Only 9% of businesses in the world have achieved even a modest level of sustained, profitable growth over the past decade on average (5.5%, earning cost of capital) and that is declining — even though virtually all the businesses aspire to something like this or more. Yet, when we ask executives — as we did recently at Bain & Company to 377 across the world — they say that they do not face inadequate opportunities. Rather, their biggest barrier by far (about 85% of the time) relates to the internal complexity of their organizations and the management of their energy against that.

Read more: Chris Zook, “Depserately Seeking Simplicity,” Harvard Business Review Blogs, February 2, 2012

2011 Bain Rewind

A look back at top @BainAlerts tweets for 2011

  • January: Companies must make better faster decisions more effectively than their competitors: http://bit.ly/rF9zlC 
  • January: Debunking the three most common myths of change management. http://bit.ly/uPF0IJ 
  • January: Most cleantech investments seem fragmented. Getting to the core of the right cleantech strategy. http://bit.ly/uNNsIH 
  • February: Fewer than 5% of consumer brands grow and outperform their competition over the long run. http://bit.ly/sp0MJG 
  • February: Personal data emerging as a valuable new asset class, though concerns about misuse persist. http://bit.ly/vmnjZz 
  • February: Creating a new commercial model for the changing medtech market. http://bit.ly/pMiLTA 
  • March: Bain’s in-depth look at global private equity trends in 2010 and 2011. http://bit.ly/uTEZID 
  • March: Shifting attitudes with American physicians on issues like managing costs, drugs and device usage. http://bit.ly/o3kIgo 
  • March: The 10 steps to successful M&A integration http://bit.ly/rFllCR 

  • April: Indian private equity stands poised to enter a new decade of strong growth & economic contributions http://bit.ly/v3gaxb 
  • April: China became home to more than 500K high-net-worth individuals in 2011, nearly doubling since 2008. http://bit.ly/sQwUVp 
  • April: Carbon competitiveness now goes beyond issues like sustainability and carbon emissions. http://bit.ly/uUjhta 
  • May: Bain asked executives to state their top priority for 2011, and one theme dominated: growth. http://bit.ly/uvT9Rj 
  • May: Private equity deal makers expected a healthy supply of attractive assets to come up for sale in 2011. http://bit.ly/s2HxsR 
  • May: Increasingly, harried—and often younger—consumers are grabbing breakfast at quick-serve restaurants. http://bit.ly/reG2V1 

  • June: In consumer products, brand profitability is determined by the “premiumness” of the brand’s category. http://bit.ly/uplGF6 
  • June: India is now one of the leaders in charitable private giving among developing nations. http://bit.ly/pyEggP 
  • June: Tracking the “Japan Effect” on national energy mix decisions and carbon reduction efforts http://bit.ly/tyhNfe 
  • July: Planned Solvency II rules have already changed the competitive landscape for global insurers http://bit.ly/pwmsfy 
  • July: Three fundamental insights can help deliver a winning customer experience: http://bit.ly/qfW1bO 
  • July: There’s more to streamlining inventory levels than applying typical “just-in-time” techniques: http://bit.ly/skkzQe 

  • August: Cloud computing is an old idea whose time has come. But the market is in transition. http://bit.ly/oitqYb 
  • August: Communications service providers struggle with consumer apathy, creating churn & a drag on profits http://bit.ly/pOEaq2 
  • August: News about fake Apple stores in China also highlighted customer loyalty issues http://bit.ly/s7w0E6 
  • September: Eight core macroeconomic trends will generate GDP growth in the challenging decade ahead http://bit.ly/npAlRr 
  • September: Customers who engage with companies over social media are more loyal and spend up to 40% more. http://bit.ly/n2mCcb 
  • September: For utilities, field service effectiveness can unlock customer satisfaction and improve quality. http://bit.ly/ov6Qxn 
  • October: Strong sales led Bain to lift 2011 global luxury sales growth forecast despite consumer gloom. http://bit.ly/uvuGOD 
  • October: Bain data show complexity is the enemy of differentiation; a silent killer of profitable growth. http://bit.ly/umC8ua 
  • October: Retail banks face sluggish growth, sharply reduced profitability, and weakened customer loyalty. http://bit.ly/tCuguK 
  • November: Bain looks at the root causes of the Eurozone crisis and what it means for Europe’s banks. http://bit.ly/tIugrJ 
  • November: Internet-connected content could be available in 60 percent of households by 2014. http://bit.ly/uwfYyT 
  • November: Women enter the workforce with equal aspirations but face challenges in reaching top positions. http://bit.ly/vTUxFv

  • December: State-controlled oil companies are becoming powerful engines of socio-economic change. http://bit.ly/tnwFKw 
  • December: Measuring Net Promoter Scores has become a management philosophy, a way of running a business. http://bit.ly/rRj2it 
  • December: Every 50 years, retail undergoes major disruptive innovation. Full omnichannel retailing is next. http://bit.ly/suTknm 

Too many retailers are spending on technology without transforming the customer experience—buying iPads for their sales associates, for example, without a vision of how that will enable them to win in an omnichannel world. And the pace of change is increasing. Retailers’ choices for how to deploy technology across channels and throughout their supply chains are becoming more complex. Next-generation technologies, including augmented reality–based virtual fitting rooms, virtual concierge services and virtual shopping walls, already are emerging. Although many retailers will be tempted by exciting technology, the reality is that technology for its own sake only adds cost, pushes prices up and further exacerbates the cost advantages pure-play online retailers already enjoy. So what are the smart investments?

