The surge in recent store closures coupled with numerous doom-and-gloom reports have led many retail pundits to predict a day of reckoning for retail. Yet while some cry “apocalypse,” perhaps it’s an opportunity for something else entirely: a retail rebirth.
Stores are still an important part of the retail equation — when done right. Retailers with outdated mentalities and practices don’t stand a chance in today’s digital world. To survive, retailers need to not only change the customer experience, but also the role of the store itself.
Evolve or perish
This April, online shopping hit a new milestone. For the first time ever, the total market share of “non-store,” or online U.S. retail sales was higher than general merchandise sales. Not only is online shopping here to stay, but so too are the high expectations consumers hold for their retailers — especially when it comes to product availability and shipment times. An industry study shows that five years ago, consumers were willing to wait 5.5 days for free shipping. In late 2017, that number had dipped to 4.5 days on average. Fast-forward to 2019 and that number has plummeted, thanks in large part to ecommerce giant Amazon. The company’s recent move to make free, one-day shipping the new norm for Amazon Prime members has put immense pressure on retailers, forcing them to re-evaluate how they can meet shoppers’ ever-increasing delivery expectations without breaking the bank.
In an effort to remain relevant and competitive, many forward-looking retailers have chosen to lean into their brick-and-mortar stores and create a unified, extended fulfillment network to better meet shoppers’ expectations — something the online-only Amazon cannot do. While using stores to facilitate the supply chain “last mile” has the potential for significant margin impact, the approach also presents retailers with new challenges:
Taking the guesswork out of demand management. At the top of this new challenge list is ensuring that merchandise is in the right place, at the right time, and in the right quantities to cover both online and in-store needs. With more ways for customers to buy, receive and return goods than ever before — coupled with the disparate selling patterns of each brick-and-mortar store location — gaining (let alone maintaining) an accurate view of demand still eludes most retailers. Achieving this balancing act without cannibalizing sales on either side is particularly challenging for apparel retailers, who not only have to predict and stock for style and color, but also for size.
Making matters worse, traditional rules-based order management systems simply pull inventory from the store in closest proximity to the customer or the store with the lowest shipping costs. They do not take things such as store walk-ins, in-store returns for online purchases, and online purchases with in-store pickup into consideration. The result is increased costs as stores with high demand sell out and cannot cover walk-ins. In fact, a 2018 study shows that shoppers encounter out-of-stocks in as often as one in three in-store shopping trips. The study goes on to say that retailers are missing out on nearly $1 trillion in sales because they don't have product on hand when consumers want it. At the same time, without the ability to match inventory to the best view of demand, stores with limited foot traffic amass a glut of excess inventory, causing retailers to sell product at significant markdowns. Such inventory markdowns cost U.S. retailers $300 billion in revenues in 2018 alone.
Transforming returns into competitive advantage. As online sales have skyrocketed, so too have returns. Clothes don’t fit, they don’t look the way they were advertised, or maybe the consumer purchased several sizes of the same item to ensure the right fit. IHL Group estimates that worldwide, retailers lose more than $600 billion each year to sales returns. This “ghost economy” costs U.S. retailers $183 billion annually.
And even though people are buying their products online, most of them don’t want to deal with the hassle of shipping them back. In fact a 2018 survey of U.S. internet users found that 75 percent prefer to return online purchases in a physical store. Retailers who are using their stores as part of their fulfillment network have the opportunity to use these returns to their advantage by utilizing them to fulfill online demand. This removes a step in the supply chain and can help reduce costs. But in order to do so effectively, retailers must re-think the way they make inventory decisions.
Realizing the full ship-from-store promise
Retailers need a way to clearly understand how to best use store inventory and take advantage of location to maintain the edge they need to compete in today’s retail environment. If done correctly, ship-from-store fulfillment not only addresses rising customer expectations, but also helps retailers avoid markdowns and lost sales, decrease fulfillment costs and increase full-price sales.
Advancements in artificial intelligence (AI) and machine learning (ML) are making this possible by harnessing available data and adding real-time context to connect the dots on dynamic information — from available inventory, to return volumes to in-store traffic patterns — at scale. This holistic view empowers retailers to quickly identify the overall opportunity cost of each and every potential fulfillment scenario so they can make fast and informed decisions.
By embracing the predictive analytics afforded by AI/ML technology, retailers can reinvent themselves by optimizing inventory, modernizing supply chains and successfully meeting consumer demand across all channels and stores to thrive — not just survive — in the Amazon age.
Andrea Morgan-Vandome is CMO of Celect