38739028 Accenture Redesigning Retail Operating Model

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Redesigning retail: Operating model imperatives for international retailers

Transcript of 38739028 Accenture Redesigning Retail Operating Model

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Redesigning retail: Operating model imperatives for international retailers

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Today’s consumers are a formidable bunch. Armed with more information than ever thanks to technology, they shop anytime, anywhere and with anyone they choose. Moreover, choice, convenience and service mean just as much to them as price. Evolving customer demands are driving retailers to tailor their offerings, expand into new business segments and enhance customer touch points.

At the same time, competition—always fierce in retail—is intensifying. Only the fittest or luckiest retailers have survived the global downturn, and investors are demanding ever better performance from them. Already-lean retailers are searching for new ways to achieve structural and operational efficiencies in a bid to outpace competitors. Furthermore, new players from other retail

segments and industries are ramping up their retail presence. For example, big-name manufacturers including Apple, P&G and Nike are now bypassing traditional retailers and reaching consumers directly through multiple channels.

Growing numbers of retailers are going international—and small wonder. Home markets are saturated, but markets near and far, particularly in emerging economies, still offer white space (see Figure 1). The world’s largest retailers are entering more and more countries (see Figure 2).

Deploying the right operating model can help international retailers drive profitable growth by balancing customer relevance and operational efficiency across diverse and dynamic markets.

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Figure 1. A billion new consumers1

8,714

16,345

32,362

23,961

B6 economies G6 economies

CAGR

6.4%

CAGR

1.8%

Top 15 conumer markets in 2025(private consumption, US$ billions, at PPP)

ChinaUnited StatesIndiaJapanBrazilGermanyRussiaMexicoFranceUKIndonesiaItalyIranSouth KoreaCanada

G6B6

World

2009 2,934 9,235 1,945 2,238 1,188 1,508 1,083 905 1,136 1,272 543 956 370 659 702

16,345 8,714

39,467

2025F13,32412,332 6,793 2,405 2,145 2,058 1,888 1,576 1,544 1,474 1,397 1,256 1,218 1,111 1,000

21,06826,837

63,427

CAGR9.9%1.8%8.1%0.5%3.8%2.0%3.5%3.5%1.9%0.9%6.1%1.7%7.7%3.3%2.2%

1.6%7.3%

3.0%

Consumer spending in the G6 and B6(real US$ billions, at Purchasing Power Parity)

B6: “Big Six”—Brazil, China, India, Mexico, Russia and South KoreaG6: France, Germany, Italy, Japan, United Kingdom and United StatesCAGR: Compound Annual Growth Rate

B6 20092030F

G6 20092030F

Figure 2. Internationalization of the world’s 100 largest retailers2

60

50

40

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10

0200419961986

Presence in one country

Presence in two to four countries

Presence in five to nine countries

Presence in 10 to 19 countries

Presence in 20 or more countries

Number of world’s 100 largestretailers with:

1Economist Intelligence Unit; Accenture Analysis.

2JA Dawson, “Scoping and conceptualizing retailer internationalization,” Journal of Economic Geography, 2007, vol. 7, p.373-397; Accenture analysis.

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Yet entering emerging markets can be challenging—and not just because local players may enjoy structural or legacy advantages in understanding and servicing customers. Too often, the worldwide “race for space” has come at the expense of profitable growth. That’s largely because many retailers have failed to achieve sufficient and sustainable levels of customer relevance and operational efficiency across multiple markets, businesses, channels and brands.

The key to striking this balance is to design the right operating model. This is no small feat. One model does not fit all—not least because different retailers are at different stages of internationalization (see Figure 3).

Nevertheless, when Accenture analyzed a representative sample of the world’s largest retailers, we found that leading companies are working to maximize synergies and efficiencies while delivering customer value—and they’re outpacing their competitors. Progressive international retailers have sustained a steady focus on operational efficiency, a key lever for achieving long-term high performance (see Figure 4).