“Omnichannel Retailing,” Darrell Rigby, Kris Miller and Josh Chernoff, bain.com 

For more insights about this year’s U.S. holiday shopping season and the future of shopping in the new year and beyond, browse all issues of Bain’s 2011 Retail Holiday Newsletter:

Every 50 years or so, retailing undergoes a major disruption. A century and a half ago, the growth of big cities and the rise of railroad networks made possible the modern department store. Mass-produced automobiles came along 50 years later, and soon shopping malls lined with specialty retailers were dotting the newly forming suburbs and challenging the city-based department stores. The 1960s and 1970s saw the spread of discount chains—Walmart, Kmart, and the like—and, soon after, big-box “category killers” such as Circuit City and Home Depot, all of them undermining or transforming the old-style mall. Each wave of change doesn’t eliminate what came before it, but it reshapes the landscape and redefines consumer expectations, often beyond recognition. Retailers relying on earlier formats either adapt or die out as the new ones pull volume from their stores and make the remaining volume less profitable.

For more on omnichannel retail as the next wave of disrution, see Darrell Rigby, “The Future of Shopping,” Harvard Business Review, December 2011

E-commerce is particularly important during the holidays as online sales penetration spikes in the fourth quarter. This year will not be an exception. UPS predicts the number of packages shipped the hectic week before Christmas will hit 120 million— up 6.2% from last year—due entirely to growth in online shopping. Bain predicts e-commerce as defined by the Census Bureau will likely reach 5.6% of total retail sales in the fourth quarter of 2011. Excluding autos, fuel and gas stations and select other categories, that figure will be closer to 10%.

“Omnichannel Retailing,” Darrell Rigby, Kris Miller and Josh Chernoff, bain.com 

Online pure-play retailers have invented new business models—marketplaces (eBay, Amazon.com), flash sales (Gilt Groupe), group buying (Groupon), local searches (Milo), enhanced searches (Like.com), crowdsourcing (Threadless) and more. It’s a good business strategy. Online retailers are winning share, forcing prices lower and raising consumers’ expectations. They have led the innovation charge, finding creative ways to reduce costs and prices while improving convenience and the shopping experience. Compared to traditional retailers, most pure-plays have greater agility, leaner cost structures and more customer information. Today, these innovations are routinely fed back into the omnichannel models of traditional retailers as well.

“Omnichannel Retailing,” Darrell Rigby, Kris Miller and Josh Chernoff, bain.com 

Bain takes a look at Christmas Future

2016

It’s a snowy Saturday in Chicago, but Amy, age 28, needs resort wear for a Caribbean vacation. Five years ago, in 2011, she would have headed straight for the mall. Today she starts shopping from her couch by launching a videoconference with her personal concierge at Danella, the retailer where she bought two outfits the previous month. The concierge recommends several items, superimposing photos of them onto Amy’s avatar. Amy rejects a couple of items immediately, toggles to another browser tab to research customer reviews and prices, finds better deals on several items at another retailer, and orders them. She buys one item from Danella online and then drives to the Danella store near her for the in-stock items she wants to try on.

Read what happens next…

From Darrell Rigby, “The Future of Shopping,” Harvard Business Review, December 2011

Amazon.com may well be the Walmart of the 2010s. Every retailer should understand what Amazon.com is doing and why it works. Its powerful combination of technology and logistics capabilities has shaped consumers’ expectations about product information and reviews, delivery timing and costs, pricing and customer service.

Amazon.com owes its growth to relentless execution of a clear strategy (Chart 5). That strategy follows three basic steps:

  1. Lower the cost of goods and fulfillment through scale, and pass on savings to customers as lower prices.
  2. Increase the number of third-party sellers to drive greater selection (at higher profitability than first-party retail) and lower overall prices.
  3. Provide a best-in-class customer experience to drive loyalty and new traffic.

The result? Unparalleled reach. According to comScore, more than 280 million visitors around the world accessed Amazon in June alone, and the third quarter saw 100 million unique US visits.

“Omnichannel Retailing,” Darrell Rigby, Kris Miller and Josh Chernoff, bain.com 

Customers have 10 unexpected items on their shopping lists

Regardless of what they buy, more and more customers have omnichannel items on their shopping list of retail expectations:

  • Innovative mobile engagement
  • Creative and commercially viable ways to drive traffic to and among channels
  • Simple and flexible ways to browse and discover
  • Compelling and exclusive products, services or experiences
  • Immediate access to reviews, ratings and expert recommendations
  • Access to online and in-store inventory from anywhere
  • Fast and customer-friendly shipping options
  • No-fuss returns
  • Connections to social networks
  • Relationship-building post-sale service

“Omnichannel Retailing,” Darrell Rigby, Kris Miller and Josh Chernoff, bain.com