No Global Consumer: Q&A With A.T. Kearney Lead Partner Greg Portell

Greg Portell leads the global consumer practice at consulting firm A.T. Kearney. He talks with Global Finance about the challenges to serving consumers around the world as well as new opportunities.

Global Finance: How do consumer-oriented companies compete in the global economy?

Greg Portell: CPG [consumer packaged goods] companies are more global, while retailers tend to be regional. Breaking out of their region with any scale is difficult because the retailers need a footprint, local compliance and the technical elements beyond putting products on a shelf. While consumer spending and consumer confidence are up, companies are challenged to meet quick-changing consumer demand and expectations. This is amplified when retailers are working in their nondomestic markets.

You’re seeing a retail renaissance with some of the established players redefining their business; but, more importantly, new concepts are emerging. The challenge, especially for CFOs, is to be able to adapt profitably.

GF: Is there a global consumer?

Portell: We’ve heard about the globalization of companies, but the fact is that consumption is local. Previously, CPG created global innovation centers that drove the products, but now we’re advising clients to push innovation closer to the consumer. If you’re going to be agile, you have to be as close to the consumer as you can be; and you need the infrastructure for that concept to work in practical terms.

GF: Where are the opportunities within retail?

Portell: One is the “customer experience.” A retail environment has a tactile, multidimensional energy—that’s a very different experience than going to a big box retailer that looks like a warehouse. We estimate that the retail store is underinvested by about $100 billion—investment that would go into creating the environment consumers want and help retailers reinvent what it’s like to be a retailer.

GF: What’s the impact of fast fashion and just-in-time delivery?

Portell: Fast fashion gives companies an opportunity to fail quicker. The old retail environment may have had four seasonal cycles—if you miss one, you discount it and move on. Fast fashion has three- or four-week cycles, and missing a few creates a real problem. When retailers gut their merchant organizations in the spirit of efficiency, it is hard to build the muscle needed to succeed in fast fashion.

GF: How can retailers build competitive strength?

Portell: With store labor, merchandising and marketing, or innovation. Companies need to compete on their core strength, and that comes down to priorities. A CPG or retail company that’s always on the cutting edge, that needs to turn ideas quickly, get them on the shelf and decide when to pull the plug, is very different than a billion-dollar operation that’s building a lifestyle brand across multiple categories. Companies that go for lean, and not smart, now have to retrench; but everything kind of solves itself when there’s a more consumer-centric view.

GF: What are the roles of private equity and venture capital?

Portell: Private equity at a reasonable cost makes sense for retailers that need to take themselves private to reinvent themselves, but it doesn’t when PE investors buy retail assets to leverage them and take inflated management fees. When PE funds buy retailers, they often hire a senior executive who has worked in retail for a long time, often ignoring the need to find someone to reimagine the brand.

Venture capital funds have portfolios and can help startups create connections that make for stronger companies. There are challenges when valuations get out of hand though; because there’s only so much capital, only so many opportunities that make sense.