After facing near-constant crises in recent years, business leaders widely recognize the need for transformation. In our recent survery "Transformative Moments In A Time Of Permacrisis," 97% of the more than 400 global C-suite executives who responded said their companies had undertaken a transformation in the past three years. That included all 28 from the retail industry, who represented companies across multiple geographies and a combined annual revenue of more than $382 billion.

Yet transforming is far easier said than done. Only 14% of the retail executives in the survey said their transformations fully achieved all their objectives, five percentage points lower than the rate across all industries. The success rate declined substantially from last year when 21% of retail transformations had been fully successful.

Achieving successful transformation in retail

The survey revealed a handful of factors for success in retail transformations, most notably an aligned leadership team, a pragmatic and flexible approach, and tracking transformation progress against outcomes using specific metrics. The importance of using metrics is vividly shown in the results: 100% of successful retail transformations measured outcomes using transformation-specific or previously tracked metrics in areas such as financial performance and employee and customer satisfaction. By contrast, 67% of unsuccessful retail transformations did not use any metrics to measure progress against outcomes (Exhibit 1).

Key priorities for retail leaders going forward

With the success factors identified, our survey looked ahead, highlighting three top priorities for retail executives for the next 12 months.

Strive for a virtuous cycle of growth

In today's rapidly evolving retail landscape, the key to sustaining growth and securing long-term profitability is encapsulated in the intricate interplay of cash generation and strategic (re-) investment, as shown in the framework in Exhibit 2. This framework highlights the need for retailers to continuously optimize the business, allowing them to invest in their customer proposition and footprint to continue attracting customers in a highly competitive market.

The virtuous cycle can be amplified by boosting cash generation and increasing reinvestment. Cash generation can be bolstered by “trading the business harder” through strategies that grow the top-line and/or cut costs. Cost control is top of mind for retail executives who anticipate key market challenges in the next 12 months to include inflationary pressures, escalating raw material prices, and rising labour costs. As a result, a striking 71% of retail executives have outlined cost reduction strategies for the upcoming year, well above the 59% observed for respondents across all sectors.

Driving operational excellence is another lever to maximize cash generation, by increasing productivity through initiatives such as automation and artificial intelligence (AI) or waste reduction. Finally, a third lever to increase the cash available for reinvestment is optimizing working capital by managing inventory, receivables, and payables.

Shifting the focus to the second half of the virtuous cycle, this cash can be directed toward strategic reinvestments that increase traffic and share of wallet, expand the business’s footprint, and unlock additional revenue streams. Elements include upgrading the retailer’s core value proposition by engaging in initiatives related to price position, attractive promotions, personalized loyalty, brand building, product offers, own-label attractiveness, or format innovation, among other approaches. Alternatively, the reinvestments can focus on expanding the core, for instance through geographic, category, or multi-channel expansions. Lastly, cash could be reinvested to grow beyond the core, for example by investing in retail media and monetization or by growing into consumer business adjacencies. At the epicentre of this model lies the pivotal role of human capital — employee ability and willingness to embrace change, powered by technology enablement that acts as the bedrock of innovation and continuous improvement.

Refocus on product and customers

In today's competitive retail environment, refocusing on product and consumer is essential for driving growth and maintaining relevance. Retailers must prioritize understanding individual customer needs and investing in advanced technologies to continuously refine personalization strategies based on real-time feedback and evolving market trends. This customer-centric approach ensures that offerings are tailored to meet specific preferences, enhancing customer satisfaction and loyalty.

AI adoption is growing among retailers, with approximately 90% of surveyed retailers having already implemented, planning to implement, or currently evaluating AI solutions (Exhibit 3). AI and generative AI present numerous opportunities for retailers across various use cases and have played a critical role in 97% of retail transformations.

To share an example use case, one client who adopted Next Best Basket (NBB), our generative AI tool for creating personalized flyers, boosted revenue by 5% due to increased trips and basket sizes in the core business, grew margins by 2 percentage points, and doubled digital engagement. Personalization also enabled the retailer to increase customer accounts by 20%.

Assess and secure the supply chain

In Oliver Wyman Forum’s report, “The New Growth Agenda,” 59% of CEOs said their companies are derisking or diversifying their supply chains. Managing supply chain risk and enhancing resilience is especially crucial in the retail sector, given the prevalence of factors such as climate change and geopolitical tensions that exacerbate these risks. Supply chain disruptions can lead to significant challenges, including cost pressures, lost sales, and constrained working capital. To address these issues, retailers must define a proactive resilience strategy that goes beyond mere firefighting. This involves adopting an end-to-end perspective by connecting functional silos and developing holistic supply chain resilience strategies.

Retailers can employ multiple levers to assess and secure their supply chains. To begin with, augmenting foundational processes like sales and operations planning (S&OP) and inventory management is essential for operational efficiency and responsiveness. Embracing technologies like generative AI can enhance supply chain visibility, strengthen internal and external risk monitoring, and enable effective scenario planning. Additionally, realigning the network through footprint optimization, such as nearshoring or “China plus one” (moving manufacturing to at least one other country beyond China to mitigate risks), can diversify geographic dependencies. Redesigning products to reduce reliance on critical parts further minimizes vulnerability as well.

Creating a resilient retail organization

In conclusion, the retail industry is at a critical juncture where the ability to navigate continuous crises and adapt to rapid changes is more important than ever before. The journey to successful transformation is challenging to be sure, as evidenced by the low success rates found in our survey. But by developing needed capabilities and engaging in performance transformation initiatives focused on top priorities, retailers can maintain agility and build long-term resilience, enabling them to build a “future-proof” organization and thrive in an increasingly turbulent business environment.