A recent SupplyChainBrain article asserts that omnichannel (or multi-channel) sales are becoming so important that they are transitioning the retail sector "to a 'post-modern' consumer-centric era triggered by the speed of technological advancements, globalization and hyper-competition, both online and offline." ["Retail Industry in Transition to 'Wall-less' Omnichannel World, Study Finds," PwC US, Kantar Retail press release, 2 October 2012] Those conclusions are drawn from "a new report from PwC US and Kantar Retail, titled Retailing 2020." The article states, "Successful retailers will need to transform themselves to grow in an increasingly polarized world of greater channel fragmentation that will result in greater non-store retail growth and smaller retail formats."
In an earlier SupplyChainBrain article, Marc Wulfraat, president of MWPVL International Inc., noted, "The good news is that growth rates for e-commerce are significantly exceeding expectations for most companies." ["E-Commerce Causes Major Distribution Challenges for Retailers and Wholesalers," 15 March 2012] "The bad news," Wulfraat writes, "is that there are some very stressed distribution operations behind the scenes that are having difficulty keeping up with sales." In other words, the retail sector is rapidly evolving and only companies that are able to keep pace with the changes are likely to survive. As advertisements for the upcoming holidays are making abundantly clear, the battlefield for revenue involves both increased sales and better fulfillment. Wulfraat points out that one of the unique challenges facing online sales is that "web commerce peak shipping days are sharper, more intense and more concentrated than traditional store order fulfillment." He explains:
"Peaks run between November 1 and December 20 based on the buildup for Black Friday, Cyber Monday and Christmas. These massive surges place tremendous stress on the underlying throughput capacity and staffing requirements for supporting distribution operations. Another challenge is that many retailers sell products on their web store fronts which are not stocked in their distribution center(s). They rely on a network of wholesale distributors to fulfill consumer orders with transparency for these non-stock items. This involves a fairly complex set of wholesale distribution support requirements, including: inventory reserved for retailer web storefronts, compliance issues, retailer-specific pricing/taxes, paperwork, and rapid order-delivery cycle times, which are expected by the consumer."
Concerning the PwC/Kantor Retail study, Susan McPartlin, PwC's US retail and consumer industry leader, stated, "As we enter an increasingly complex retail landscape with accelerating competitive pressures and digital shopping options, retailers will need to prepare for a wall-less omnichannel retail world, one where shoppers will come to expect a seamless brand experience online, in-store and across multimedia touch points. This multi-format portfolio combined with the proliferation of small, urban, alternative retail formats will pave the way for future growth, dismantling the mass homogenization and scale assumptions that propelled two decades of retail growth." If McPartlin is correct, then some of the futuristic ideas that have been put forth for supplying "small, urban, alternative retail formats" may be implemented. To read about some of those ideas, see my posts entitled Surmounting the Last Mile Delivery Challenge is Urban Areas, Part 1: Pipe Dreams and Part 2: Small and Clean Vehicles.
McPartlin's comments imply what Wulfraat explicitly states, namely, "Key differences exist between providing distribution support services for a high-volume retail web storefront versus a traditional retail store network." Wulfraat continues:
"Distribution center operations are ... vastly different for internet order fulfillment as compared to retail store order fulfillment. Most often, the shipping unit of measure ordered by the consumer is different from the unit of measure ordered by the store. Unlike retail store orders, consumer orders tend to be small in terms of order lines and units. The design of the picking and packing operation is critical to the success of the e-commerce fulfillment center. Intelligent order-wave planning, intelligent batch and/or cluster picking, and slotting optimization are vital strategies needed to minimize the travel time required to pick internet orders. If volumes are high enough, a mechanized pick-to-belt system may be required to efficiently manage split case picking operations."
If that doesn't represent enough supply chain complexity, Wulfraat notes "many retailers have outsourced their e-commerce fulfillment operations to third-party logistics services companies because the supporting distribution requirements are so different from what they are used to." That adds an entirely new level of complexity. Wulfraat continues:
"This strategy has not been entirely successful for a number of reasons. The 3PL may operate a multi-tenant distribution center where the needs of all clients in the building are more paramount than the needs of any one individual tenant. In addition, the IT system support capabilities may be lacking in areas that negatively impact productivity levels and throughput capabilities of the retailer's distribution operation. Lastly, the 3PL may also have difficulty handling peak shipment volumes and the result may be a surge in expedited shipping costs to get the order to the consumer on time. Suffice it to say that, increasingly, retailers are now looking at ways to bring web order fulfillment operations in-house for self-distribution as a means of gaining more control over the operation and to increase margin on these orders."
