Bricks and Clicks - The New Business Model and Supply Chain Capability for Retail Industry
Guest Post by
Bob Ferrari, the Executive Editor of the Supply Chain Matters Blog, and a periodic guest blogger on the Infosys Supply Chain Management blog.
The Economist featured an article in its February 25th print edition with the title: Clicks and Bricks. The gist of this article is one that many business and industry analysts have been frequently dwelling upon, namely that retailers are feverishly trying to reinvent themselves for this rapidly changing new age of online shopping and multi-enterprise commerce. The stark message delivered by the Economist was: "To build a profitable online business, retailers must integrate it seamlessly with the bricks-and-mortar operations. Many keep them separate, increasing the risk that they fail to communicate or work together properly".
This fundamental reinvention comes with significant implications to current and future supply chain organizational, process and technology capabilities and investments.
The business reasons are compelling. Readers who reside in the retail industry know all too well what the effects of more empowered and technology equipped consumers are having on the whole industry and on specific retail brands. While retail sales in the U.S. have been relatively flat, online sales have been growing at double-digit rates. The implications profoundly point to the reality that consumers prefer online tools and have shifted their shopping and buying preferences. One recent sobering statistic points to over 15 million downloads of the smartphone enabled Red Laser application which allows consumers to electronically read item codes and perform multi-channel price comparisons for the specific item.
Major retailers are readdressing business models to either emphasize more online sales or bring a balanced business strategy among brick and mortar and online sales channels. As an example, Macy's has embraced an "omnichannel" integration strategy that umbrellas television, online mail-order and retail store selling and service components. To further rollout this strategy, Macy's is investing people and resources in online physical and technology resources to include building of a new logistics center while expanding an existing center, all directed at supporting higher volumes of online sales. Nordstrom was one of the first broad line department store chains to offer no-cost shipping and returns for online orders and is currently testing same-day delivery at a flat rate.
JC Penny recently launched a complete revamping of its store strategy, permanently lowering prices across the board with selling strategies positioning physical stores as boutique experience centers while offering broader assortments of direct ship items online.
Wal-Mart has enabled its shoppers the option to pick-up purchases from a nearby physical store or FedEx shipping location. Many of these new strategies converge on the importance of the "last mile" fulfillment with major logistics providers such as FedEx and UPS providing enhanced programs to increase shipment delivery visibility and allow consumers access to online shipment visibility tools.
Many in the industry believe that there is no single formula for success in this new evolving multi-channel commerce world and each retailer will have to continue to "tune-in" to customer needs and requirements and provide appropriate, differentiated capabilities that can best balance all physical and online assets.
These rapidly changing business strategies among retailers have direct impacts on existing and future supply chain management strategies. Inventory management will take on new dimensions for optimizing both physical store and online fulfillment requirements with multi-tier optimization an essential component. Sourcing and transportation strategies need to balance the needs for lowest cost with newer dimensions of customer service and inventory visibility needs. Investments in required new technology and systems will have to be evaluated with criteria that support a combination of brick and mortar outlet, online fulfillment and logistics service center needs.
The takeaway of this commentary is that with these rapidly changing retailer business models, organizations can no longer assume the same structures of accountability concerning supply chain support and fulfillment. Industry observers rightfully question whether having a separate online commerce or sales and marketing unit can achieve required combined customer support capabilities. I would argue that the same concerns apply to supply chain, planning, inventory and logistics management.
Retail supply chain management teams should be educating senior management on the synergies and process opportunities for leveraging the supply chain to be able to enhance these new 'clicks and bricks' business models. That includes an articulation of impact to desired business results in overall revenue as well as customer services. Any notion that the supply chain, with its associated business process, technology and systems capabilities will not play a key role is unfortunate, and there needs to be a singular voice and perspective for such capabilities. A technology investment should henceforth be evaluated on its abilities to support multi-dimensional aspects of selling and service needs for customers.