This post is based on the Big Shift Report 2009 by Hagel & Brown in conjunction with Deloittes.
The lede of their story is:
Among the key findings, U.S. companies’ return-on-assets (ROA) have progressively dropped 75 percent from their 1965 level despite rising labor productivity. Even the highest performing companies are struggling to maintain their ROA rates and increasingly losing market leadership positions.
This is pretty scary.
They have also produced an industry-specific version and I repeat some key retail industry findings. Of course the data is US-centric, but the core trends and issues seem universal.
- Since 1995 , competitive intensity has decreased dramatically (on an index from .02 to .06 – representing 3-fold change. With overall consumption down , many retailers have folded, especially those who have not been able to use technology to achieve significant cost reductions. (Less competition sounds good, but the reason why does not. And of course it does not account for non-traditional retail channels popping up...)
- Asset profitability (ROA) has declined steadily from a high 7% in 1965 to 3% in 2008. There was a significant spike from 2001 to 2007 – until the global financial crisis struck. The top performers ar holding steady, but the overall index is pulled down by savage declines amongst the poor performers
- Firm topple rates is an interesting metric that reflects the annual rank shuffling (volatility) by the top firms. This has increased by 30% - which suggests that it is becoming harder to get maintain leadership positions, driven in all likelihood by volatile brand loyalty.
- Another interesting metric is ‘knowledge flows’; which in this era of the creative class is obviously important. The retail industry ranked last out of all industries in the US for Inter-firm knowledge flows. This means that the retail industry benefits least from the cross-pollination of ideas from other industries.
[Given that we are in the business of helping suppliers navigate the retail supply chain, we can attest to the fact that retailers are not always that keen to leverage the insights that manufacturers have to share.]
All of these trends can be attributed to the following two core drivers:
- The ubiquity of ecommerce
- The power shift towards consumers, with the ability and propensity to choose form a wide range of alternatives
There is no immediate solution that will complete negate these drivers. But I do believe that flexibility - that allows you to adapt, change, and respond - will be the key determinant of a retailer’s survival.