Resiliency; the Fine Art of Balancing E-commerce & Brick and Mortar Investments
This past week, Forever 21, a fast-fashion apparel retailer with over 700 stores and 30,000 employees worldwide announced filing for Chapter 11. While the news struck the retail world, they aren’t the first large format retailer to announce store closures to re-center themselves and focus on their core products. However, they are the first to break this news after what felt like a long silence and reconciliation in the retail domain which signals to the rest of the market; store closures aren’t over just yet.
So, what can we learn from those retailers that have been re-focusing to get ahead of a similar fate? This week at North American e-Tail Operations Summit (NAEOS) in Atlanta, Georgia, Best Buy took the stage to share on their journey of how they re-centered their customer focus and throughout 2013-2018 focused on, “Renew Blue” to work on their brand identity and delivery to their customers which resulted in a 100% YoY growth in their customer delivery accuracy and volume flow. Similarly, brands like Walmart, Office Depot, and Canada Goose also took to the stage to share similar stories of focusing on meeting and delivering on consumer expectations, and the transformation necessary to compete in today’s mixed shopping experience world.
Here are just a few morsels to munch on that have helped brands re-design the way they run their business, reduce their overhead, maximize their reach, and optimize their supply chains to meet today’s consumer pressures.
Today’s consumer expects localized assortments with a global impact.
This double-edged sword doesn’t have to feel ominous. You can localize your assortment and still make impactful decisions for the business without sacrificing sustainability efforts. “But how?” you may ask. Often, the broader the assortment, the larger the volume of inventory, which leads to more potential waste if a product doesn’t sell as anticipated.
Invest in an intelligent assortment planner and focus on Single Minute Exchange of Die (SMED) processes in your manufacturing environments. Using SMED as a postponement strategy in manufacturing allows the brand to identify consumer demand signals and adjust assortment much later in the manufacturing process, which in turn reduces bullwhips on products that aren’t moving and allows the brand to have a more environmentally friendly output by not over-producing products that aren’t selling.
Additionally, investing in intelligence within the forecasting and planning stages also allows organizations to make smarter decisions before a tech pack is scheduled for production or a buyer plans their season. Using artificial intelligence (AI) can enable planners to identify external causal effects such as weather, and how that can impact their sales, and make smarter decisions moving forward.
E-commerce is on the rise.
According to an article in Forbes, over 20% of apparel purchases last year were made online, while other industries such as grocery remained around 2%. Unfortunately for Forever 21, their online revenue was around 16% leaving the opportunity to ponder if their sea of stores increased their overall brick and mortar revenue, or just diverted customers to more places with fewer visitors per store than if they had condensed the number of stores.
E-commerce shopping has steadily been on the rise since the early 2000s but has grown at a much faster rate over the past few years. The rise in single item orders or simply the transition from bulk distribution to each level picking alone is cause for an infrastructure alignment in most warehouses and consideration on how to more efficiently ship goods for every brand. From changing out racking for pick belts, to changing weigh outs for cube outs in trailers, to negotiating carrier parcel rates rather than OTR Driver wages, the supply chain game is forever changed, and the complexity is leading many conversations around attracting talent to supply chain, how to retain talent, best methods for cross-training talent, and investments in automation.
Because of these transitions, continued conversations with your Warehouse Management provider are critical to understanding how they’re going to continue to enable your organization to transition and scale. Additionally, investments in Workforce Management solutions to empower your associates and give them autonomy will help build those relationships that will continue to be critical to attract and retain.
Failure to plan is planning to fail.
Having demand signals coming from stores, e-commerce, distributors, and influencers can leave planners in a jumble of information with no way to sort through how best to place inventory. The more places we could potentially store our inventory, the more inventory we’re likely to carry. Without careful curation of this inventory, it’s highly likely much of that inventory will be marked down hurting the brand image and eroding your margins.
“Location, Location, Location,” the old saying goes. They aren’t wrong. Centralizing inventory, whether that be by using a back room of a store as an e-commerce fulfillment node or using a central DC to fulfill both store and online demand allows for reduced inventory but has the potential to increase time to delivery depending on the distance. Knowing these trade-offs during any network planning strategy can help identify the ideal trade-off levels for your organization.
However, key real estate investments can be expensive if not strategically selected. While retailers like Forever 21 capitalized on capturing empty storefronts from those before them who left them vacant, this added cost impedes on an ability to remain a “low-cost” brand. By selecting centralized DC locations in low-cost areas to fulfill from rather than multiple stores in high rent neighborhoods, these costs can be reduced dramatically.
Experience is king both online and in-person.
The “treasure hunt” days are not lost – however, they’re waning. As e-commerce grows, consumers have become enamored with filters – and I’m not just talking about on Snapchat and Instagram. The ability to have an assortment of thousands of similar items, yet narrow quickly by their requirements (size, color, dimensions, features, etc) is enticing for those with limited time and a specific desire.
For treasure hunters, that brick and mortar experience is still key, but as expectations on curated assortments are on the rise (see point 1), stores that have previously relied on this type of consumer have felt the pain.
While we take in some of this food for fodder, this can all be rolled up into one primary takeaway;
Resilience is a fine art. We must listen (to our customers). We must observe (our supply chain). We must act (ahead of disruption).
The challenges retail is facing today have evolved. We cannot sit back. With advances in intelligence and technology and exponential amounts of data at our fingertips, there’s no longer an excuse for naivete or to turn a blind eye. We can make all the observations in the world, but without action, there will be no changes to our results.
Your call to action today: Start the conversation within your organization about the power of intelligent decision making on your business and bottom line. What information do you have available that can demonstrate value to future decisions on product, placement, price, promotion, and margin? Numbers speak volumes on where your organization is struggling and where your low hanging fruit is. Listen to your data – it sees things you might miss.
The consequence if you don’t? Shuttering your business, like a myriad of retailers have.
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