Moreover, our in-depth analysis, which included more than 40 one-on-one interviews with retail executives and retail and operating model experts worldwide, identified three imperatives critical for designing and deploying effective international operating models:

1. Organize around your company’s competitive essence—what you do better than your rivals.

2. Recalibrate your international operating model regularly as market priorities evolve.

3. Leverage dynamic networks to en-hance innovation, customer connec-tion, agility and profitable growth.

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Figure 3. Retailers at different stages of internationalization3

Complexity of international footprint(function of diversity of international markets)

New Look

Coach

Ermenegildo Zegna

Auchan Group

Kesko

100%

80%

60%

40%

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0%

Foreign sales/Total sales

IKEAH&M

Esprit

Inditex

StarbucksCoffee

Office DepotGap

Staples

Metro GroupAhold

Cencosud

Best Buy

Walmart

Tesco

Otto Group

Casino

Fast Retailing

The Home Depot

Groupe Carrefour

Figure 4. Evolution of sampled international retailers’ economic performance4

Average Return on Assets

Average Return on Sales

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10%

8%

6%

4%

2%

0%1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

3Company Annual Reports and Planet Retail Annual Reports; Accenture analysis.

4Thomson Reuters; Accenture analysis.

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Use your competitive essence to guide operational decisionsA retailer’s competitive essence lies in what it does better than others in its industry. For example, IKEA’s competitive essence is rooted in the Scandinavian home products retailer’s ability to be a low-cost innovator, procurer and manufacturer of well-designed offerings for the masses. People across the entire international organization use IKEA’s competitive essence to make operational choices that support the company’s strategic priorities and core value proposition. To illustrate, designers source and engineer products to achieve a desired price point and to deliver stylish yet affordable and functional products to customers5.

Of course, internationalization widens the array of operational choices available to execute on your competitive essence. Some companies have tried to manage this complexity by establishing guiding principles about where and how capabilities can be shared across geographies, what should be outsourced or who will make which decisions. Many have also relied on a longstanding practice to achieve global efficiency: standardizing and centralizing back-office operations while managing customer-facing activities locally. But today’s realities challenge such simplistic rules.

Capture synergies across borders, channels and business segments Retailers now have access to advanced technologies and analytics that enable them to (for example) manage online sales and marketing virtually. What’s more, the rapid

development of emerging economies has built new talent pools in diverse locations, offering retailers fresh options for sourcing talent. But with these options come challenges, such as complex decisions about where a company will perform certain activities, who will perform them and how those employees will be managed.

Add to this the complexity of operating across multiple channels and business segments with a variety of brands and formats, and you quickly see both the challenges and the opportunities of designing operational synergies across these dimensions. Competitive essence becomes increasingly important as a compass to guide the choices and trade-offs that are necessary to design operations in this complex environment.

The right choices can enhance a retailer’s competitive essence and thus improve its customer relevance and efficiency. Surprisingly, such choices are often counter-intuitive. Take global sourcing. Many international retailers, including Walmart and Ahold, are working to centralize and standardize their global sourcing functions. Yet we found one European retailer that decided to keep its sourcing decentralized to leverage local negotiations and supplier storage and delivery in select markets. This approach is better aligned with the company’s entrepreneurial culture and has enabled it to reap the benefits of just-in-time inventory. While counter-intuitive, the

approach helps drive better on-shelf availability— a key component of this retailer’s competitive essence.

Reinforce your competitive essenceWalmart’s competitive essence lies in its scale and a supply chain that enables it to deliver a diverse assortment of products to customers at low prices. The company recently reinforced this proposition by committing to cut supply-chain costs by 15 percent within five years, in part by shifting from third-party suppliers to direct purchasing for private-label products and fresh foods. The company has also established four global merchandising centers for hardlines and softlines. These include a center in Mexico City that focuses on emerging markets, and another in the UK that serves Walmart’s George private-label apparel brand. The company wants to source fresh food products directly as well—as its ASDA stores in the UK have long done, from continental Europe. Before rolling this idea out internationally, Walmart first piloted it (with apples) in its North American stores6.

Organize around your competitive essence

5BusinessWeek, “IKEA: How the Swedish retailer became a global cult brand,” November 14, 2005.