If the PwC/Kantor Retail study is correct, retailers aren't going to have much time to transform. According to the report, "the U.S. retail industry will have entered the post-modern period by 2020 with the end of the growth of 'Supercenters' being a large change across the retail landscape." The article continues:
"Non-store retail, driven by online today, and mobile and tablet commerce in 2020 is expected to be the fastest-growing retail channel. Large chain retail growth through the decade is anticipated to remain very close to the early 2010s recessionary rate, with one-third of large chain growth projected to come from online sales. Discounter channels will capture larger growth while food, drug and mass channel retailers are expected to face a tougher growth environment through 2020."
The study also highlights another trend that I've discussed in previous posts: the consumer market is rapidly being bifurcated into older and younger consumers. It continues:
"In its analysis of shopper behavior changes, Retailing 2020 finds that the older generation, having lived through several recessions, is more financially conservative than the younger generation. By 2020, this generational difference is creating two mega-cohorts – the 'over '50s' and 'under '30s' – dividing the U.S. into two distinct shopping nations. 'The demographic and income gaps between shopper segments are expected to widen creating more shopper segments with different expectations for product offerings and shopping experiences,' said Bryan Gildenberg, Kantar Retail's chief knowledge officer. 'Retailers must do away with the 'one size fits all' approach and consider the ever-diverging needs of both the 'have' and 'have-not' consumers to remain viable in the future. Forward-thinking retailers should diversify format portfolios, test smaller footprints and offer niche products targeted to specific shopper segments.'"
The final conclusion of the report is that "by 2020 the speed of technology innovation will further transform the retail landscape. Retailers will leverage the use of 'big data' to gain a deeper understanding of individuals." In other words, the study agrees with other assessments that indicate targeted (or algorithmic) marketing is going to play a larger role in the future. Josh Leibowitz, a partner in McKinsey’s Retail Practice, agrees that "retailers need to be effective multichannel organizations." ["How To Reach Today's 'Channel-Surfing' Customers," Forbes, 3 October 2012] To be effective, he writes, "Retailers need to analyze all the data their customers create, and then translate the insights into targeted communications/offers across a range of touchpoints." When it comes to targeted marketing, Leibowitz states that McKinsey & Company has seen "three flavors of offers that have been very effective in reaching the right customer in the right place at the right time." They are:
"■ Location-based offers: Vendors such as Visa have introduced highly targeted location-based offers to consumers as they make purchases at a set of partner retailers. Scan your Visa at a Gap, and get offers for retailers within walking distance. Google has rolled out applications that enhance shopping on-the-go including indoor maps as well as mobile coupons and targeted local search with rich data such as inventory, store hours, and consumer reviews.
"■ Behavioral trigger-based offers. Consumer-facing companies have an opportunity to reduce reliance on some third party vendors by getting clear on the 'triggers' that ignite an offer and making the offers highly personalized. For example, one retailer has tagged its consumable products with lifecycle purchase patterns and then sends reminders to consumers prior to purchase time. These reminders get enhanced if they identify the consumer browsing online either on their sites or on other sites to make sure they don't lose the moment of purchase. Other retailers use 'comeback offers' for lapsed high-value customers, especially store loyalists whose loyalty has lapsed as they move online; or online only coupons to encourage consumers to 'cross the channel' from store to online.
"■ Event or seasonal triggers. This involves mining data for lifecycle events to generate targeted messaging based on an automated trigger engine. Sears, for example, has developed a response model based on weather, e.g., targeted emails on window AC units during a heat wave targeted at relevant zip codes 3-5 days after a heat wave."
Targeted marketing technologies are evolving rapidly and Enterra Solutions is at the forefront of this effort. Companies that successfully traverse the emerging omnichannel business landscape will need targeted marketing as part of their kit to be successful.