Economics of Accountability: Why are retail audits crucial?

Retail has always been a customer business. How retailers deliver the services, the pain points they address, and the value they offer shape customers’ perception of the brand. Positive perceptions are not built in a day; they take years of nurturing and consistent efforts. But, following the pandemic outbreak, the entire retail sector has witnessed knock-on impacts that are challenging these time-tested notions. Most importantly, customers have changed their buying habits. According to a Mckinsey & Co report, 70% of consumers aren’t yet ready to return to their pre-pandemic shopping habits. Naturally, this scenario necessitates retailers to revisit their strategies and align their value propositions with the current market dynamics. It is to this effect that the need for effective retail audits is greater than ever today.

Although there is always scope for periodic appraisals and corrective measures in individual retail stores, the current scenario requires a holistic view of the business and robust top-down measures. A retail audit, with its cross-functional purview of performance management and business controls, provides decision-makers with valuable insights on the brand’s overall health, by analysing a number of data points across multiple stores. The insights can unveil challenges or opportunities or both, enabling retailers to strategise accordingly and act on them. In today’s operating environment, comprehensive insights can empower decision-makers to take actions that can onboard new customers as well as retain existing ones.

“There is a multi-pronged objective in retail auditing. It is about ensuring all controls are in place as much as it is about minimizing risks. While designated teams handle the operational side of retail, we evaluate if the holistic performance meets the benchmark. If there are revenue shrinkages, losses in inventory value, etc., we identify and report them in a way that all stakeholders can understand,” said Shankar Iyer, Chief Performance Office of REDTAG. “Retail audits also assess compliance with standardised practices such as how stores should appear, tables are arranged, mannequins are positioned, etc. For instance, if there is a sale, audits indicate if the products were re-priced across stores, if discount tags were appropriate, etc. In doing so, auditors help the management reconcile standardised practices with business outcomes,” Shankar added.

Shankar’s belief is consistent with the finding that the number one reason (56%) why consumers shop in-store is the ability to touch, feel, and, in some cases, try products on. So, the standardisation imperative is not lost on retailers, who constantly strive to ensure that tables, products, and experiences are consistent across flagship stores. To this end, retail audits check compliance with standard policies. Such comprehensive deep-dive analysis factors in location, demographic, and in-store data across a number of outlets to make actionable reports. In successive audit cycles, such reports allow comparative analysis, unveiling certain patterns that may indicate future risks. In case the report suggests a lack of compliance and control weaknesses, decision-makers can address them through remedial actions such as restructuring, training, etc.

The evolving benefits of retail audits

The benefits of retail audits are manifold and evolving. For starters, they are solution-oriented, geared towards measuring the efficacy of strategies and making recommendations that can enhance productivity. A successful retail audit translates to quantifiable impact, including but not limited to an increase in sales and market share, optimised customer experiences, and surge in revenues. However, in the current cycle of uneven post-pandemic recovery and lingering uncertainties, audits have become the means to reconcile operational revenues with expected shrinkages. At the same time, recommendations are made to ensure that revenues remain steady or in the growth trajectory. And within the pandemic context, retail audits are also key to ensuring compliance with community health and safety protocols — which is important in incentivizing customers’ return to the stores.

“When all is said and done, reporting is one of the core tenets of retail auditing. Reporting — and this is much-needed today in light of continued disruptions — gives a comprehensive breakdown of business health, enabling a common reference point for the management to base its strategic decisions on,” said Shankar Iyer. “Our rule at REDTAG is to keep retail auditing simple; not overcomplicate it. Also, this approach posits to standardize the financial reporting and be consistent. When you have a standardized design, all stakeholders — CFO, CEO, suppliers, non-operational managers — know where to look for what,” Shankar explained.

Technological underpinnings in retail audit

Performance metrics in retail continue to remain disturbed due to lingering uncertainties and restrictions. Therefore, it’s difficult to see patterns and accurately predict future trends. Also, dissimilar circumstances between recent quarters and fiscal years betray the possibility of accurate comparative analysis. So, the best course of action is to keep performance metrics nimble till market forces take shape.

On the positive side, however, the current downturn has enabled auditors and finance teams to make necessary adjustments and prepare for the next growth cycle. Most importantly, retailers have increased their digital adoption, hoping to streamline operations and unlock greater productivity. The idea of gauging performance is evolving — for example, retailers who were invested in tracking store footfalls before are now focusing on website traffic. The objective here is to reduce the time spent on laborious operations and obsolete mechanisms, and instead focus on customer movements. While there is a general consensus that it is achievable through increased tech adoption, retail audits can rationalize “how” and “where” it is applicable within the business. Characterised by such technological underpinnings, the retail sector in the GCC region is poised for steady growth, according to Statista^.  As growth economies like the UAE and the KSA make headway with progressive policies, cosmopolitanism, and economic diversification, the sector is bracing for greater innovations and positive outcomes.

“From a broader standpoint, there is a visible shift in the direction that fashion retail is taking within the GCC, with women and younger generations defining its course,” said Shankar Iyer. “This development also places an additional onus on brands. For example, REDTAG has over 200 outlets. For argument’s sake, if we consider 500 customers per store per day, we are talking 100,000 footfalls. This represents a large social responsibility, making us key stakeholders in public health. This is how we perceive our shopping experience. As a result, we have vaccine, mask and social-distancing mandates for staff, along with increased sanitization in stores. Also, we have increased touchless controls and digital payments to minimize the risk of virus transmission. Alongside, we have accelerated our e-commerce journey, recently introducing WhatsApp shopping. All these were rooted in the findings from retail audits,” concluded Shankar.