Why Retailers Are Racing Toward Supply Chain Tune-Ups

With all of the ills facing retail today, increasingly it’s the supply chain that’s keeping merchants up at night.

And it’s no wonder given how many aspects of business rely on it to be speedy, transparent, efficient and cost-effective. As a result, retail professionals have chosen to invest in supply chains in an effort to boost the bottom line.

For example, Uniqlo is overhauling its business to be more like Zara, and of course that could mean only one thing: making product development and deliveries faster. To achieve the company’s 13-day goal for deliveries, it has unveiled a new complex that houses designers, marketing professionals, a warehouse and delivery facilities all in one place.

Meanwhile, Li & Fung is betting that a quicker, more innovative and digitized supply chain will help it dig out of the slump that plunged profits by 47 percent in that last fiscal year. The sourcing company has outlined a Three Year Plan to do just that.

On the other hand, a commitment to overhauling its supply chain has already led athletic brand Puma to a 10 percent increase in sales for the fourth quarter. Moving operations closer to each other was just one of the changes that resulted in more flexibility and shorter lead times.

With stories like these rampant in the industry, supply chain innovation was top of mind at the 2017 Retail Industry Leaders Association Conference. Financial technology company C2FO polled 200 industry professionals spanning industries from apparel to sporting goods on their plans for the year.

Not surprisingly the vast majority (87.5%) are trying to figure out how to improve margins while only 12.5% are content to maintain them.

“Retailers are facing unprecedented headwinds,” said Amanda Mathes, managing director, C2FO, while enumerating a now familiar list of roadblocks to profitability.  “Customers expect convenience and their expectations are more expansive than before. It’s not just about the product but also about service, accessibility and having things where you are when they need it.”

To meet demand, stores are trying to transform into “right now retailers” with logistics making the list of planned investments for 71% of retailers surveyed.

Mathes said one reason why logistics is top of mind is it could solve the problem of excess stock, thereby helping retailers dig out of the promotional pit they’ve created. “Coming into 2017 retailers had inventory overhang so you have to increase promotions to get to leaner position,” she explained. “What if you have just-in-time inventory management so each store is equipped with what they need when they need it?”

Logistics is also a key to making e-commerce more profitable. At the recent ShopTalk retail conference, Brian Cornell, chairman and CEO of Target, described the company’s next generation store, which will be laid out with convenience in mind. The locations will feature separate entrances designed to facilitate things like in-store pick-ups—a big driver of online sales. Similarly, Kevin Mansell, chairman, CEO and president of Kohl’s is focused on omnichannel’s power to boost store traffic given that almost a third of e-commerce transactions already result in trips to one of its physical locations.

And with the hope of fueling additional online sales, the chatter surrounding analytics is almost deafening. Poll respondents who plan to invest in this area topped 63%. With data, they all hope to learn more about consumers, how they shop and how to market to them more effectively.

But even online sales, which is for most stores is the only bright spot these days, bring additional hurdles.

“[Retailers are] investing more in ominichannel, trying to increase e-commerce. But it presents new challenges that trickle down into supply chain [like the] increasing ubiquity of price transparency,” she said. “Retailers are having a hard time driving margin by price alone so they have to find new ways to drive back cost of goods.”

More than half of those polled (52.5%) say negotiating prices is one of their biggest challenges in managing supplier costs, while margin improvement was cited by 47.5%. Cost of goods reduction was the third biggest concern, making the list of 42% of respondents.

Mathes said most retailers she’s spoken with have cost reduction at the top of their 2017 to-do lists, but they have to pick and choose where to trim. Retailers are unwilling to “take those savings out of anything that touches the consumer because [the landscape is] more competitive and they know they have to offer a great customer experience,” she said, adding the result is finding those opportunities in the supply.

While retailers recognize that the solution to some of their problems can be found in the supply chain, some poll respondents feel their hands are tied. Only 15% are confident that their organizations are agile enough to adopt innovative supply chain technology. They say budgets (52.5%), resources (45.5%) and lack of stakeholder buy-in (34.5) are the leading reasons why their companies may fail to execute on the necessary updates.

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