Reinventing retail in the digital age

Nick Grayston, The Warehouse Group

Transformation. It’s an often-overused word. However, it applies with some accuracy to the work of Nick Grayston, Group Chief Executive of The Warehouse Group. An engaging and energetic Englishman with an American accent, Grayston is leading a dynamic transformation of The Big Red Shed into a truly modern, agile and sustainable retail force – one that embraces the opportunities and benefits of a data driven digital environment, emerging once again at the forefront in the minds of New Zealand’s retail-loving public.

Grayston took the time to tell MEttle about the challenges the organisation faced on its journey, how he has seen the benefits of agile transformation shine through, and what the future holds for the retail sector.

Retail is in Grayston’s blood. He spent 15 years working for various UK retailers including Marks & Spencer, Woolworths and Laura Ashley, before heading to the US to take up a leadership role at Foot Locker, where he stayed for 10 years.

“Foot Locker gave me the opportunity to shift beyond being a product and numbers guy and move into general management,” he says. “I ran their Canadian operation as Managing Director and then the domestic businesses in the US.”

On leaving Foot Locker in 2007, he had time to stop and think about what he wanted to do next.

In 2007 I became aware that this vast thing called ecommerce was incredibly meaningful and a big opportunity.

In 2007 I became aware that this vast thing called ecommerce was incredibly meaningful and a big opportunity. Foot Locker was a big-store-based business with 3,500 stores, and my responsibilities encapsulated 50,000 employees. Although we were fighting the Amazon beast, ecommerce was on the side and run similarly to a mail order business that we had acquired and was something of an afterthought at that time, so it hadn’t really featured on my radar.

Admitting to feeling exposed by this realisation, Grayston invested some time learning everything he could about ecommerce by taking courses, reading, and talking to interesting people engaged in that area.

“Eight years of fighting the Amazon beast took me beyond being a traditional merchant and retail leader, and into confronting how legacy retailers needed to reinvent themselves to be relevant in this digital age.”

A big opportunity at the bottom of the world

When The Warehouse Group first approached Grayston he’d been working and living in the US for 20 years. Admitting that his initial reaction was why ‘would I want to move to a little country at the bottom  of the world?’, he says the more he spoke to the Board about the opportunity, the more compelling it became.

“It was the portfolio of businesses that had significant market share in New Zealand. Equally New Zealand was a country in a pre-Amazon state, and it’s not often in business you get a chance for a do-over where you back yourself to not make the same mistakes twice.”

When interviewed for the Group Chief Executive role, Grayston suggested that the group needed some retail reinvention.

“Under-invested in systems and gaps in how they approached their product line, plus there was no integration of businesses and most importantly they were well behind the switch to digital.”

In short, Grayston saw a business with huge potential and great credentials, but one that had lost its way.

“When Sir Stephen Tindall retired in 2001, successive regimes tried to take out cost. They had deal fever and had acquired 21 constituent companies that were lumped together into six loose groups, with no integration plan. The idea was that they would run themselves and the corporate centre would dispense capital, when necessary. To top it off, all those businesses came with their own antiquated systems that didn’t talk to each other.”

Finding a new course

After taking the leap of faith and moving with his family to New Zealand, Grayston spent a year looking at strategic options, taking the Board on a journey to align on a strategy to reinvest in the group’s digital future.

“The Warehouse at that time was investing in inventory, which basically meant they were very aggressive on promotions, highlow price advertising and swamping peoples’ letterboxes with a lot of paper.”

His biggest surprise during this period, he says, was the resistance to change within the organisation, caused in part by a belief that Amazon would never come to New Zealand.

“Simply expressed, we decided that we needed to ‘fix our retail fundamentals and invest in our digital future’.”

Identifying that a significant opportunity was to put much more force behind the group’s buying power, the Board backed Grayston’s recommendation to get rid of the old model and focus on growing its ability to source product at scale. To do this, the high/low model had to go, to be replaced by an Every Day Low Price (EDLP) model that allowed a 75% reduction in items.

Since then, significant change has occurred, with 70% of The Warehouse Group’s private label now sourced through its overseas operations in China, India and Bangladesh with a strong focus on sustainable and ethical sourcing at the heart of it.

By using data science capability, it will allow us to solve problems for people in the most integrated and frictionless way.

Once this aspect of change was underway, Grayston turned his attention to becoming digital, which was a considerably harder task, he says.

“We knew it was going to be a multi-year process, as there was no coherent strategy for integrating and updating the digital platform.

Finding digital talent was something I was concerned about, but we have attracted both local and global first-class which made the process a lot easier.

“Finding digital talent was something I was concerned about initially, but we have attracted both local and global first-class talent, which made the process a lot easier. This meant we could build the right team, put them in the right place and begin to invest in our digital future.”

