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VIEW FROM THE TOP: THE CIRCUS FACING THE CONSUMER CFO

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​Confronted with developments in technology, poor market conditions, and ever-growing responsibilities, many CFOs are bracing for more change, realising that they must evolve to be effective. Finance leaders report that there are new demands on their time, such as digitalising critical business activities, in addition to traditional finance duties. While these new responsibilities present opportunities for finance chiefs to differentiate themselves, and their companies, from competitors, many CFOs believe their companies are not yet prepared to manage these challenges.

After meeting with more than thirty FTSE 250 CFOs in the last six months, it has become abundantly clear that there are three key subjects that are of growing concern as we move into the next Financial Year.

 

Market Conditions & Margins

There is no doubt about it that 2017 was a tough year for retailers, as confirmed by Reuters naming 2017 as ‘the weakest year for retail since 2013’.  The combination of rising inflation and a post-Referendum drop in the pound meant that consumer confidence was low, and therefore created something of a spending squeeze. Christmas saw retail companies reporting disappointing figures, for example Bonmarché suffering a 10% reduction in sales for the final months of 2017, which subsequently unsettled investors, causing a 25% drop in share price.

2018 has started out in a similar vein, with administrative casualties like Toys R Us and Maplin, and more companies suffering from falling share-prices. Only last week, Dunelm saw its stock drop 14% due to its falling margins, stating that these were “dragged down by the Worldstores takeover as well as a higher proportion of end of season and seasonal products being sold.”

As a result of a poor 2017 and Christmas, these retailers are playing catch-up, and find themselves in a battle between prioritising market-share and generating attractive like-for-like sales growth, versus the expense of profit. There is no easy solution to this issue, and when a business is in a downward spiral of reduced rates it can be hard ever to bounce back fully.

 

E-Commerce vs High Street – In Search of the Utopian User Experience

Britain’s love affair with the High Street dates back to Victorian times, when the Industrial Revolution drove crowds of consumers to towns and cities. However, with stalwart high street brands such as Austin Reed, BHS and most recently East falling by the wayside, it’s clear that revolutionary measures in terms of customer experience are long overdue. Finance and E-Commerce are more aligned than ever before, shown evidently through the appointment last year of Harm Ohlmeyer as CFO of Adidas group, from his previous role as SVP of Digital Brand and E-Commerce.

The high street is going through a major transformation, and CFOs are increasingly looking at their real estate portfolios in a bid for efficiency and innovation, ultimately to acclimatise to a world where technology dictates the way we buy. There are three key areas which CFOs will be addressing when attempting to achieve this balance.

 

Re-imagining the store

Be more than merely a store – Retailers need to ensure that their stores remain relevant and are places to which consumers want to keep returning. Experience is more important than ever, and retailers’ stores need to be more than just places to transact.

Putting the digital into the physical – Retailers are beginning to see that a profound effect that digital can have on their business is actually in-store. Some of the most innovative and compelling stores make digital a core part of the store experience.

Supporting online with offline – Online retailers are turning to stores to help them grow their businesses and help service their customers, the difference being that these stores seek to replicate the online experience in the offline world.

 

Experimenting with Experience

Technology will ultimately now dictate consumer experience, so CFOs are faced with the challenge of embracing this to remain competitive. Various trends that are emerging already include:

Shopping in the virtual – Augmented Reality (AR) and Virtual Reality (VR) are transforming the retail experience both online and offline, often connecting the two with more immersive experiences.

Artificial intelligence – A.I. allows retailers to personalise the shopping and products experience, and to do so at scale

Design for the eye – Visual search is changing the way that consumers shop for products, with more and more consumer journeys starting with an image or a photograph.

 

Transforming Culture – Becoming Truly Dynamic.

Consumers, competition and culture are always changing.

Try-before-you-buy – Clients are seeing payment postponed, first through the checkout-less store and now through checkout-less online. In the competition for the millennial customer, who is seeking seamless experiences and instant gratification, we will see the growth of try-before-you-buy services.

Be direct – Everyone wants to be a retailer. New technologies and platforms are already enabling brands to go direct to consumers, and we predict an increase in activity in 2018. Brands are targeting individual consumers with specific offers and experiences, and retailers need to respond by intensifying their focus on their consumers and what their offer means to them.

Be ethical – Brand authenticity and sustainability are becoming increasingly important in retail. Consumers want to associate themselves with brands that have a sense of purpose and represent their views, beliefs and values. They are also becoming increasingly intolerant of brands who aren’t transparent and who don’t follow through on their promises.

These changes in user experience will dominate the 2018 consumer landscape, and those who fail to embrace the change will no doubt fall behind the pack.

 

These three issues that we have addressed are quite clearly dictating the decision-making of consumer CFOs, but while the outlook might appear somewhat doom-laden, this is far from the case. More than ever, CFOs of FTSE businesses are targeting high growth. As a spectator, 2018 looks set to be an incredibly interesting year, with the economic, technological and political transformation of the landscape certain to make good viewing!

Philip Hodson, leads the Altus CFO practice focused on Commerce & Industry searches for senior finance professionals. For more information contact Philip.hodson@altus-partners.com