HRC study reveals they key challenges in retail supply chain — starting with online returns
Consumers may have an “I want it now” mentality, but most retailers are still struggling to deliver on the demand.
That’s one of the key findings of a survey by HRC Advisory, a leading strategic retail advisory firm and unit of Hilco Global, which revealed that 80% of retailers are not prepared for the “magnitude of change” required to transform their supply chains to a customer-centric, omnichannel model.
Ninety-five percent of retailers said their biggest issue in transforming the supply chain was how to mitigate online returns, which can run as high as 30% and are quite costly to a retailer.
In addition, 85% of retailers noted the high cost of online returns to a store, particularly when the item is not carried in that store. And when returning to a fulfillment center or supplier, retailers incur incremental freight costs, the possibility of shipping-related product damage, as well as a lost opportunity for a replacement sale in-store.
Other key challenges include:
• Cannibalization of in-store sales. Seventy-five percent of the retailers surveyed said that some of their e-commerce sales are cannibalizing sales that would have otherwise been in stores. And, although e-commerce sales growth rates are often 10%-15% greater than physical store growth rates, 70% of retailers are still struggling to develop a profitable economic business model for e-commerce while maintaining acceptable profitability for stores.
• Outdated systems and infrastructure. All of the retailers surveyed felt that fully integrating inventory and fulfillment between the online and physical store channels would achieve the most effective customer outcome and the lowest margin risk. But 52% admitted that they do not have the systems in place to provide the required visibility to inventory in each store.
Also, retailers lack the necessary processes to compete with their e-commerce-only counterparts, as only 35% of those surveyed had online capabilities such as vendor drop ship, or order in-store and deliver to the customer. The good news: 60% of the retailers surveyed have plans to invest further in their e-commerce-related systems to provide an improved customer experience.
“Competing with pure-play e-commerce retailers, and accommodating the multitude of new fulfillment options, requires a significant increase in supply chain flexibility and better integration between the physical store and e-commerce network,” said Farla Efros, president of HRC Advisory. “Without these changes, traditional retailers will not be able to execute a truly customer-centric model.”
For commentary by Efros on the study, click here.
In other survey findings:
• 80% of the retailers surveyed identified inventory visibility and accurate assortment planning between online and physical channels to be the top-two challenges in enabling fulfillment capabilities.
• Only 53% of retailers are currently able to present customers with accurate inventory information and to fulfill the entire order at the time of online purchase.
• Only half of the retailers are able to ensure fulfillment from the closest location when an item is available in multiple locations and distribution centers.
• More than half (55%) of the retailers continue to have dedicated fulfillment facilities for each channel. Only 25% of these retailers are launching initiatives to combine these facilities in order to serve both channels more cost-effectively and optimize their working capital investments in inventory.