The majority of focus in retail today is all omni-channel this and omni-channel that. I believe now it is not about how I do omni-channel, it is how I do retail. Transacting business this way is the way of retail now and in the future. Five pillars support retail. Each pillar is dependent on the others, yet in very different ways for different retailers. There is no “prescription” to follow to support retail today, even by type of retailer – every Retailer presents unique challenges and opportunities on the journey to the next phase of Retail.
Retail used to be about one-to-one relationships: Purchasing a SKU from a single vendor; a SKU went to one DC; a store only received freight from one DC; and customers generally shopped from a single channel for a given retailer. That was the state of retail. Retailers knew what they did best, who their competition was and customers found them if they needed something. In the later part of the century (interesting to say that out loud), this started to change. Consumers started to push for more goods and services and demanded more specialty when shopping: service, selection and price. Competition increased along all of these fronts and required retailers to respond. At the same time growth was a premium for businesses and retailers needed to compete more aggressively to retain customers and their pocketbooks
Individuals creating Catalogs who saw the opportunity that home delivery afforded an opportunity to sell without a physical storefront. Store retailers expanded product categories to appeal more broadly to their customers, “specialty” retailers catered to a specific niche of products or customers, catalogers created specific books for segments of their customers, and then commerce on the web started in the late 1990’s. It became a land grab, since there is only so much land in retail. Everyone looked to each other’s land and thought it looked good to have, so moved in that direction – competition is at an all-time high and continuing to increase every year. - As my old boss used to say, “Jim, I don’t want all the land in Montana, just the land next to me” and so it began in retail.
While there has been competition in retail since the dawn of time, it was easy to spot who the competitors were. They were the person down the street that sold what we sold. They were the priority. Now, competition is everywhere – contesting anywhere from a single SKU to whole categories. Everything is in play. Further complicating the situation, the customer has now taken control of the buying experience. They demand to shop how, where, when and in more and more cases for how much. It is now a many to many world: many more, global vendors; many more SKU’s; many distribution points (DC’s, 3PL’s and Stores). Many shopping channels where all components of a company must be up to the challenge Retail and the new customer require staying competitive. I would suggest the following 5 pillars as key to the equation to compete in this climate
Inventory Optimization
Challenging as it is to optimize inventory in a single channel or a one-to- one model, the many-to-many paradigm has significantly raised the difficulty of managing inventory. Retailers must understand not all inventory is created equally: initial price and initial cost no longer rule the decisions made regarding inventory exclusively. It is about the total cost to serve that unit of inventory to the end customer inclusive of returns. Retailers must understand these concepts regarding inventory:
• SKU velocity – what is the selling velocity of any given sku? I.e. how fast does it move through the pipeline? Understanding the supply and the selling characteristics are the keys to managing inventory in the new Retail paradigm. The majority of items are classified as slow-movers. Manage items by velocity characteristics keeping in mind the assortment.
• Track costs at each step of the process from source to consumption to understand and analyze the Total Cost to Serve (TCS) for each item.
• Understand the target service levels by location and customer profiles (specific customer segments, by delivery point) balancing sales by the total cost to serve.
We'll cover the other four pillars in subsequent enewsletters, so stay tuned!
Jim Brownell is enVista Senior Director.
Retail used to be about one-to-one relationships: Purchasing a SKU from a single vendor; a SKU went to one DC; a store only received freight from one DC; and customers generally shopped from a single channel for a given retailer. That was the state of retail. Retailers knew what they did best, who their competition was and customers found them if they needed something. In the later part of the century (interesting to say that out loud), this started to change. Consumers started to push for more goods and services and demanded more specialty when shopping: service, selection and price. Competition increased along all of these fronts and required retailers to respond. At the same time growth was a premium for businesses and retailers needed to compete more aggressively to retain customers and their pocketbooks
Individuals creating Catalogs who saw the opportunity that home delivery afforded an opportunity to sell without a physical storefront. Store retailers expanded product categories to appeal more broadly to their customers, “specialty” retailers catered to a specific niche of products or customers, catalogers created specific books for segments of their customers, and then commerce on the web started in the late 1990’s. It became a land grab, since there is only so much land in retail. Everyone looked to each other’s land and thought it looked good to have, so moved in that direction – competition is at an all-time high and continuing to increase every year. - As my old boss used to say, “Jim, I don’t want all the land in Montana, just the land next to me” and so it began in retail.
While there has been competition in retail since the dawn of time, it was easy to spot who the competitors were. They were the person down the street that sold what we sold. They were the priority. Now, competition is everywhere – contesting anywhere from a single SKU to whole categories. Everything is in play. Further complicating the situation, the customer has now taken control of the buying experience. They demand to shop how, where, when and in more and more cases for how much. It is now a many to many world: many more, global vendors; many more SKU’s; many distribution points (DC’s, 3PL’s and Stores). Many shopping channels where all components of a company must be up to the challenge Retail and the new customer require staying competitive. I would suggest the following 5 pillars as key to the equation to compete in this climate
Inventory Optimization
Challenging as it is to optimize inventory in a single channel or a one-to- one model, the many-to-many paradigm has significantly raised the difficulty of managing inventory. Retailers must understand not all inventory is created equally: initial price and initial cost no longer rule the decisions made regarding inventory exclusively. It is about the total cost to serve that unit of inventory to the end customer inclusive of returns. Retailers must understand these concepts regarding inventory:
• SKU velocity – what is the selling velocity of any given sku? I.e. how fast does it move through the pipeline? Understanding the supply and the selling characteristics are the keys to managing inventory in the new Retail paradigm. The majority of items are classified as slow-movers. Manage items by velocity characteristics keeping in mind the assortment.
• Track costs at each step of the process from source to consumption to understand and analyze the Total Cost to Serve (TCS) for each item.
• Understand the target service levels by location and customer profiles (specific customer segments, by delivery point) balancing sales by the total cost to serve.
We'll cover the other four pillars in subsequent enewsletters, so stay tuned!
Jim Brownell is enVista Senior Director.
