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December 1, 2023

Why Retail is Critical for Europe’s Economic Health

Europe’s retail sector is embracing digital. Still, hurdles remain. Here’s how multinationals can navigate them.

In a recent white paper, experts from McKinsey explore the evolving landscape of Europe's retail sector. The report emphasizes three main pillars: sustainability, digital transformation, and workforce development. According to the authors, careful product selection can stimulate sales and offer societal benefits. However, they also note that return-on-investment timelines can potentially limit the effectiveness of these strategies. The paper does not shy away from addressing the challenges within digital commerce, pointing out important components like sales platforms, automation, and data analytics. As the retail sector advances towards a more digital future, these hurdles are increasingly crucial to understand and navigate.

Topic #1: The Industry's Role in Economic Prosperity and Environmental Stewardship

The white paper focuses on three main themes: environmental sustainability, digital transformation, and skill and talent development. It highlights the crucial part the industry plays in Europe's economic health, but also raises concerns about its role in increasing greenhouse gas emissions. There's ongoing discussion about improving product selection as a way to boost sales and reduce societal costs. Yet, the problem lies in the extended payback periods, which act as deterrents to investment.

Takeaways:
  • Identify opportunities for renewable energy use and energy-efficient equipment in stores and supply chains to achieve net-zero operations.
  • Address circularity of supply chains by adopting more sustainable packaging and exploring opportunities for second-hand markets.
  • Collaborate with suppliers to reduce emissions in the production of goods, including private-label products.
  • Prioritize investment in sustainability, digitization, and skills and talent to ensure successful transformation of the sector.
  • Simplify and streamline European retail regulations to improve profitability and increase investment capacity.

Topic #2: Navigating Challenges and Capitalizing on Opportunities in the Modern Business Landscape

Frank and Daniel talk about the digital challenges that businesses face today. They discuss the important parts of going digital, like online sales, automating processes, and using data better. They also question if older IT systems, which can be costly, are worth it due to their limited benefits. They emphasize that companies, particularly in retail, need to train their existing staff and hire new, digitally-skilled employees to stay competitive. Both believe that company executives need to prioritize going digital, and that smart investments in this area can help drive business growth.

Takeaways:
  • Reprioritize investments towards digital transformation including legacy IT modernization, automation, and digital sales channels.
  • Shift investment portfolio to prioritize sales and margins in the future rather than where sales currently are.
  • Manage shareholder expectations to reinvest more cash flow into the business rather than distributing it.
  • Develop a scientific approach to analyzing employee skills and qualifications and establish infrastructure for upskilling programs.
  • Prioritize digital transformation as a survival need rather than an ROI initiative.
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