News Release

2015

2015 Retail and Wholesale Industry Report

Is your business geared to handle the top 10 risks to business?

The retail and wholesale industry in South Africa has grown from around R106bn in 2011 to a projected R122bn by 2015, despite a tough economic climate. The stakes are however very high with operating efficiencies bearing the brunt of increased scrutiny. Operating in an omni-channel environment means that innovation is the name of the game. The ability to access accurate and timely information in addition to proactively addressing risk at every level of the organisation is critical.

In the age of information overload, the retail and wholesale trade industry is facing a barrage of data about their customers, but many are struggling to make sense of the information and how to capitalise on it. Aon's 2015 retail and wholesale industry report contains detailed facts and analyses on the retail and wholesale trade sector in South Africa and weighs it up against global trends.

According to Clayton Ellery, a Commercial Senior Account Executive at Aon South Africa, the top ten risks that the retail and wholesale trade industry face in South Africa, comprise of:

  1. Damage to reputation/brand
  2. Business Interruption
  3. Economic slowdown/slow recovery
  4. Regulatory/legislative changes
  5. Increasing competition
  6. Distribution or supply chain
  7. Computer crime/hacking/viruses/malicious codes
  8. Technology failure/system failure
  9. Failure to innovate/meet customer needs
  10. Failure to attract or retain top talent

More and more retailers see damage to reputation or brand as the number one risk. "The finding is hardly surprising with many well-known retailers both locally and abroad finding their reputation affected by unexpected incidents such as data breaches, customer service failures, offensive language on apparel, extortion, inappropriate remarks or behaviour by company executives and supply chain disruptions. In an age of 24-hour news cycles and instant social media, a crisis could spread around the globe within hours or minutes. As a result, the increasing relevance of a brand or a product's reputation directly impacts the bottom line as consumers exercise their choice of where to shop," explains Ellery.

The response to any reputational crisis must be swift and on point. In addition, globalisation means that multiple culturally-appropriate approaches to managing risk are needed to handle crises across an organisation's global operations. "Meticulous planning for crises, understanding individual roles and responsibilities and developing a road map are keys to protecting a brand," explains Ellery.

Close on its heels is the risk that business interruption poses. "In today's environment, retail and wholesale trade companies are facing increasingly complex challenges such as network security breaches, uneven global economic recovery, supply chain disruptions, food safety, rising employment related litigation and strikes, natural disasters, economic and political risks - all of which could potentially cause tremendous disruptions to a business," says Ellery.

When asked to project the top five risk concerns in the next three years, respondents in the retail and wholesale trade industry list 'increasing competition', 'economic slowdown or slow recovery' and 'computer crime, hacking, viruses & malicious codes' as the top three risks. Interestingly, the retail sector indicated that cybercrime is projected to be a number one risk, reflecting growing concerns about rampant data breaches that companies have been experiencing in recent years.

South Africa is showing an increasing number of internet users who are steadily embracing a culture of online shopping, as can be seen from the increasing number of online retailers that are entering this unique space, as well as traditional bricks and mortar retailers now offering an online shopping service. The online domain is however fraught with risks relating to computer crime, hacking, viruses and malicious codes.

The Centre for Strategic and International Studies, a well-known Washington think tank, has estimated that the annual cost of cybercrime and economic espionage to the world economy runs as high as $445 billion—or almost one percent of global income. "The average time to resolve a cyberattack is also rising, climbing to 45 days, up from 32 days in 2013. As cybercrimes are becoming more rampant, more costly, and more time consuming to resolve, businesses are faced with an increased possibility of legal exposure, reputation damage, and operational interruption that can wreak havoc on their bottom line," Ellery explains.

As with previous studies, the 2015 retail and wholesale report findings highlight the interdependency among many of the top risks. Despite the fact, 63% of respondents cited senior management judgment and experience as the method most often used by surveyed organisations to identify and assess major risks facing their organisations.

"The increasing number of risks and their interdependency however necessitates the insights of a professional broker in the making of a well-rounded insurance programme that understands the risks the retail and wholesale industry face. While proactive measures to mitigate risk can be costly and time consuming, they are far less demanding than the consequences of a risk," concludes Ellery.

Aon conducts various risk management surveys that provide clients with comprehensive and insightful sector specific information on risk mitigation and the challenges of managing risks in today's globally inter-dependent environment. The interconnected nature of risks reinforces the importance of strategic risk management in every organisation and industry. As a risk solutions provider, Aon works with clients to help manage a diversity of risks through consulting and analysis, risk transfer, insurance and crisis management. These capabilities are carried out by experts with a deep understanding of the challenges facing clients in diverse industry sectors.

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