6Financial Times, “Walmart aims to cut supply chain costs,” January 3, 2010.

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in 2006. It then opened its first Best Buy store in China in 2007. In 2009, Best Buy converted Five Star into a wholly owned subsidiary by purchasing the remaining 25 percent stake. Best Buy has not yet integrated Five Star, preferring instead to run a dual-brand strategy in China that includes its own stores until it knows more about the country’s many different markets. The company currently balances customer relevance with efficiency by leveraging the strong local Five Star brand and only gradually integrating and sharing select operational practices from their traditional Best Buy “big box” format—such as selling approaches and tailoring the product mix8.

Recalibrate after acquisition and organic expansion As retailers expand their international footprint through acquisition or organic expansion, regular recalibration becomes still more critical, because opportunities for cross-country and cross-business operational efficiencies multiply. Chilean retailer Cencosud has expanded aggressively through acquisition and has systematically recalibrated its operating model. While integrating 10 acquisitions over the last seven years, it reportedly launched more than 50 new projects (for instance, centralization of back-office functions) to capture cross-market and cross-organizational synergies9.

Other retailers are organically expanding into new business segments (product, service or channel) to increase share of wallet and win new customers around the globe. However, many don’t evolve their operating models to best serve these

Monitor and adapt to changing conditionsThe impulse to internationalize swiftly is understandable. However, an ad hoc approach can lead to operational duplication and confusion, rather than efficiency, particularly if a retailer has entered individual markets opportunistically over a long time without proactively looking for cross-market synergies. Conditions within and between markets change constantly—so retailers must regularly reassess their operating model’s effectiveness and adjust the model when needed. Some large retailers have migrated towards “in-the-box” solutions that include standardized templates for systems and processes that can be readily leveraged in new locations. But even these companies need to modify their operations to adapt to new risks and opportunities as they expand into new markets, channels and segments.

When markets are diverse and rapidly evolving—like China—timely recalibration becomes critical. Consider Starbucks, which entered several Chinese provinces via joint ventures over the past decade. This strategy rapidly established the retailer’s presence in China and positioned it to quickly learn what it takes to be locally relevant. Starbucks expects that its sales in China will overtake those in the UK and Japan over the next few years. To achieve operational consistency and efficiency across the wider organization, Starbucks has exercised the option to buy back operations from some of its JV partners7.

Similarly, Best Buy acquired a 75 percent interest in Five Star, China’s third-largest home appliance retailer

different business segments. An operating model that worked well for traditional brick-and-mortar retailing won’t likely be right for the e-commerce portion of the business. In addition, customers may prefer a cross-channel operating model. The same holds true for retailers entering new product or service categories that require different value chains than their traditional assortment. We observed that a number of food retailers have had to revisit their entrenched operating models when they expanded into higher margin, shorter lifecycle offerings. Other retailers run their different business segments independently of one another, without looking for cross-segment or cross-market synergies and scale.

Plan and organize to support future international growthGiven intense market pressures, retailers are eager to enter new markets and business segments quickly. Speed is important, but so is planning—and then executing on the plan with regular recalibration. The Netherlands’ Ahold and France’s Carrefour offer apt examples. These companies are restructuring their operating models to create an empowered regional layer of decision-makers. The layer is thin enough to avoid excessive bureaucracy and close enough to markets to support local responsiveness. Yet it has sufficient scale to deliver regional synergies and efficiencies.

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Recalibrate your operating model as market and segment priorities evolve

7Asia Times Online, “Starbucks soars in China,” June 15, 2006. http://www.atimes.com/atimes/China_Business/HF15Cb06.html.

8Niraj Dawar and Ramasastry Chandrasekhar, “Best Buy Inc. – dual branding in China,” Harvard Business Review, June 10, 2009.

9Cencosud, “Presentación Santander-Cancún,” January 2010.

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such as financial services, have more experience in organizing and deploying international analytics. For example, GE Money has recognized that global analytical talent development and deployment are critical to achieving both customer relevance and operational efficiency (see sidebar)14.

