CFOs at consumer companies should play critical roles, anticipating major trends and recommending the pivots necessary to remain competitive.
The CFO is always in a unique position to influence CEOs on pivots necessary to position a company for success amidst rapidly changing landscapes. But this couldn’t be more evident than it is at consumer companies, which are facing an avalanche of new trends disrupting both their business models and consumer-brand relationships.
Whether it is from sharing-economy start-ups like WeWork or Uber, subscription-based upstarts like Dollar Shave Club or Stitch Fix or “media on demand” behemoths like Netflix or Hulu, consumer-based enterprises are being reinvented across the board. In some cases, entire industries, including mattress manufacturing (Casper), eyeglasses (Warby Parker), beauty products (Glossier), and luggage (Away) have been completely upended. Lastly, the explosive growth in digitally-native consumer businesses which are “e-commerce first” and then expanding to stores has further revolutionized this sector.
Technology Has Forever Changed Consumer-Brand Relationships
What is driving this proliferation of emerging consumer companies? Technology.
Largely fueled by the business opportunities presented by the internet and then the smartphone, entire legacy industries in the consumer sector are literally being reinvented as new brands take old concepts in new directions, changing both the way brands market and communicate with consumers and how consumers respond to brands.
The iPhone’s launch in 2007 took Apple from a $25 billion-dollar revenue company to $265 billion today. More significant than Apple’s change in revenue, however, was how the smartphone and, in particular, the iPhone as well as the mobile apps it spawned, forever changed relationships between consumers and brands.
- Power shifts from brand to consumer.
- Consumers are now able to connect with brands wherever they are but now they have much more control over how they receive information (text, image or voice).
- Social media platforms like Facebook, Instagram, and Pinterest amplify word of mouth recommendations to a consumer’s networks. Brand followers created mini networks connecting brands and their influencers.
- Now, in an instant, a consumer can be reached with a brand’s message, one-to-one via text, email, direct message, Google ad, or through social networks they chose to follow.
A few consumer enterprises have done a good job of pivoting and evolving their business models in the face of these evolving trends fueled by technology (Netflix has done a stellar job here), but many players have reacted too late and are at risk of becoming irrelevant.
Consumer CFOs at traditional brands have a unique opportunity to influence their CEOs and boards to understand these disruptive trends, create a sense of urgency internally and take action to make the right strategic moves to reposition successfully in the face of them. Too often the CEO sees the changes needed but it is the CFO, especially in publicly traded companies, who resists. Many of them don’t accurately anticipate the slow downward spiral that will occur if a company and brand doesn’t serve their customers the way they want to be served.
A Revolution of Change in Consumer-Based Businesses
At least five distinct trends have emerged in the consumer sector that all companies must adapt to.
#1: From Mass-Indirect to Individual-Direct
In the past, traditional retailers have had indirect relationships with consumers, often unable to really collect data on who was shopping for, buying, and rebuying their products. Slow to adapt to shifts in e-merchandising, e-commerce, and CRM data collection, these real estate-focused retailers were slow to retrofit their business models, systems and processes to an “online first” world. And they continued to offer product promotions to all, using outdated marketing mediums to drive traffic to their doors. Now compare that outdated model with that of a disrupter like Warby Parker, which has a strategy to offer better value to their customers (eyewear priced at $95). Their model allows access to data at the individual customer level, tracking every touchpoint, every transaction and every response – from product launches to promotions to social media posts.
#2: Supply Chains: Slow & Disjointed to Real-time, Agile & Integrated
Traditional consumer players also had a difficult time reengineering their supply chains to design, prototype, test, manufacture and deliver rapidly. Unfamiliar with “agile” development processes that allow for iterative, quick pivots in product design, these companies struggled to squeeze weeks out of their production cycles. Think of Old Navy’s fashion seasons, where product development typically occurs 6-9 months ahead of in-store availability. Compare that with their digitally-native counterparts, where a new product moves from product development, design, manufacturing to shipment in weeks versus months. While great product is still paramount in consumer businesses, these new players are able to create more newness faster than their traditional precursors. And by tightly curating their product lines based on knowledge about consumer demand and preferences, they can greatly improve overall product line and assortment efficiency, reducing costs of over-manufacturing and product obsolescence.
#3: Data Poor to Data Rich
Offline retailers have also had trouble shifting their mindsets and organization of business teams and systems to a world which lets data “drive”. In contrast, digitally native consumer companies have never known any other way to operate. They started in a data rich world where they invested in technology and leveraged it to capture insights and then test and learn, over and over again. Some legacy consumer brands have made this shift (Glamour just dropped their print magazine to become an “online only” magazine, for example), but unfortunately, many have not.
#4: Capital-Intensive to Customer-Intensive
Another key difference between traditionalists and the new digital players in the consumer space is around financial leverage. Typically, retailers were capital-intensive store enterprises, deeply invested in real estate or long-term leases. Many decisions made internally, especially for public company retailers, were dictated on the external pressure to hit quarterly earnings targets. Today there are lower barriers to entry, that is driving the explosive growth in these digitally native consumer companies as they require far less capital for building these online businesses. They are much more focused on building brand, customer acquisition and long-term consumer relationships. In comparison, the tried-and-true consumer brands that started as brick and mortar retailers are now trying to retrofit their business models to compete. Unfortunately, they have moved very slowly, and many are struggling to stay in business.
#5: Mass Advertising to One-to-One Targeting
Another shift in retail operations has been in marketing. Traditional retailers used traditional promotions from coupons, discounts, everyday promotions to seasonal offers, and the like, to broadcast outbound to their target audiences. Except, there was actually little “targeting” in a world of TV, radio and print, and none whatsoever in outdoor/out-of-home. Flash forward to today’s marketing, driven by technology, where at latest count we have over 7,000 “martech” solutions and counting. From organic search optimization to YouTube video ads, Google ads to Facebook experience ads, from Snapchat to promoted Tweets, and influencers to bloggers, today’s marketing landscape is inextricably tied to technology. Targeting is possible now across channels at the individual consumer level as device IDs follow consumers from smartphone to smart TV, “in-store” with you, and whatever screen you happen to be viewing.
Consumer CFOs can be strategic leaders proactively and successfully navigating these choppy waters with their CEOs.
- They can shift their team’s focus to customer acquisition and customer long term value
- They can prioritize investment in data-driven decision making
- They can reinvent how customer service happens in a digital world
- They can recommend acquisitions of digitally-native companies, if they work for a traditional brick and mortar retailer, to accelerate process changes around consumers, marketing strategies, etc. (think Jet.com and Walmart, Sephora and Eve.com).
- They can leverage partnerships between traditional retailers and these emerging digitally native brands to become more relevant (Nordstrom partnered with several brands for Holiday 2018 to drive traffic to their stores).
Leaders in the CFO role at consumer companies have a unique opportunity to proactively partner with their CEOs to make these critical strategic pivots necessary to position their companies for long term success. These moves will be hard, complex, politically unpopular, and costly, but without them, the future of many consumer brands (J. Crew, Sears, Nine West, Brookstone) will continue to be at very high risk.