Since last year, the number of mergers and acquisitions in the UK’s retail sector has expanded by 15% as companies seek to mitigate their losses against “slowing organic sales growth”. It is easy to think of store numbers, staffing and market power as the main features of a merger, but retailers can also produce significant savings by harmonising their digital infrastructure, as the proposed tie-up between Sainsbury’s and Asda may demonstrate. Data management presents challenges that are uniquely complex in retail partnerships. However, if they choose their technology wisely, merging retailers can realise a number of tantalising opportunities to boost their revenues.
The customer comes first
Retailers are particularly likely to gain from increased access to wider pools of customer information. This is especially true when the partners of a merger operate in different markets, as it gives them the opportunity to cross-reference the spending analyses of their respective customers. In a world where consumer spending patterns change constantly, the more data a retailer can access, the more effectively they can respond to market demands. Inventories, prices and special offers can all be shifted in response. Many companies track consumer spending patterns through loyalty cards, recording transactions using mainframes to produce a database of customer profiles. In fact, 23 of the top 25 US retailers use mainframes to do this – and for monoliths such as Tesco, mainframes document hundreds of millions of financial transactions a year.
Acquiring access to such rich customer data is one of the key benefits of a merger, but it is a perk that comes with strings attached. Complying with data protection legislation is one of the most significant issues. When merging with a rival, a retailer must consider how to acquire the consent of its customers so that it may share their data under the EU’s General Data Protection Regulation (GDPR). At Sainsbury’s, for example, all Nectar cardholders would have to consent to their data being shared with Asda and a reciprocal agreement would be required for each of Asda’s Cashback Credit Card users. Regulators may also play a role in deciding the extent to which two particularly dominant retailers should be allowed to share this information. The opportunities presented by a merger must be reconciled with each of these data protection challenges before profits can be realised.
A retail merger also presents significant opportunities at the back end of a business, specifically with regard to its suppliers. Through acquiring a rival and increasing market share, a retailer can approach existing suppliers with more bargaining power to reduce prices. Merging supply chains with a rival may offer the company a broader range of supply options, but the process of transferring a complex matrix of supplier relationships into a new database can be a logistical nightmare.
>See also: The evolving retail model
First, merging partners must decide which of their databases will be used to complete the transfer, as well as how to move the data securely. Next, they must consider the fact that modern supply chains allow retailers and suppliers to share access to their respective computer systems, transferring data across links between them. Synchronising the hundreds, if not thousands, of supplier relationships that Asda has with suppliers across the UK with those of Sainsbury’s, without disrupting any of these digital links, will be one of the greatest technological challenges of the merger. On the other hand, success promises sizeable rewards: Sainsbury’s and Asda plan to save up to £500m through “efficiency savings”, £350m of which will apparently be generated from “access to better… buying terms” with suppliers.
An ever-closer union?
In partnerships between two competing retailers, compromise is the order of the day, not conquest. Mergers produce a profit when supply chains are harmonised effectively and mainframe databases are shared along with the millions of transactions that they harvest and analyse. Ultimately, the scope of these benefits rests upon how the tie-up is structured and the technology that is used to administer it. The press rarely focuses on digital issues when it comes to mergers, but the real profits and losses of a retail tie-up may actually lie in the data held behind the scenes.
Sourced by Guy Tweedale, regional VP, Rocket Software.
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