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Retailers face new risks


Submitted by Deloitte

Retailers face new risks

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The retail industry is undergoing a sweeping transformation, as social media, omni-channel shopping and emerging technologies compel companies to rethink almost every aspect of their operations and develop innovative ways to accommodate customers.

As retailers expand digital opportunities, they need to contemplate an entirely new set of risks. Only by looking at the larger picture and determining how these risks are interconnected will retailers be able to develop approaches to anticipate and manage them and capitalise on the opportunities they may bring. Consider the following:

A company announced a limited time offer for free downloads via its mobile apps and web store. The move resulted in such an enthusiasitc response that it brought down the company’s servers. Furthermore, the surge in interest created by the offer resulted in inventory shortfalls due to the lack of coordination with supply chain management. Angry customers then turned to social media, venting much criticism about the company’s poor planning.

A large supermarket chain’s payment system was compromised, but the breach was undiscovered for three months – until customers began reporting fraudulent claims on their credit cards. During those three months, the numbers and expiration dates for more than two million credit and debit cards had been exposed to hackers. While the problem was corrected immediately on the detection, the company was forced to divert considerable resources to damage control. The chain, despite its efforts, faces several class action lawsuits charging lax security and failure to inform its customers of the breach in a timely manner, as well as incalculable damage to their brand.

Digital risk can surface in the external environment as well as inside organisations, making it imperative for executives to adopt both “outside-in” and “inside-out” views of the company’s strategy and risk profile. “Understanding where risks are coming from can help companies identify what is under their control, so they can manage it, so they can monitor, plan for and mitigate it,” says Keith Denham, a principal with Deloitte & Touche LLP, who leads its Consumer Products, Retail and Distribution Advisory practice.

“As digital continues to move to the centre of the shopping experience, retailers will need to stay on step ahead in order to deliver on their customers’ escalating demands, while sidestepping unforeseen risks that may emerge along the way,” Denham added.

Retail executives appreciate the significance of the digital forces at play in their industry and are beginning to turn their attention to the inherent risks these forces present. When executives were asked what risk sources would be most important over the next three years in a survey by Deloitte & Touche LLP and Forbes Insights, 27 per cent identified social media after global economic environment, regulatory changes and government spending.

Further, only 21 per cent indicated that they continually monitor reputational risk, an area where social media can have a particularly profound impact. “When it comes to digital risk in general, most retail executives view its management both narrowly and incompletely, relegating ‘ownership’ of different types of risk to departments that seem the most logical fit or allowing business units to create their own risk management plans,” Kiran Mantha, a principal in the advisory practice of Deloitte & Touche LLP,” said.

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