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The Learning from the 2012 Holiday Buying Season: Balanced Investments in Online and Physical Supply Chain Fulfillment Capabilities

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.

This commentary is the third and final follow-up to this author's series of Infosys Limited Supply Chain Management guest commentaries related to the 2012 holiday buying season and its implications on industry strategies and technology investments. My guest commentary comes at the end of December as the early indicators from the 2012 surge holiday buying period already point to yet another set of significant learning for global retailers.  In 2011, I closed my holiday surge prediction posting with a message that the importance of balancing online commerce tools and product offerings with advanced backend fulfillment intelligence processes would prove critical.  In my initial Infosys commentary on this industry topic in mid-November, I opined that 2012 would add the realities that more supply chain complexity, market uncertainty and the effects of supply disruption are going to make this season ever more challenging.

The overall headline for 2012 will most likely be one of selective retailer profitability to those that were able to effectively weight and tailor investments in online sales and marketing program and selective promotions with sophisticated inventory management, demand sensing and overcoming customer fulfillment needs.

As noted in my mid-December Infosys guest commentary, Indicators from the 2012 Holiday Buying Period Point to Significant Change and Fulfillment Challenges, consumers clearly stepped-up their preferences towards online channels as the preferred buying option. They embraced the conveniences of in-home and mobile buying and cyber-based price and feature comparisons. However, it became clearer by the end of November that holiday buying budgets were conservative given many ongoing concerns relative to both domestic and global economic environments. Thus, many retailers, both brick and mortar and online focused, had to dynamically link available inventory with in-store, online and channel related promotional initiatives.  However, some retailers had to resort to more aggressive price discounting in December to entice consumers to buy, which will more than likely be reflected in their final profitability results for the year.

In the U.S. there are indicators that when all the dust settles, and barring a late post-Christmas sales buying frenzy, overall retail sales are expected to be muted.  According to MasterCard's SpendingPulse business unit, the eight week period from October 28 through Christmas Eve experienced just a 0.7 percent increase in retail sales from the year prior.  SpendingPulse's estimate for online sales was estimated to be $48 billion, an 8.4 percent increase from 2011.  SpendingPulse points specifically to sales declines in the U.S. Mid-Atlantic States as indicators of the economic effects from Super storm Sandy. At the end of November, Macy's CEO Terry Lundgren had already indicated that despite encountering the largest Thanksgiving holiday weekend in that retailer's history, it was not able to overcome the tepid sales encountered earlier in the month as a result of the effects of Hurricane Sandy. Other industry players have pointed in concerns related to the U.S. "fiscal cliff" and a potential increase in tax rates starting in January as looming on the minds of consumers.

Similar or even lower sales results are expected from Europe where consumers are already reeling from concerns related to a prolonged recessionary environment.

The competition to secure every last sale extended to a very last days before Christmas, as some online retail sites, who made  investments in distribution center automation and speed, were able to extend deadlines for last minute orders beyond what was offered by online retailers such as Amazon.  It reported that it last one-day shipping order was placed on 11:52 p.m. PST on December 22, and shipped to Fayetteville Georgia in-time for Christmas opening.

Hottest selling items included collections of consumer electronics, electronic tablets, toys and certain apparel and shoe items, an indication that consumers balanced needs for the latest gadgets with practical choices for gift-giving.  Retailers who were able to sense buying preferences earlier in the buying season were better able to respond with either selective added inventory or targeted promotions. These holiday product preferences helped some brick and mortar retailers to leverage previous trends of shopper "showrooming" into completed sales.  Consumers tend to what to personally view electronic and apparel items, particularly the latter items which are closely linked to look and appeal.  According to Accenture Research, 56 percent of holiday shoppers had a plan to view apparel and gear in person, before buying online. Rather than a combative approach, retailers such as Best Buy, Fry's, Macys, Wal-Mart others embraced the notion of having consumers in the store by offering instant online price matching as well as personal touch services delivered by store associates.

On the supply chain fulfillment end, in addition to previously noted Hurricane Sandy that impacted the U.S. east in early November, a series of large snowstorms impacted the U.S. Midwest and Central regions in mid-December, at the height of the traditional in-store related shopping period.  This not only challenged "last mile" delivery providers FedEx and UPS to complete deliveries of online orders, it also disrupted last-minute shifts and/or replenishments of inventories as transportation became severely disrupted. In our household, we noticed that some grocery stores and supermarkets were not adequately stocked for accommodating item choice during the Christmas holiday buying surge.

Business media is already indicating that there will be certain winners and losers when all the dust settles and numbers are finally totaled-up for 2012.  The industry learning for 2013 and beyond will be that retailers and B2C providers must be able to appropriately balance the tendency to invest limited resources in online sales and marketing initiatives vs. the need to invest in predictive demand analytics, advanced inventory optimization and supply chain fulfillment capabilities.  As was the case in 2011, the organizational walls among traditional brick and mortar and online management resources and initiatives have become far more transparent and require both balanced and optimized efforts.

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