Getting Fit for the Fight

State of the Retail Nation: reflections from retail CEO interviews and the World Retail Congress, Berlin

Over the last two months, OC&C has spoken with a wide cross-section of senior retailers about the forces shaping their businesses and the strategic choices they are making as they look towards 2030. Our sponsorship of, and attendance at, the World Retail Congress in Berlin sharpened those conversations into a clear view of the current State of the Retail Nation.

The short version is deliberately blunt: this too will not pass. Retail leaders are no longer waiting for normality to return. The operating assumption is that volatility, pressure on the consumer and geopolitical disruption are the baseline. Winners will not be those who endure the market best; they will be those who get fitter, move faster and make their own weather. 3 in 4 retailers believe their current operating model is not fit for future and needs significant evolution.

The conclusion is equally simple. Retailers have two jobs to do at once: drive efficiency and agility hard into the existing model so they can trade through tougher conditions and update the business model, and sharpen the skills that build customer relationships winning through brand trust and customer engagement.

Five themes stand out:

1. This too will not pass. Permacrisis is no longer a passing trading condition; it is the planning baseline.

2. Retool and make your own weather. Share gain and profit growth will have to be created through sharper propositions and harder-working operating models enabled by AI / tech enhancement to the core

3. Expect innovation and increasing competition. The market will be shaken by well-funded, tech-enabled innovators with permission to move faster and evolve quicker by doing things differently eg resale,

4. Undifferentiated retail will be exposed. As discovery and switching costs collapse, defensible advantage must come from customer relationships  –  engagement, product, value, service, experience and fulfilment.

5. Agility beats prediction. Retailers do not need perfect certainty on AI; they need the ability to test, learn, stop and scale faster than the market around them.

1. Trading conditions are going to be tough for the foreseeable future

The message from the market is consistent. Consumers remain challenged and unsettled. Confidence is being knocked by geopolitical risk, cost pressure and a continuing sense that the next disruption is never far away. Retailers are therefore planning for a harder baseline, rather than hoping for a clean cyclical recovery.

“You have to assume the permacrisis is just that – difficult times are the new baseline”

That changes the management question. This is not a market in which leaders can wait patiently for the cycle to turn. This too will not pass. The businesses that outperform will be those that are built to trade through pressure, not merely survive it. That means sharper choices on where to win, more diversified revenue streams, tighter operating discipline and a more aggressive view of what must change now.

2. Existing models need to be tuned harder to deliver share gain and profit growth

In a depressed consumer environment, growth does not disappear; it becomes harder earned. Retailers need to make their own weather. They must take share, improve conversion and release efficiency from the operating model at the same time. The old separation between proposition growth and cost transformation is breaking down: the best retailers are trying to do both through the same set of capabilities.

Now is the time to retool. Advances in in-store technology, online experience and AI-enabled ways of working are creating opportunities to remove friction, compress cycle times and personalise the customer proposition at a level that was previously too costly or too complex. Falling development costs and the ability of new tools to cut through messy data make the opportunity more practical and more immediate.

“90% of content creation is now done via AI, cycle time has gone from 2 weeks to 2 days”

“We shortened our App launch timeline from 18 months to 3months”

“AI makes personalisation at scale an accessible reality”

The implication is not to create another innovation workstream on the side of the business. It is to ask where these tools can materially change the economics or the customer experience of the core model: faster content, better availability, smarter pricing, leaner support functions, more precise marketing and better decision-making close to the customer.

3. Expect a wave of disruptive innovation

One of the striking themes at World Retail Congress was the spread of views on AI. Some leaders see an imminent reset in consumer behaviour and winning business models. Others see the current moment as peak hype, with the underlying retail formula largely unchanged. Both instincts contain some truth, but the risk is asymmetric.

“What is a wave now is soon to become a tsunami”

“We are at peak hype-cycle right now, the winning formula isn’t really going to change”

Our considered view is that the combination of venture capital, falling build costs and rapid consumer uptake of new search and discovery tools is likely to create substantial disruption. As in previous periods of transformation, investors will fund loss-making businesses to scale. Many will fail, but enough will move quickly enough to reset consumer expectations and distort the winners and losers dynamic.

