survey respondents, 37 per cent agreed they would be shuttering stores by then. And respondents in Europe and the Americas agree they will need to sell more products through their own distribution channels rather than relying on third parties.
“People are asking if this is the death of the mall, the death of bricks and mortar. In North America and in the UK and parts of Europe, online retail is only about 10 per cent of total retail. So 90 per cent of people are still going into stores. That means it is just a convenient excuse to blame Amazon and online shopping… It’s not about that. It’s about are you getting it? As a CEO, a retailer, a consumer products company – can you think like a startup?
“In Asia you’re going to have more and more consumers, more disposable income, you’re going to have the government pushing for more and more consumption. That’s in a world (China) where you have got 95 per cent mobile and internet penetration, the largest online market on the planet, where you’ve got Alibaba and JD doing $40 billion on Singles Day alone.
“In that context Asia still does not have enough stores,” Kruh concludes.