Meanwhile, some retailers have incorporated enterprise efficiency into their operational expansion from the start. For example, New Look, a UK-based value fashion retailer, has launched a major multi-year effort to ensure that its global trading platforms and systems will be able to support future international growth.

Foster processes to drive continuous improvementA company’s culture, leadership and people play critical roles in this process of regular recalibration. Retailers that have established formal or informal mechanisms to identify, gather and share ideas from across the organization to drive continuous improvement are ahead of the game.

For example, Tesco uses TWIST—“Tesco Week in Store Together”—to generate ideas for improving the business. The company sends thousands of head office managers out to work in a store for a week every year so they

can personally experience Tesco’s products and business processes and gather employees’ ideas for making them better, simpler or cheaper10. One employee suggested putting bar codes on sandwiches on the front of the package to make them easier to scan. This idea was implemented and has reportedly saved Tesco £500,000 by reducing time spent scanning sandwiches11. TWISTs have not been limited to its home market in the UK; international TWISTs have taken place in several countries including Malaysia, Poland and Hungary12.

Carrefour, for its part, is transitioning from a highly decentralized culture to one that proactively disseminates best practices across its organization (see sidebar)13. Employees with key analytical skills are playing a role in this process, by leveraging market, segment and functional data to help the company decide when and how its operating model needs to be recalibrated. Other industries,

10Sir Terry Leahy, “What innovation means to Tesco,” Economic & Social Research Council, March 2006.

11Talking Retail, “Tesco drives growth through innovation,” June 1, 2007. http://www.talkingretail.com/news/industry-announcements/5174-tesco-drives-growth-through-innovation.html.

12Tesco, “Listening and engaging,” accessedJune 22, 2010. http://www.tesco.com/csr/downloads/pdf3.pdf.

13Carrefour analyst presentation, “Share best practices and innovations,” 2009.

14Accenture (Jeanne Harris, Elizabeth Craigand Henry Egan), “Counting on analytical talent,” March 2010.

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center. Carrefour then expanded the effort, creating nine training centers around the world to train and develop store managers locally. However, these centers traditionally focused on the regions they served and did not promote cross-market knowledge sharing17.

So, in 2009, Carrefour launched a three-year effort to transform its operating model to disseminate “global methods but not global solutions.” The initiative has global knowledge sharing as its core objective. Carrefour recognizes that fostering cross-border knowledge sharing will require cultural changes, including new incentives that encourage managers to seek more open sourcing of innovation. As part of the initiative, the company will task dedicated teams in three new “competence centers” with gathering and disseminating best practices in one of three core business functions (see Figure 5)18.

Carrefour has found that smaller and newer markets may be less inhibited when it comes to innovating and piloting new ideas because they do not have entrenched organizations and processes. Take Bulgaria, where Carrefour installed an entrepreneurial team to develop new practices for boosting in-store productivity. The Bulgarian division segmented the store workforce into two teams—one for providing service on the shop floor; the other, for managing stock in the storage room. The division leader coordinated the teams to facilitate product flow and match fluctuations in demand over the course of a day. Workforce productivity improved 30 percent over the norm20.

Carrefour: Sharing best practices

French retailer Carrefour boasts a workforce of nearly 500,000 (the world’s seventh-largest private sector employer) and more than 15,000 hypermarkets, supermarkets, discount and convenience stores in some 35 countries15. Founded more than 50 years ago, it is the world’s second-largest retail group in terms of revenues.

Sheer size, however, is no guarantee of future international success. Accenture research reveals that to internationalize, organizations must promote continuous learning and improvement to capitalize on market opportunities. They must also evolve their operating model as they enhance their presence in key markets or enter new markets. And they must ensure that relevant innovations from headquarters or international locations are disseminated across their entire operations.

