Online and mobile commerce is turning traditional notions of retailing upside down.
New business models are emerging that negate the need for the traditional retail practices we grew up with.
It’s a shift that has left a number of the industry’s sacred cows being brought to slaughter.
‘The right product at the right place at the right time’
This was a retailing anthem that I grew up with. If the right product was not in place at the right time, we would lose a sale.
What the internet did was show us that customers are actually willing to wait one day, two days, five days – sometimes even two weeks – for the right product to be delivered to them.
With order routing, we can now route the order to where the stock is and avoid losing a sale.
‘Don’t care about the customer – merchandise well and they will come’
A family retailer once told me that his father had drilled this notion into him.
Of course, the old world of chain retailing (established in the 1970s) was built in a world where there was a scarcity of product, so good merchandising was the key to success.
“Too many retailers are run by people who learnt their trade in the 1980s and 1990s. They are just not equipped to deal with today’s challenges”
In today’s world, we have a surplus of product. The consumer is drowning in it, because manufacturing capacity over the last 20 years has quadrupled around the world.
There is a proliferation of brands and it is hard to succeed by trying to differentiate on product alone.
To compete successfully, you really need to start caring about the customer and bring service back into the equation.
Range planning, space planning and visual merchandising are key to creating an attractive offer
In the online world, there is no notion of space. We are not constrained by the four walls of a shop – the walls are now elastic.
What should we do with all our notions of space planning and visual merchandising?
Traditional visual merchandising as a concept has no relevance in the online world. Consumers no longer walk past a shop browsing – they search online for what they want first.
Search methods are dominating consumer selection. Ranges can be as wide or as deep as you wish and can afford.
‘Just in time’ stock management, allocation and replenishment
When you consider the concepts of click and collect and 40% returns that define modern retailing, traditional supply chain models and structures have to be rethought.
We probably need to move to a ‘just in case’ or ‘display only’ stock management philosophy, with very strong order management and routing systems.
What’s more, our traditional methods of allocation and replenishment need to be revised.
‘The customer is a shopping basket’
In the old days, most retail systems did not have the ‘customer’ entity.
We looked at customers through the eyes of shopping baskets, and tried to relate them to the ABC classifications that drove our placing of stores in localities.
Now, with ecommerce and loyalty cards, we are capturing customer data.
Yet very few of our systems, processes and methods use that data and know what to do with it, other than sending emails and promotional vouchers.
Chain retailing has always been built on the assumption of national pricing.
But in today’s price-competitive world, we need to look more and more at differential pricing and promotions and the ability to optimise price, by channel or location.
Few retailers are even thinking about this.
The focus on gross margin and stock value at retail
Gross margin is irrelevant today. What matters only is the ‘cash margin’ generation, mainly because pricing is now market driven. We are constantly having to promote and discount to compete.
But so much of what we do – including processes and financial reporting – is still based on the starting point of gross margin.
We need to focus much more on cash margin and gross margin return on investment. Why? Because with expanding ranges, our return on investment on stock is now the critical success factor.
The key point is that anyone looking at modern retailing today needs to throw all the notions, processes and methods they grew up with out of the window.
Unfortunately, too many of our retailers are run by people who learnt their trade in the 1980s and 1990s. They are just not equipped to deal with today’s challenges.
Modern retailing has to be product- and customer-centric at the same time.
Our approach to stock management has to change so we can cascade stock distribution as we inevitably expand ranges.
Order management and routing has to take centre stage in retailing, almost more importantly than stock management.
“Traditional retailers are simply not thinking aggressively enough. They are still obsessed by product and stock and traditional processes”
Stock optimisation has to take into account forecast returns, click and collect and acceptable lead times to customer service.
We need to rethink our notions of range planning and what we really should stock in stores.
Pricing and promotions need to be optimised, with a differentiated, laser-like focus.
Overall, we need a greater focus on service and the customer.
Most traditional retailers I know are struggling. Asos is spending £250m a year over the next two years on technology. Amazon is doing even more.
What they are spending on is not just technology, but on new data-driven, customer-centric methodologies to go with modern retailing.
Traditional retailers are simply not thinking aggressively enough. They are still obsessed by product and stock and the traditional processes around them.
We understand they are constrained by their ability to invest in the new, as well as the legacy of their current systems, processes and methods.
It’s not just money that you need to throw at the problem – you also need to throw intellectual capital into rethinking retail practices for the world of modern digital retailing.