How Retail Finance Teams Gain Agility

Retail CFOs have to help their organizations handle rapid change – which isn’t easy with legacy systems for accounting, analytics, and planning. Learn how cloud systems can help your organization achieve rapid ROI and streamline processes in this article from Workday and KPMG.

Content Summary

A Persistent State of Disruption
2020: Disruption Turns to Chaos
Finance at the Epicenter
Exposing Costly Vulnerabilities
What Is Leaving Finance Organizations Vulnerable?
Investing in Answers
The Need for Rapid ROI
Acting Now with a Best-in-Class Enterprise Cloud Strategy
The New, Flexible Face of Finance
Modern Finance as Value Integrator
What’s Next: No Waiting

A Persistent State of Disruption

Disruption is nothing new in retail. While market shocks, omni-channel engagement, social media, and shifting consumer preferences have battered traditional retailers over recent years, those with foresight and an appetite for digital transformation have unearthed opportunities for profit and growth.

In 2019, KPMG drew clear contours around trends that defined the rapidly changing retail landscape. Among them:

• Harnessing consumer-centric data to deliver hyper-personalization
• Finding ways to satisfy price-savvy consumers who now have access to multiple retail channels
• Growing consumer comfort with AI-powered service agents
• Adopting new retail platforms that use transactional data in powerful new ways

In the face of these shifts, retailers that resisted or delayed modernization risked ceding their futures to their more agile competitors.

2020: Disruption Turns to Chaos

As the first quarter of 2020 emerged, even the upheaval of the previous year would begin to look tame. The COVID-19 pandemic triggered lockdowns and occupancy restrictions that sent overall retail sales into a decline of nearly 20 percent year-to-year in March and April. Retailers deemed essential (grocery and drug stores) saw revenues reach historic highs in March, while sellers of new essentials (especially home improvement) increased year-to-year sales by up to 19 percent from August through November. For online retailers, the pandemic fueled record sales as consumers of clothing and other goods fled in-person shopping for the relative safety of ordering from home.

New technologies, shifting consumer habits, challenging new business models, an urgent need to make strategic use of data—and now this. “Retail as we know it,” states KPMG in its 2020 Retail State of the Industry Report, “is over.”

Retail customers are retiring old behaviors and forming new shopping habits in ways that are not circumstantial but structural. This pressures finance organizations to be more agile and strategic. – Sanjay Seghal, Partner, Advisory Head of Markets, KPMG

Finance at the Epicenter

Even in “normally disruptive” times, market turbulence sends shockwaves through every part of a retail business. But its effects are most keenly observed in finance, where all financial and operational data comes together to help decision-makers gain a picture of a company’s health.

Amid the pandemic, retail CFOs and their finance organizations worked diligently to respond to changing conditions with agility. Some were more successful than others, but all felt the impact—positive or negative—of massive disruption.

Exposing Costly Vulnerabilities

Left disoriented by shocks to revenue, demand, and supply chains, many retail CFOs have discovered that the challenges of the pandemic exposed shortcomings that already existed within their accounting, analytics, and planning environments.

These finance leaders found their organizations burdened by legacy systems and processes that stymied their ability to reforecast quickly and execute informed decisions confidently—a significant business risk as foot traffic evaporated, floor merchandise went unsold, and supply chains proved unreliable.

What Is Leaving Finance Organizations Vulnerable?

Manual accounting and planning processes lead to cumbersome close cycles, delayed reporting, unreliable forecasts, and a lack of operational agility. Finance teams spend so much time sifting through and inputting data, reconciling actuals with budgets, and creating ad hoc reports that they are left with little time to act as strategic advisors to the business—and this at a time when retailers navigating uncertainty desperately need informed guidance.

“Manual processes present systemic challenges few retailers can afford, especially now,” notes John Hugo, a CPA and former retail finance executive who oversees financials products and go to market at Workday. “Retail CFOs can’t continue to do what they’ve always done and expect a better result.”

Siloed data (from ERP, CRM, point-of-sale, and other sources) prevents access to timely, data-driven insight, and hinders retailers’ ability to deliver a seamless “connected commerce” experience for brick-and-click or click-and-collect consumers. Without an integrated data framework, retailers have little chance to succeed at new digital initiatives.

The inability to view and analyze data makes it difficult for retailers to support the growing need to reforecast virtually every aspect of their business. This includes how changes in store footprint, staffing, assortment mix, channel mix, pricing, and other variables may impact key performance indicators (KPIs), such as sales per square foot, average transaction value, and margins.