Early in its globalization journey, Carrefour relied on French expatriates to establish its presence in new markets. This made sense at the time, because the company had a strong pool of experienced store managers. The managers understood the Carrefour hypermarket model and could apply it to international markets, particularly new markets like China, which were unfamiliar with supermarkets16. However, as Carrefour’s international locations proliferated, executives found that the “pioneer model” wasn’t helping Carrefour attract enough talent or achieve the degree of localization required to succeed in more diverse markets. In the late 1980s, Carrefour became one of the first retailers to set up a corporate management training center, with Institut Marcel Fournier in France as its first

Figure 5. Carrefour’s competence centers19

Formats andchannels

Hypermarket

Supermarket

Hyper/Cash

Convenience Store

Franchise

eCommerce

Product and service ranges

Carrefour brands

Fresh

Bazaar

Methods/CategoryManagement

Methods/PurchasingServices

Product flow andsupply chain

Product flow

Logistics

In-store productivity

Check-out counter productivity

15Carrefour, “2008 sustainability report,” April 28, 2009.

16China Daily, “Carrefour’s expansion in China,” August 12, 2008.

17Carrefour, “Document de reference 2009,” April 22, 2010.

18Carrefour analyst presentation, “Share best practices and innovations,“ 2009.

19Ibid.

20Ibid.

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While retailing is definitely starting to embrace analytics, it is not as advanced as other industries—such as financial services— in its development and deployment of international analytical talent. Take GE Money, the banking and consumer finance services unit of GE. The unit operates in more than 50 countries. Its offshore analytics centers in Shanghai and Bangalore place their staff on temporary assignments in a variety of business operations roles through a formal job-rotation program. This program has aided retention of analytical talent (in very competitive markets). It has also improved employee engagement by offering analysts new learning opportunities, task variety and a sense that they are making meaningful contributions to the business across the globe21.

Analytics promises to drive significant growth and efficiency for retailers. Moreover, it will rise in importance as retailers further penetrate data-rich channels like e-commerce and m-commerce, as evidenced by the advanced analytics capabilities of companies like Amazon and eBay. In particular, predictive analytics may change the game in fashion and food retailing by helping companies anticipate consumer preferences and tailor their offerings accordingly22.

GE Money: Unleashing the power of international analytics Knowing when to recalibrate can be difficult, but more and more retailers are recognizing that advanced analytical tools and technologies can help. However, many retail executives, like many companies, do not know who is performing their company’s analytics or where they reside in the organization. And they don’t view their analytical talent as a distinct and valuable workforce. In many retail companies, analytical talent is isolated in functional silos, such as pricing, inventory management or finance. Some of these employees are bored because the company isn’t fully using their skills. Others are overworked because they’re scarce.

Accenture research suggests that companies looking to build a strong analytical workforce should centralize and coordinate their analytical talent. But a growing number of retailers have expressed interest in a hybrid model. According to this model, top analytical talent is centralized to work on high-priority projects that require advanced analytical skill sets. Meanwhile, lower-level analysts remain aligned to specific functions and get training, support and networking from global or regional Centers of Excellence. This model tries to strike a balance between keeping analysts “close to the business” and “close to each other.”

21Jeanne Harris, Elizabeth Craig and Henry Egan, “How successful organizations strategically manage their analytical talent,” Strategy & Leadership, 2010, Vol. 38, Issue 3, p. 15-22.

22Accenture (Jeanne Harris, Elizabeth Craig and Henry Egan), “Counting on analytical talent,” March 2010.

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Other retailers are using mobile technologies and social networking to tap into the power of new networks. Take Best Buy’s Twelpforce. This service invites customers to communicate with Best Buy’s 155,000-strong global workforce, including the iconic Geek Squad of technology experts, via Twitter, and exchange opinions and ideas28. Meanwhile, Gap’s StyleMixer iPhone app takes customer service to new heights by using mobile and GPS technology to locate the customer’s nearest store and then offering them exclusive, store-specific offers and discounts29.

Use new relationships to open up new markets, segments and channelsAs power shifts to consumers, cost pressures mount, technology advances and skilled resources become limited, retailers are finding it difficult to drive all value-chain activities on their own. They are discovering that collaborating with new and existing suppliers, customers, employees and competitors in novel ways can help them innovate, connect with customers and drive more profitable growth. We refer to these new strategic and inventive collaborations as dynamic networks.