Becoming agile

The next thing he needed to fix was the agility of the organisation.

“It’s great to have a good strategy but if you can’t execute it, then it’s irrelevant,” he says.

Applying Sean Covey’s Four Principles of Execution, he set up the resources to support strategic delivery, but then found the next two hurdles that had to be jumped.

“People were working hard, but there was a massive hierarchy coupled with the core resistance to change, which made it a real challenge. The previous leadership had a very documented, command-control way of operating, which we were trying to change fundamentally.”

After a competitive process, Grayston and his team hired McKinsey & Company to assess the potential of the business, its ambition, Board willingness and executive leadership capability.

Through this process, Grayston says it became apparent that the command-control approach was not working well for the organisation, with a lot of pushback and resistance to constant meetings and atrophy.

“There were so many layers that every decision went up and down the chain. We were in a type of paralysis. It was clear that this model was no longer fit for purpose as an operating system and to survive in the Second Digital Age, we needed to learn the principles of agility and execute with speed as a habit.”

At this time, it became obvious to Grayston that Agile was an interesting alternative approach.

“I visited organisations in Europe and Scandinavia that had embraced agile ways of working, and I shared this with my executive team. Luckily, we had a great relationship with Simon Moutter from Spark, who was generous with his time. He helped educate us on how agile could be a part of the system fix, and I commend our Board and leadership team for being bold and embracing this approach as our way forward.”

The integrated future of retail

Six years on, with fundamental changes now bedded in and the business operating in a much more agile, modern way, the questions that dominate Grayston’s mind are about the future of retail. At a time when much has been written about the battle between ‘bricks and clicks’, how can retail be of most relevance and accessibility to people in the 21st Century?

In his view, for general merchants like The Warehouse Group, retail is about providing the right mix of the physical and the digital.

“It’s all about creating a platform of digital and physical assets powered by data – this is the future of retail.

“When you look at companies that have created the most value in the 4th Industrial Revolution, from 2007 onwards, it’s all platforms like Google, Facebook and the likes of Airbnb, the world’s largest property company – which owns no property – or Uber, the largest transportation company in the world, which owns no vehicles. These are all platforms powered by data.”

However, the thing that unites these platform businesses Grayston says is less the channel they use than their shared origins as businesses that solve problems for their customers – above all else.

“It’s about identifying the customer’s problem and solving it, which requires useful data. I believe we’re on the cusp of the third digital age, and the incremental and exponential growth of quantum computing power to connect data to serve customers with what they want.

“This means that the future of retail will be about recognising customers at every touchpoint and treating them consistently, understanding that their journey is no longer just physical or digital. Even in physical environment there will be a digital accompaniment, sensors that recognise you as you walk in and talk to you via your mobile phone.

“We’ll get to a point where digital will become fully integrated into our lives. You’ll walk into someone’s home, and if you like their couch the AR will tell you how you can see it in your own environment, or where you can purchase it for yourself. Using data science capabilities will allow us to solve problems for people in the most integrated and frictionless way. Our customer experience will just get better and better.”

“The data sets will become so vast that they will need to be gathered and machine-learned in real time and the only way to commercialize this at scale is through using AI as the master technology that learns through iterating customer use cases.”

Fostering innovation in New Zealand

Grayston says he is both optimistic and frustrated about the outlook for New Zealand.

“There is some tremendous innovation that goes on here, and our founder Sir Stephen Tindall has invested in many great Kiwi startups. That said, it’s frustrating that we’re not more purposeful and coordinated in our approach to fostering innovation as a country.”

“If you read Start Up Nation, a country like Israel has produced 40% of the successful startups in the world. This has been enabled due to a very coordinated public, private and academia partnership around what needs investment. Education has been coordinated with business needs, and every startup in Israel has the opportunity to draw venture capital from the Government. In turn, the Government invests in startups and industries that are important to the country. Here in New Zealand, we’re an affluent nation, and we could take a similar approach. There’s an opportunity to be much more purposeful about our future growth.”

The only thing you can really depend on is the fact is that change is here to stay and that the pace of change will continue to accelerate.

“Looking ahead, the only thing you can really depend on is that change is here to stay and that the pace of change will continue to accelerate. The ability to react swiftly to change is the most important business characteristic these days. Whatever way you choose to do it, build flex and agility into your business model.”

So, what does it mean for the Warehouse Group?

“Strong talent is critical to foster innovation and I’m lucky I’ve been able to attract great people. Agile has helped us unlock our potential both as a leadership squad, and an organisation. There’s now empowerment and freedom in the places that are closest with the customer to innovate and execute well. It’s early days, and there’s a lot more work to be done, but we’ve made some great progress. I’m excited about the future.”

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