Why Retail Tax Teams Need a New Game Plan

Many retailers swiftly enacted major changes in response to the COVID-19 pandemic. While the increased adoption of online commerce, omnichannel models and new and not-so-new delivery approaches (e.g. buy online, pick up curbside) paid off handsomely, now is not the time to ease up on transformation efforts, according to McKinsey.  

Noting that the top 10% of publicly traded retailers currently account for 70% of the sector’s overall economic profit, the consulting firm encourages retail companies to adopt a new playbook while continuing to make “bold moves at speed” in a “winner-takes-most industry”. 

The playbook presented in McKinsey’s article details emerging consumer trends and related organisational needs, including three with major implications for retail tax groups:  

1. Network complexity: As I’ve mentioned before, the line between different shopping, fulfilment and customer interactions channels is blurring. McKinsey expects more physical stores to operate as a combination of showroom, service centre and fulfilment hub. “For some retailers,” McKinsey reports, “two-thirds or more of e-commerce orders already touch stores; ship-from-store could account for 30 to 50 percent of physical store volume in the next several years.” Managing these increasingly complex networks requires retailers to enhance their analytical capabilities and to inject greater flexibility into their tax management capabilities. This requires a powerful, speedy and unflinchingly accurate retail tax solution.  
2. ESG requirements: Products that promote sustainability-related benefits on their packaging have outperformed products that do not make these claims in the past 60 months, according to joint McKinsey-Nielsen research. In addition to responding to these types of customer preferences, retailers will “need to evaluate business decisions using an environmental, social and governance (ESG) lens,” according to McKinsey. “They’ll not only prioritise and invest in ESG-related actions but also make consumers aware of these actions.” Tax departments have an integral ESG role to fulfil, including the development of strategies and approaches to optimising new clean energy tax credit and managing new ESG-related taxes and exemptions. (A successful response to ESG taxes also requires new relationships, processes and tax-technology capabilities, according to this Vertex-Deloitte virtual discussion.)  
3. Advanced data analytics: Retailers with more advanced data analytics deliver more than twice as much total shareholder return as digitally average companies, according to McKinsey. That’s why the consulting firm indicates that retailers should embed advanced analytics throughout the organisation. In tax departments, this means deploying tools that provide real-time visibility and insights on progress towards tax compliance while automating larger portions of traditionally manual tax compliance and monitoring work.  

Retail tax leaders and their teams should look closely at these trends and needs – and the demands they place on tax automation solutions – so they can keep pace with the accelerating rate of retail transformation.