“Finance plays a critical role in forecasting things like inventory turn, which is challenging for both online-intensive retailers, due to high volumes, and brick-and-mortar hybrids, due to inventory sitting in stores,” notes Shehtaaz Zaman, director of the nance transformation at KPMG. “These are complex challenges, and they’re not going away anytime soon.”

Investing in Answers

After many CFOs initially held off new investments in response to the pandemic, the urgent need for agility has since accelerated initiatives to modernize finance with new technologies and processes. This is particularly true in retail, where growing numbers of data sources are increasingly disconnected from planning and accounting systems. In fact, 89 percent of consumer and retail CEOs told KPMG they are responding to disruption by fast-tracking efforts to digitize their operations. Investments in cloud solutions, notes an IDC report, increasingly represent retailers’ “primary path to adapt quickly.”

“Finance needs to be asking some key questions,” says KPMG’s Zaman. “What tools and capabilities are available to finance professionals to provide the insights they need? How can they provide information across the business, and all systems, so they can make operational decisions more quickly and effectively?”

Answering those questions will prove even more vital as retailers upend old delivery models. Many of the industry’s biggest names are transforming the stock rooms of brick-and-mortar stores into microfulfillment centers that ship merchandise directly to online customers and those who prefer to pick up their orders curbside. Compared to long-haul shipping from distribution centers, shorter trips from local stores can save on transportation costs. And filling orders directly from showrooms prevents in-store inventory from aging into dead stock. A prime example of this brave new retail world is Target, which in the third quarter of 2020 fulfilled more than 95 percent of its sales, including online purchases, from its stores.

The implications for finance are vast. Creating hundreds, if not thousands, of new fulfillment centers means recalibrating how expenses are accounted for and performance is measured. Will sales per square foot remain a critical KPI when much of that space is devoted to fulfillment and staging for curbside pickup? How do workforce expenses change when on-site personnel must be reskilled to handle both in-store and online purchases, not to mention returns? Will stores need more personnel or fewer? What type of sophisticated analytics is required to forecast the fulfillment inventory that must be available at each store based on area demographics, seasonality, and other factors?

The Need for Rapid ROI

Looking for immediate ROI and the ability to easily expand capabilities to meet these evolving needs, many retail CFOs are bypassing the long, heavy lift of replacing or upgrading their legacy ERP systems in favor of deploying best-in-class enterprise cloud applications. These solutions cost less and can be implemented quickly. And the fact that they’re easier to scope helps to streamline funding and approvals.

“This is strategic digital transformation that allows retail finance organizations to address their most urgent needs first,” notes Ben Pierce, vice president of Sales for financials, planning, and analytics at Workday. “CFOs want to know that their P&L reflects all the information that the business runs on—a single source of the truth. That way, they can forecast and make decisions with confidence. But current disjointed systems can stand in the way of that. CFOs need solutions designed to ingest and analyze data coming from every part of the business and every system it uses.”

Acting Now with a Best-in-Class Enterprise Cloud Strategy

Especially now, strategically implementing new capabilities can be an attractive proposition to retail finance organizations looking to modernize areas that will make the biggest impact on margins. Leading cloud-native enterprise applications make this possible by integrating and interacting with legacy ERP and transactional systems so transformation takes place where it’s needed most—without disrupting other critical processes the business relies on to operate.

A best-in-class enterprise cloud strategy offers another advantage. Compared to shoulder the burden and expense of ERP replacements every decade or so, retailers relying on point solutions can rapidly and cost-effectively evolve their finance systems over time to accommodate new transactional systems and data sources, systems acquired through mergers, new or expanded supplier relationships, and scaling for growth.

The New, Flexible Face of Finance

“What these targeted approach offers are flexibility and choice,” notes Pierce. “If your manual accounting processes are a mess, you can implement a solution to automate those tasks, shorten your close, and free up your team to add more value. If you’re doing piecemeal analytics without even having access to all the information you need, you can deploy a solution that surfaces insights from every data source. If your plans and budgets are obsolete as soon as they’re published, you can roll out a collaborative, continuous planning environment so all your stakeholders have access to the latest actuals and projections.”

