November 11, 2013 9:00 pm

Advisers in demand as high street big names suffer

Westfield Stratford City shopping centre in London©Shaun Curry

Clicks and mortar: stores such as those at Westfield Stratford City shopping centre in London are moving into ‘omni-channel’ retailing

The retail sector is undergoing a historic upheaval. The rise of internet shopping threatens bricks-and-mortar operations; traditional high streets are losing business to out-of-town malls; a severe recession is reducing the size of weekly shopping baskets; and many high street names are disappearing.

However, this gloom does not extend to the consultants hired to give advice to retailers.

More

On this story

IN Business of Consulting

“The state of the global retail consulting market is changing, because of the upheaval in retailer business models,” says Steven Skinner, retail practice vice-president at Cognizant Business Consulting. “Gone are the days of plugging in large business systems and building large data warehouses.

“The future of retail consulting focuses on helping retailers adapt to a rapidly changing customer dynamic, which is driving systemic business model changes.”

According to SourceforConsulting, which provides information about the management consulting market, the global retail consulting market was worth $4.7bn in 2012, up 12 per cent on the previous year. This compares with a growth rate of 7 per cent in the total annual consulting market.

The growth is even more pronounced in the UK, where the Management Consultancies Association reports an increase of 25 per cent from 2011 to 2012. The retail sector accounts for 5 per cent of overall consulting fee income and three-fifths is derived from outsourcing and information technology advice.

Helen Mountney, a member of the global leadership team at Kurt Salmon, a specialist retail consultancy, points out that much retail consultancy involves cost reduction and operational improvement. “These services are resilient, even when the market is struggling,” she says.

Growth in retail consulting over the past 12-18 months is largely driven by the natural extension of multi-channel retailing, where customers have a choice of shops, internet, telephone or mobile, into “omni-channel” retailing. This is where customers can move freely between channels as they go through a purchase process.

Independent research* for LCP Consulting, which specialises in the supply chain, found that retailers in the UK and US are investing 3 per cent of annual turnover in moving to an omni-channel operating model. Ninety per cent of respondents said that it would require a significant re-engineering of the whole business.

This involves a wide range of consulting support, including digital strategy, reconfiguring business processes and integrating with back-end business systems. “It is massively disruptive to every department, with considerable amounts of change management required,” says Steve Davis, retail consulting partner at JDA Software. “The retailer’s very survival is on the line, because the customer is demanding a seamless experience.”

One problem that consultants have always faced in the retail sector is price sensitivity. The larger retailers expect to exert pressure on all their suppliers to keep prices down by becoming more efficient.

However, some forms of consultancy require spending considerable time working face-to-face with client staff to bring about change, which does not lend itself to efficiency improvement or automation.

“Retailers are extremely adept at negotiating with suppliers, because they do it all the time,” says Ms Mountney. “So it is probably one of the most price-sensitive areas of the consulting market.”

She says some of the more traditional consulting services have become highly commoditised with low fee rates, such as big systems implementations. Kurt Salmon finds fee rates to be more resilient in advisory-orientated consulting.

Fiona Czerniawska, co-founder of SourceforConsulting, says that retail clients want consultants to demonstrate tangible value, as they are used to “piling it high and selling it cheap” through discounting and wafer-thin margins.

“In that world, they just don’t ‘get’ the kind of expense that might be involved in a consulting project,” she says. “The big challenge in retail consulting is being able to take advantage of all this growth in a way that is profitable.”

SourceforConsulting sees no sign of prices increasing, except in very small specialised areas.

Ms Czerniawska recommends that consultants should try to deliver more efficiently, by using standard pro­cesses, bringing a degree of automation and improving their back office functions.

“They need to learn from their own retail clients,” she says.

It seems that in the past 12-18 months, clients have been willing to supplement their consultancy work on cost-cutting, efficiency improvement and outsourcing. They now want to ensure that they are fit to reap the benefits of economic recovery, with strategic work to improve their customer experience and expand into new areas.

“Retailers are open to expansion again,” says Ms Mountney. This new source of work also has the benefit of reducing the consultancies’ dependence on their biggest market, financial services, partially helping them to rebalance their businesses.

“Failure to understand and embrace these changes will leave today’s consultants behind in the new consulting arms race,” concludes Mr Skinner.

“Our clients are changing, but more importantly, their customers are changing, so consultants must change even faster.”

-------------------------------------------

* “Retail Supply Chain Management: The Omni-channel Revolution”, details at info@lcpconsulting.com

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.