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December 31, 2012

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.

December 18, 2012

Indicators from the 2012 Holiday Buying Period Point to Significant Change and Fulfillment Challenges

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 an interim follow-up to this author's previous Infosys Limited guest commentary: Headline for the 2012 Holiday Buying Season- Overcoming the Challenges of Fulfillment Complexity.

Thus far, initial indicators reflected in individual consumer actions during the current 2012 holiday buying season provide for some perspective as supply chains reach the peak of activity this week. 

First, consumers have clearly stepped-up their preferences towards online channels as the preferred buying option. They have embraced the conveniences of in-home buying and cyber-based price and feature comparisons. That has been reflected in data provided thus far including Black Friday and Cyber Monday weekend sales.  Increases in online buying reflected double-digit growth rates. According to ComScore Inc., the Thanksgiving holiday and Black Friday promotions fueled online sales increases of 32 and 28 percent respectfully, over last year's numbers. For the first time, online sales topped $1 billion during Black Friday.

Retailers and online providers have similarly spent lots of money in capturing consumer online interest, especially in Internet and social-media based platforms, aggressively competing to capture the early interest of consumers.  This week, the Wall Street Journal featured two articles that succinctly portray the current aggressiveness among retailer sales and marketing teams to capture consumer online interest.  Noted was that Wal-Mart and Facebook jointly rolled out one of the largest mobile advertising ad-blitz campaigns consisting of 50 million mobile ads during the Black Friday shopping period. The global retailer had sponsored 2 billion ads on Facebook throughout this holiday season. Facebook provided a dedicated joint-development team to Wal-Mart both before and during Black Friday weekend.  The article reports mixed benefits.  On the one hand, Wal-Mart was able to mitigate the availability of certain excess inventory through real-time promotions on Facebook.  A pair of $88 speakers that were not selling to expectations by Black Friday were offered as a 'special buy' on Facebook and soon sold-out across the U.S. On the other hand, labor unrest among certain Wal-Mart employees and consumers offended by the Wal-Mart online blitz were offsets.

Best Buy utilized Twitter in an 8 week campaign to generate gift-giving ideas and offer gift card promotions. A Best Buy executive is quoted as indicating that the electronics retailer is spending 50 percent more on Twitter based marketing this holiday season. Radio Shack aggressively leveraged Twitter in a "24 Deals in 24 Hours" promotion campaign. Analysis firm DataSift Inc. indicated that "the Radio Shack offers were among the most frequently shared coupons or offers on social networks during the shopping days surrounding Black Friday." The WSJ quotes Twitter as indicating that 6.1 million posts related to Black Friday, roughly 50 percent more than last year. These Twitter ads are being targeted to subscribers based on demonstrated preferences in their 'tweeting' activities.

On the supply chain fulfillment side, new initiatives, realities, and dealing with the effects of supply disruption have retail supply chain teams rather busy during this final month.  There have been postings on social media as well as reports in business media where certain retailers have had to either scramble or de-commit orders because of inaccurate inventory assessment. The heavily promoted multi-day promotional campaigns noted below provided little margin for delay within supply chain fulfillment. We may well anticipate further visibility to order fulfillment snafus as consumers' further test retailer Omni-channel buying and pickup options in last minute shopping.

The realization that available inventory must be effectively optimized to meet order needs across multiple channels is hitting home for many. The Wall Street Journal featured an interesting perspective on the world's largest toy retailer Toys "R" Us who has experienced a multi-year trend of more consumers shifting their buying to the web channel, while overall sales growth has been flat these past two years.  Sustained profitability has also been a challenge, motivating this toy retailer to break down more supply chain silos to position, optimize and fulfill customer orders through available inventory residing in both distribution centers and physical stores.  Distribution fulfillment centers and physical stores however are now challenged to anticipate daily order volumes to expect.

Regarding unplanned supply disruption, the effects of super storm Sandy slamming directly into the New York and New Jersey regions of the U.S. east coast had some supply availability impacts for retailer holiday promotions. Port closures resulted in ocean containers being re-routed to other east coast ports, causing transportation and fulfillment delays. Luckily, an 8 day labor shortage involving the U.S. west coast ports of Los Angeles and Long Beach occurred in early December, after the bulk of holiday goods had already arrived.  The impact for retailers may well show-up in post-holiday fulfillment.

I will feature a post-holiday assessment guest posting later in December.  In the meantime, there is no question that the new revolution of B2C retailing is manifesting itself in the current holiday surge, and traditional and online supply chain teams will have lots of learning to contemplate in planning for 2013.

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