We Might Not See a Retail Distribution Snafu like this Again

a close up of a sign

While it’s not unusual to see popular consumer electronics sellout quickly around the holidays, the release of Sony’s PlayStation 5 and Microsoft’s Xbox Series X exposed the aged architecture of retail distribution and a lesson for CPG and retail brands.

The console wars have long been heated, and it was inevitable that gamers would rush to get a hold of the latest new tech; when news of out-of-stock signs hit, it’s no surprise that consumers were disappointed.

Even before the pandemic, it was clear for many retailers that imprecision of forecasting demand and lag at translating demand into inventory were structural constraints. The disjointed, inflexible supply chain process was designed to support brick-and-mortar distribution, and so, with the pandemic forcing distribution largely online, the existing model for retail distribution is ever more out of place. Especially when taken in the context of the accelerated digital efficiency born in 2020, customers have grown to expect more.

The lesson is a new generation of retail — what we call Retail 5.0 — which focuses on preparing well by allocating inventory, globally, across marketplaces on short lead times to optimize yields and so that they are able to meet surges in consumer demand. This unlocks three key ways of thinking about distribution that brands can start adopting now in order to keep up with the new generation of retail.

1. Think like a Commodity Trader

Commodity traders swap inventory based on supply and demand dynamics to maximize profitability, and that’s where distribution trends are headed in CPG and retail. The firms that win will allocate inventory to different distributors, or marketplaces, on a daily basis to optimize their yields.

What allows this new trading shift is the mass digitalization of the retail end consumer that has been born out of modern marketplaces like Amazon, Walmart and Alibaba. Because these marketplaces rely on a similar set of ways to create code and algorithms, they can be served using a single trading platform, providing real-time SKU-level visibility of global consumer demand by market and platform.

However, over the next few years, CPGs will still need to carefully study how to optimize presence and performance on the different models being deployed by the platforms, and the yields to be gained on each.

For example, Walmart’s Online Grocery Pickup strategy of getting customers to drive the last-mile delivery through to a collection point potentially opens up a double weighting for CPGs selling stock through this model. Are they potentially getting two bites of the cherry through (1) in-store, and (2) online, for the same stock unit, therefore driving higher stock yield?

2. Think “No Out-of-Stocks”

In the next generation of retail distribution, marketplaces will be able to command that their CPG suppliers are always behind them. An out-of-stock will mean a customer is lost forever, and the distribution dynamics will ensure that surges in customer demand are always met and that there will never be an out-of-stock.

To achieve this, CPGs and retailers will need to move to an operating model combining daily inventory demand and supply forecasting by marketplace and a highly agile global product creation and distribution model with flexible capacity.

From our analysis, reserving at least 30% of stock to be available for rapid distribution provides the pace and flexibility to defend against smaller, more nimble product manufacturers that will pose an increasing competitive threat.

3. Think like Amazon and the Global Marketplaces

Don’t try to be like Amazon — it’d be impossible to do — but by thinking like them and their global marketplace peers like Walmart, Alibaba and, retail brands can best compete within their structural frameworks.

The best example is with “sales events,” such as Alibaba’s Singles Day or Amazon’s Prime Days. We forecast Alibaba’s sales day revenues to grow from about $50B in 2020 to $80B in 2024 — a brand’s sales at any one of these events in 2024 could easily exceed $1B on a single day.

More generally, retailers will be rewarded for deeply understanding what it takes to be on these marketplaces, how to convert their shoppers to “subscribe and save” purchasing, locking them into a far stickier and more profitable relationship. These brands must understand each marketplace’s ecosystem and how to win within it.

The Next Generation of Retail

In this new future phase of worldwide retail, growth for CPG and retail brands will be driven by online shoppers on a relatively small number of giant online marketplaces. By 2025, our data forecasts that online sales will account for around 40% of total sales for CPG and retail, and that those who have optimized to these trends will outcompete their peers and dominate their categories.

These effects will take time to take hold, which makes the current moment one where retailers can gain significant market share by adapting fast to these new retail realities.

Jack O’leary is senior retail insight analyst at Edge by Ascential.

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