For some retailers, dynamic networks can help change the game. In August 2009, the U.S. home improvement retailer Lowe’s, for instance, announced a joint venture with Australia’s Woolworths. The partners are planning to acquire hardware distributor Danks and add it to their emerging home improvement network in Australia. The agreement creates a new business for Woolworths and a new market for Lowe’s, whose international presence until now has been limited to Canada and Mexico. It also means a better value proposition for Australian customers23. Walmart, meanwhile, is joining forces with Hong Kong-based supply chain management giant Li & Fung to achieve even higher levels of efficiency and competitive advantage (see sidebar)24.

Make the right network choicesTaking full advantage of dynamic networks requires more than just identifying the right partner(s). Retailers must assess when and where to leverage partners to maximize customer relevance and operational efficiency. This involves deciding which parts of the value chain to

focus on and which locations and which partners are optimal for your company.

In Asia, Japan’s Fast Retailing’s UNIQLO brand has joined with Taobao, China’s largest Internet retail website, to bring the Japanese company’s casual wear to Taobao’s 100 million online shoppers. Fast Retailing is also stepping outside its normal category by collaborating with Selfridges to offer a new and exclusive UNIQLO men’s collection at this higher-end retailer25. Consider too Alliance-Boots’ design and sourcing partnership with Mothercare, which makes children’s clothing, and the European personal products retailer’s reciprocal selling arrangement with Waitrose supermarkets. Both deals enable customers to shop and purchase from the expanded assortment in stores or to order online and pick up their purchases in stores using Alliance-Boots’ Click-and-Collect service26.

Leverage new networks to connect with customersRetailers must also deploy operating model levers, such as technologies and processes, in new and innovative ways to maximize value from dynamic networks. Witness, for example, how My Starbucks Idea has revolutionized the traditional customer comment box. The web-enabled platform, which lets Starbucks employees and customers generate and test new ideas, has launched dozens of successful innovations. These include the “splash stick,” which plugs the hole in the beverage container’s lid and stops coffee from sloshing out while the customer is on the move27.

Leverage dynamic networks

23Logistics Magazine, “Woolworths-Lowe’s acquires Danks,” September 7, 2009.

24Forbes, “Billionaire brothers tie up with Walmart,“ January 29,2010.

25Alibaba, “Taobao partners with UNIQLO to grow China’s online fashion market,” April 23, 2009. http://news.alibaba.com/article/detail/alibaba/100090874-1-taobao-partners-uniqlo-grow-china%2527s.html

26MVI Worldwide, “Alliance-Boots to focuson shopper convenience,” February 15, 2010.

27Starbucks, “Ideas so far,” accessed June 14, 2010. www.mystarbucksidea.force.com.

28Wired Magazine, “Work smarter: Best Buy,” April 2010.

29Geeksugar, “Gap style mixer iPhone app hooks you up with discounts,” August 27, 2008. http://www.geeksugar.com/Gap-Style-Mixer-App-Gives-You-Discount-When-You-Open-4392584

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and leadership teams. Many will need to build and deploy specialized processes and communication skills to monitor and manage their network relationships.

The rewards promised by dynamic networks far outweigh the risks—for those who manage their networks adroitly. Retailers that prioritize engaging new partners and swiftly implementing required operational changes will have first choice of the strongest strategic partners.

Channel the power of enabling technologiesSome retailers have started using crowd or open sourcing and cloud computing to mine customer insights from new sources or to develop more customer-centric solutions, directly or via alliances with other stakeholders. The Gap, for example, ran a special contest in 2009 designed to tap into the network of freelance iPhone application developers. The initiative invited developers to compete in creating a new application that embodies Gap’s style and appeals to customers in an innovative and original way30. Meanwhile, well-known fashion retailers such as Calvin Klein and Coach are mining the treasure trove of customer data generated by Polyvore.com, whose 1.4 million registered users create their own fashion designs from pictures of

real clothes. By tracking the activities of these influential independent designers, apparel retailers can gain new insights into consumer fashion trends and styles31.