As retail CFOs weigh their targeted transformation options, they should consider best-in-class enterprise cloud applications—or even parts of applications—that enable them to:

• Automate manual tasks. “It’s hard to find a bigger change agent in retail finance than automation,” says Workday’s Hugo. “Automation gives finance a chance to transform the business process framework as a whole, and to drive new efficiencies. Suddenly, instead of chasing data, you’re looking for journal insights and identifying anomalies that could flag a problem or an opportunity. You’re managing by exception.”
• Integrate data from virtually any source—then analyze it. “There’s going to be more pressure on finance professionals to really be able to make use of their data,” says KPMG’s Zaman. The goal is to create a rich, unified, intelligent data foundation—a single source of truth—that combines with powerful analytics to help finance identify the real drivers of the business. Adds KPMG’s Sehgal, “You’ll see more analytics allowing finance to answer new questions: What store footprint should we have? What’s a reasonable profitability goal for the store? Do we even need to have foot traffic here?”
• Harness advances such as AI and machine learning (ML) to run what-if scenarios. “We’re seeing a new digital area around planning and forecasting,” observes Sehgal. Running multiple what-if scenarios can produce increasingly accurate forecasts (at the company, regional, assortment, store, departmental, and even SKU levels) so managers can plan and execute with confidence— and modern solutions make it possible to model virtually anything. “Organizations can weigh various possible business model options, and then pivot quickly and confidently in response to major market moves or economic shocks,” he notes.
• Empower and equip people across the business to take an active and collaborative role in finance and planning processes. According to Zaman, the pandemic has changed how finance works, probably forever. “We’ve proven that finance can do its quarterly or monthly close virtually,” he says, noting that the collaborative nature of cloud-based solutions—along with more comprehensive and strategic use of data—opens the door for traditional finance processes to involve stakeholders throughout the company.
• Enable continuous planning using fresh actuals. Decision-makers can execute faster when they know their actions are based on current, real-world data. A continuous planning environment supports this further by ensuring that plans, budgets, and forecasts are never out of date. And because leading best-of-breed solutions tap a single source of truth and link all plans to the corporate plan, decision-makers at all levels remain aligned.
• Transform “hot spots” in the retail environment while keeping existing back-end systems in place. Retailers should seek out solutions with an in-memory, cloud-based architecture built to work with both back-office applications and front-office systems that blend financial, worker, and operational data to surface fresh insights for a complete understanding of operations and outcomes.
• Provide the ability to define and track new operational KPIs that reflect the rapidly changing nature of retail. “Retail KPIs tend to be either operational or financial,” says Hugo. “But modern systems allow CFOs to create new metrics that combine KPIs from both so you can identify cost-to-serve for cohorts of customers, or even individual customers.”
• Gain more strategic control over the supply chain by engaging all stakeholders in the source-to-pay process. Consumer and retail CEOs rank supply chain risk as to the greatest threat to their organization’s growth, suggesting that the digital transformation of sourcing ecosystems should be an urgent priority. Modern sourcing solutions give retailers better visibility into their supply chain, ensure a diverse supplier base, help manage supplier compliance, and make it easier to monitor third-party risk.

Modern Finance as Value Integrator

If retail as we know it is indeed over, then its future may rest in the hands of finance. “Finance has to be able to play the role of advisor to the rest of the business,” says KPMG’s Zaman. “Finance’s value proposition is to be able to quickly provide insights and analytics on how we should manage performance.”

Sehgal agrees. “Finance has a very important role in working with the business to simplify the complexity of retail. The more finance reaches out to the other parts of the business, and the more it can orchestrate planning throughout the company, the more it can unlock the value of those insights.”

Realizing this, leading finance organizations have found a way to be the “value integrator” across the retail back office, and even across operations in the front office. A focus on data integration, process automation, new technologies to answer new questions, and a collaborative, continuous planning environment that pushes beyond finance will all shape the industry’s future. “Retailers are trying to figure out what their business model should now be,” notes Sehgal. “Online versus brick and mortar? Smaller store footprints? Close some stores and enlarge others?”

These are difficult questions, and the success of retail businesses will depend on how they address them.

What’s Next: No Waiting

For KPMG’s Zaman, there’s no question about the next move for retailers—and that for CFOs aiming to lead their organizations amid increasing uncertainty, waiting is not an option. “Our view is that now is the ideal time to invest in your back office because you’re seeing firsthand the need to have an agile, responsive organization,” he says. “And the key enabler for that is digital finance transformation.”

For Sehgal, the need for retail finance to modernize is greater now than ever. “This is the most opportune time for the CFO to make a dramatic shift into the future by digitizing, modernizing, and transforming the way finance operates,” he notes. “Ultimately, it comes down to agility.”