Butterflies and Dominoes

“A butterfly flaps its wings somewhere and the wind changes, and a warm front hits a cold front off the coast of western Africa and before you know it you’ve got a hurricane closing in. By the time anyone figured out the storm was coming, it was too late to do anything but batten down the hatches and exercise damage control.”

Karen Marie Moning, Darkfever

When House of Fraser went into administration in August it left a number of major brands out of pocket.  Mulberry was out of pocket by £2.4m, while All Saints was owed close to £1.8m and Giorgio Armani almost £1.6m.

Of course, unpaid invoices are just a direct impact – and if we were being harsh it could be argued that suppliers should know their risks and read the signs.  It’s something I’ve advised on many times – including in my blog in February (Bumps, Managing Exposure and How Not To Get Burned).

But the indirect impact is felt across the complex eco-system that is retail.  The loss of an ‘anchor’ store – a destination that brings footfall to the surrounding area – can create a domino effect as other stores close or move out.

Direct suppliers are obviously affected, but neighbouring businesses can feel the impact.  As this City Metric article notes, it can affect local authorities and even stall the progress of regional development initiatives.

But the impact of small changes are not always negative, the changes can drive innovation and bring new opportunity.  ‘Click and Collect’ was borne out of challenges around home delivery for eCommerce and has proved popular with customers.  A simple innovation that has helped stores to retain footfall whilst growing eCommerce sales.

The availability of data and the ability to manipulate it is transforming retail.  Data scientists working with loyalty card data have shown that the availability of one seemingly minor product can be the difference between a supermarket winning all of a particular customer segment’s weekly shopping spend or none of it.  The announcement this week of 5G mobile data by 2020 offers many opportunities whilst the impact of the ePrivacy regulation due in 2019 will create numerous challenges.

The procurement function is uniquely placed to identify and manage risks or opportunities across the eco-system affecting a business.   The mega-trends are there for all to see, but it requires integrated thinking, insight and dialogue to understand their impact on a supplier’s business (and it’s consequential impact on yours).

I’ve said before, it pays to be curious and we all need to think more broadly than just the transaction in front of us.  Sometimes the the storm front can be seen from a distance and turned to advantage.