Manage the rewards and risks associated with dynamic networksLeveraging dynamic networks presents rewards and risks. Some risks are obvious, such as leaks of confidential data during collaborations with multiple partners. To manage the risks, companies must revisit their operational processes and technology systems to ensure they safeguard key data and proprietary IP from misuse. Retail executives should also consider that managing a wider and deeper portfolio of relationships places new demands on their workforce

30Mobile Commerce Daily, “Gap announces winners of iPhone app contest,“ November 16, 2009.

31The New Yorker, “Fashion Democracy,“ March 29, 2010.

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including major cost savings and faster speed to market. The retail giant can also expect improved product quality from Li & Fung’s extensive supplier network in more than 40 countries, as well as from the Asian company’s specialized international supply chain processes, technologies and in-market expertise.

WSG will be staffed by global sourcing employees from both companies, which will enable the partners to pool sourcing experience, skills and networks. Li & Fung operates 80 offices worldwide, including a new hub office in Istanbul, Turkey, to help serve Europe, the Mediterranean, the Middle East, North Africa and the former Soviet republics. This scope will help Walmart expand and diversify its sourcing options, as well as mitigate sourcing risk34.

The partnership will also enable both companies to get to know each other better as the operating models for WSG, Walmart and Li & Fung evolve—though Walmart retains the option to buy WSG in 201635.

Walmart and Li & Fung: Sharing scale and efficiency Hong Kong-based Li & Fung began operating more than a century ago as a trading house that exported Chinese silks and porcelain. It’s now the world’s leading supply chain management company for consumer goods. Its capabilities extend well beyond global sourcing to product design, production and logistics. Small wonder then that Walmart, the world’s largest retailer, has recently elevated Li & Fung from wholesale supplier to strategic partner. Li & Fung will act as a non-exclusive direct buying agent for a portion of Walmart’s hardlines and apparel goods32.

Historically, Li & Fung created separate divisions to handle each large customer. But it is changing its operating model to support the partnership with Walmart. Li & Fung is creating a separate company called WSG to handle Walmart’s business, estimated at US$2 billion of purchasing in 2010 alone33. Li & Fung will likely use the new revenues from increased volume to fund key acquisitions to expand its international scale and footprint. Walmart stands to derive significant benefits as well,

32Store Brands Decisions, “Walmart creates global merchandising centersto streamline sourcing,” February 2, 2010.

33Financial Times, “Walmart reveals supply deal with Li & Fung,” January 29, 2010.

34Home Textiles Today, “More details emerge on Walmart, Li & Fung deal,” January 28, 2010.

35Financial Times, “Walmart reveals supply deal with Li & Fung,” January 29, 2010.

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As markets continue to become more liberalized, built out and interconnected, more and more retailers are turning to internationalization to drive incremental growth. These companies are increasingly pursuing less capital intensive options for international expansion, such as e-commerce, m-commerce and franchises. Technology advances are enabling higher levels of efficiency and more flexible and affordable solutions for retailers’ international operations. These forces are converging to make capitalizing on international growth an imperative for most retailers. Retailers seeking to go global or expand their international footprint must ask themselves how they will get into the game or win it before they’re outmaneuvered by rivals. The answers lie within their international operating model.

By more effectively organizing around their competitive essence, regularly recalibrating their operating model as their markets and business evolve, and strategically leveraging dynamic networks, retailers can drive higher levels of performance in their international operations.

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For questions related to the research, please contact:

Susan S. MannGlobal Retail Industry Program Manager [email protected]

Armen OvanessoffAccenture Institute for High Performance [email protected]

Core Project TeamJoshua B. Bellin Ryan Coffey Stephane Girod Amanda M. Hilgers Susan S. Mann Ashley B. Miller Armen Ovanessoff

To find out more about how Accenture can help your organization with its international operations, please contact:

Janet HoffmanGlobal Retail Industry Managing Director

Dave RichardsNorth America Retail Lead

Juan Manuel RebolloEurope and Latin America Retail Lead

Michael YeeAsia Pacific Retail Lead

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