Building Next-Generation Retail Operating Model
By Scott Welty, VP-Retail Strategy, JDA Software
Five Things Every Retail CEO Needs to Know
For many decades, a retail organization’s success or failure hinged upon its ability to react to market conditions. But today, the velocity of disruption to retail markets is coming at such a pace that not even the fastest level of reactivity can keep an organization from falling behind the curve and potentially losing market share.
Mobile devices, e-commerce sites, social media and other online tools and apps are making it possible for customers to easily browse, shop and buy across multiple retail touch points, anywhere at any time. Retailers that respond by offering more product choices across more touch points must manage greater operational complexity, all while delivering a seamless and inspiring brand experience along the way. All of these variations are placing enormous pressure on today’s retail model, which for most companies was built for yesterday’s brick-and-mortar retail environment.
Retailers must learn how to manage these elevated expectations while continuing to deliver a consistent brand experience. Yet, pressure on top line growth and margins is unrelenting, and sales through the new channels are rarely as profitable as traditional sales. These shifts in consumer behavior, preferences and expectations are compelling retailers to completely transform their businesses.
Putting the Customer in Middle of the Equation
As online retail sales continue to grow, the convergence of digital and physical shopping channels gives consumers more options and buying power than ever before. The industry has already made considerable investments in technology and processes to help retailers gain insights into this digitally savvy consumer. By combining historical and social information in big data frameworks, they're better able to tap into real-time demand signals to offer their customers a greater degree of personalization, delivering what they want, when and how they want it.
However, behind the scenes, many organizations are unable to connect these advanced levels of customer intelligence and segmentation with the fundamental business processes that drive how products are delivered to customers. Clearly, retailers need to look beyond segment information gathering and targeted marketing. But what does such a business transformation look like?
Five Key Tenets Required to Deliver Synchronous Shopping
Retailers that re-orient their strategy around the customer will enhance their ability to engage, anticipate and execute in today’s environment. This will require
key changes in some of the most fundamental aspects of the retail business model, impacting demand signals and merchandising to store operations and product delivery. Those changes are exemplified in what we call the five key tenets required for retailers to deliver synchronous shopping anytime, anywhere.
1) Unified Customer Engagement
Customers expect to receive personalized communications based on their individual interactions with a retailer. This means if a retail organization is getting insight about a customer, or customer segment, from their online activities—such as what items were purchased or abandoned, what delivery option is preferred, what products were “liked,” or what experiences prompted an online review or blog entry —all of that data should be consolidated and fed into a proactive decision framework to guide the retailer's future behavior and communication with the customer. Not only does this lead to stronger customer relationships, but also more profitable ones.
2) Consumer-Centric All-Channel Assortments
Today’s path to purchase often involves more than one channel. As such, retailers need to have a better understanding of how customers search across channels and the type of products they search for so that they can customize each assortment regardless of channel.
Retailers need to leverage the customer interaction insights mentioned earlier so they can start making assortment decisions based on real-time customer preferences. Not only do assortment planners need access to those insights, but they must also have the power to link assortments with delivery mechanisms in order to make it easy for customers to get the product in the way that they choose.
3) Flexible, Real-Time, Responsive Supply Chain
Many organizations today still fulfil their product using a set of static rules: a certain product from a certain vendor goes through a specific distribution center and then is sent to a specific set of stores. Yet, in order to offer assortments regardless of channel, retailers need the back-end means to send the product anywhere in the supply chain in the most cost-effective manner. This means that returns should be as fluid as sales or as transfers to different stores.
While the principle behind this flexibility and responsiveness is simple, the real challenge is in making the economics behind it work in favor of the organization. This requires some deep thinkingand investment in retail supply chain planning and execution technology and processes that support a much greater level of supply chain agility while maintaining a profit.
4) Profit-Based Distributed Order Management
Meeting customers’ delivery preferences are important; however, profit rules must be established to ensure that a retailer maintains profitability while delivering on its customers’ preferences. Obviously, a retailer’s profitability varies by ordering method, product type and delivery method.
While most retailers today offer all customers the same delivery options, this practice may need to be re-examined. The more capabilities retailers can build into their intelligence gathering and order-management decision making, the easier it is for them to establish granular rulesets based on segments and specific customer behavior patterns.
5) Single Enterprise-Wide Demand-Shaping Forecast
As consumption points increase across different channels, it becomes harder for retail organizations to determine where inventory should sit across the supply chain. Most retail organizations today do not have the visibility and capabilities required to analyze demand signals across all touch points and produce a single forecast. However, if an organization truly builds the proper amount of data analysis and sophistication into its processes, it can actually start to take those insights from the previous tenets and start anticipating and shaping demand.
Integration Drives Proactive Customer Attention
All aspects of these five key tenets are, at their root, critical supply chain management issues. As the industry braces for massive change in the next five years, visionary CEOs must evolve their retail enterprises — the people, processes, partners and technologies that support them — to address the needs of the new consumer. This means shifting to a dynamic operating model with a dynamic supply chain at the heart of it. Retail CEOs who transform their operating model to one that leverages real-time data and insights to drive decisions at the merchandising, supply chain and operational levels will be the ones who succeed in this new environment.