By Scott Welty, [email protected]
The retail industry is in the midst of a massive transformation driven by consumers’ adoption of digital technologies. By 2020, the retail landscape will have fundamentally changed how every retailer will go to market. No segment of retail will be more impacted than the brick-and-mortar store.
Here are seven trends that brick-and-mortar retailers should consider to build a winning strategy:
1. Social networks: The wealth of information about consumer shopping behavior in social networks is untapped gold for retailers. By using the right analytics tools, retailers can effectively mine this data to gain insights into what consumers want to buy and channel these insights into more effective merchandising plans. Conversely, retailers can leverage social networks to build relationships and influence what and how consumers buy.
2. Showrooming: The phenomenon of shoppers coming to brick-and-mortar stores to examine merchandise they later buy online is a paradigm shift that is to stay. Brick-and-mortar retailers must embrace it as an opportunity to engage in-store shoppers to grow revenue and loyalty both online and in physical channels. This will require better trained and equipped store associates with assisted-selling tools, new service-based store layouts with curated assortments, and greater store autonomy to leverage local events, negotiate prices, and cater to local demographics.
3. Store-specific assortments: This is an extension of embracing “showrooming.” The era of “push-based” mass merchandising is gone. Retailers must cater to the local consumer, segment and curate assortments according to their preferences as gleaned from their all-channel purchases, and create store-specific planograms that maximize shelf-level performance.
4. Store-size rationalization: With the changing role of stores from big boxes jammed with inventory to destinations for a seamless brand experience, retailers will need to reevaluate and rationalize their real estate strategy. Will the traditional mall anchor stores move to smaller strip centers? Should once abandoned rural locations be reconsidered? Retailers must understand the new role of physical channels in the all-channel commerce and adjust store sizes, layouts, assortments, fixture arrangement and "entertainment" factors accordingly to deliver the brand experience.
5. Near-field communication: In addition to mining social networks, retailers must begin leveraging near field communication technologies within their stores to better understand how shoppers move through the store to online purchasing decisions, where their interests lie, and to offer them contextual, real-time options through mobile apps and interactive store displays that contribute to new shopping experiences.
6. Growth in order fulfillment from stores: One aspect of the all-channel shopping experience is the customer’s ability to order online and then pick up the merchandise from a local store. This requires traditional retailers to re-examine policies on staffing, compensation, task assignment, inventory planning and sales reporting. Fulfilling online orders from stores raises new issues such as not cannibalizing inventory at the expense of foot traffic and how to measure and compensate store associates and managers for sales made online, but fulfilled in the store — for example, where is revenue for the sale assigned?
7. Growth of the “dark store:” Retailers have started to turn strategically placed, but underperforming stores into non-selling “dark stores” designed to fulfill online orders for same-day or next-day deliveries. This practice will require massive changes to the retail space and tremendous focus on how they source, fulfill and deliver products timely through supply chain planning and warehouse management execution. It must also be combined with a flexible and dynamic transportation network in order to move goods profitably with greater emphasis on collaboration with suppliers.
Brick and mortar retailers who want to leverage these seven trends to become retail leaders in 2020 must consider the entire shopping ecosystem to excel in the following five disciplines.
1. Deliver an all-channel shopping experience: Consumers want a single, consistent shopping experience regardless of which channel they choose to engage your brand. But this entails more than providing a consistent look and feel across channels. It requires that retailers have a 360-degree view of the customer, using contextual data to personalize marketing strategies based on the customer’s unique shopping patterns and preferences.
2. All-channel demand sensing: Creating a seamless all-channel shopping experience begins with accurately sensing demand across all channels simultaneously to create a single forecast of consumer shopping behavior. Retailers must break down the demand silos and create a single, unified version of demand truth to feed the all-channel forecast engine.
3. Customer-centric channel assortments: Retailers need to create curated assortments tailored to the customer’s shopping patterns. It is important to recognize that the channel of demand (where the order is placed) may often be different from the channel of fulfillment (where the merchandise is picked up or shipped from). The curated assortments must be coordinated with the customer’s channel of demand, while inventory and distribution operations must be coordinated with the channel of fulfillment. Based on the customer and their type of purchase, these could be the same or separate channels.
4. Flexible and responsive supply chains: Fulfilling the brand promises to consumers in the all-channel shopping experience requires supply chains that are immediately responsive and flexible. This can only be accomplished with real-time supply chain solutions encompassing all channels and directing all distribution centers concurrently. Inventory must be pooled virtually across the network to support these real-time operations. Segregating inventory and distribution operations by channel will no longer be efficient, nor will it provide the level of customer service demanded by the all-channel shopping experience.
5. Profit-based distributed inventory management: As retailers evolve supply chain operations from single channel transactions to all-channel order orchestration, processes become more complex, thus more prone to escalating costs. To ensure the profitability of all-channel operations, retailers must carefully balance the cost and service variables in distributed inventory management. This requires a real-time view of orders, inventory and expected deliveries from suppliers.
There is no question that life for brick-and-mortar stores in 2020 will look vastly different than it does today. But the change is already in full swing. Retailers who want to survive and be winners must start their transformation now. It would be unwise to let your competitors get there first.
Scott Welty is VP, industry strategy at JDA Software, which offers a broad portfolio of supply chain, retail merchandising, store operations and all-channel commerce solutions to help companies manage the flow of goods from raw materials to finished products and into the hands of consumers. He can be reached at [email protected].
By Scott Welty, [email protected]