The point is not that every challenger will survive. It is that incumbents should expect the market to be shaken by well-funded, tech-enabled innovators with permission to move faster, price more aggressively and test more freely. In that context, slow followers tend not to survive the pace of change for very long.

“We need to move at the speed of the consumer”

“Right now the consumer is accelerating away from most retailers”

“The challenge is to operate at the speed of the consumer – not at the pace of your change ability”

4. But playing this game well will not be enough

There is a danger in believing that efficiency and technology adoption are, on their own, a strategy. They are not. They will create near-term advantage, but they will also become the competitive norm. The harder question is what remains defensible when everyone has access to better tools, cheaper development and more intelligent customer interfaces.

Changing consumer behaviour will rapidly expose undifferentiated models. As the cost of discovery and switching falls towards zero, and as new intermediaries increasingly intercept the customer journey at the outset, retailers will need stronger reasons to be chosen. Building strong customer relationships, brand trust and a proposition that keeps customers in your ecosystem will be the real winning formula.

The high ground will sit with retailers that have genuine and enduring points of difference: truly differentiated product; consistent value delivery enabled by a hyper-efficient operating model; a complex service wrapper focused on solution selling or emotionally grounded advice; speed, ease and consistency of fulfilment; and a customer relationship model that engenders brand loyalty and advocacy, building strong communities and passionate engagement

“We’re trying our best to ensure the physical retail experience is delivering something valuable and enjoyable for the consumer – our custom fitting technology gives people a reason to visit”

“Our skin-tone analysis in store gives people a key reason to come visit, it also creates super-sticky multichannel customers”

“I love the fact consumers are now starting to ask us to solve problems – it opens up a completely different dialogue”

The common thread is that the best retailers are not using technology to make the old model a little slicker. They are using it to make their strongest assets more distinctive, more scalable and harder to copy.

5. Certainty of direction is less important than agility and controlled risk-taking

The answer is not to bet the farm on a single view of the future. For most retailers, the starting point should be a clear-eyed view of the enduring and distinctive elements of the business model that deserve more investment. New tools should be used to drive value from that core now, while creating room to experiment with more transformational changes as the future landscape comes into view.

“No regret moves are to protect trust, take risk and make sure you’re at the table”

“You need to be prepared to systematically cut the tail of initiatives and reinvest in important things. Stopping stuff is critical when the agenda of what you need to do is changing every 6 months!”

Agility is often overused as a phrase. Here it needs to be concrete. It means creating option value without swamping the organisation in complexity. It means being prepared to place controlled bets, learn quickly, and reallocate capital and leadership attention before the agenda becomes stale.

• Place controlled bets. Back a portfolio of AI and technology initiatives to create learning and option value, rather than pretending one programme can answer every strategic question.
• Refresh the agenda ruthlessly. Review priority programmes every six months; churn, stop and reinvest before the organisation becomes overloaded.
• Attack legacy constraints directly. Use new development pathways and AI-enabled tools to shorten the route from idea to proposition, process improvement or customer benefit.

“At VF we have 17 different AI initiatives we are pushing. We’re not betting the farm on any one, but creating great option value for the future”

“New tech creates the opportunity to reduce our tech debt from 2 years to 6 months or less”

Conclusion: two jobs, one agenda

Retail remains an exciting market, but it is not a forgiving one. The next few years will reward businesses that are fitter operationally, clearer strategically and more willing to move than the market around them. AI and new technology will not remove the need for strong customer and retail fundamentals. They will make those fundamentals more exposed, more measurable and more important.

The agenda comes down to two connected jobs. First, drive efficiency and agility hard into the existing model: take out friction, compress cycle times, sharpen decision-making and build the cost discipline needed to ride out a market that is unlikely to get materially easier. This is the licence to keep trading, keep investing and keep control of the P&L.

Second, build a customer relationship model which builds brand trust, community engagement and keeps customers positively engaged in your ecosystem. As consumer expectations continue to rise and demand greater value for  money, and behaviours shift to more experiences, having the functional and creative skills to maximise customer lifetime value and retention will be key to winning.

Put simply: get fit for the fight, and be engaging enough for the future. In this market, the winners will be those that can do both at once.

For more insight, contact our experts.