RSR’s recent benchmark studies consistently show that of all the challenges and opportunities that retailers are seeking to address, one overarching concern rises to the top: retailers clearly believe that consumer intolerance of an impersonal shopping experience is their greatest threat. That concern is driving retailers towards fundamental changes to the customer-facing side of their businesses, including development and integration of digital selling into their legacy operations, a growing emphasis on personalization via eCommerce and digital marketing, exploring new technologies such as “Internet of Things,” “augmented reality,” and “virtual reality” to better understand and interact with consumers in new ways.
But the biggest practical consideration worrying retailers is how to be profitable in this new world of buy anywhere/get anywhere shopping. The reason this is such a big issue is due to two fundamental challenges that are rocking retailers’ worlds. First, consumers are revolting against highly standardized assortments and uniform presentations of those assortments in stores. Consumers don’t want to slog through aisles of merchandize to get to what they came to buy – they want what they want, and don’t want to be bothered by irrelevant “other stuff.” Secondly, consumers effortlessly jump retailers’ selling “channels” to search for and select, pay for, and ultimately take possession of the products of their choice. In practical terms, this means that the customer journey might start in the digital or physical environment, while fulfillment of a customer order might happen somewhere else and either be shipped directly to the consumer or to a place where the consumer chooses. The purchase may ultimately get returned to yet another location.
These two challenges are moving retailers to respond in ways that sub-optimize the buy side of their businesses – the supply chain. For example, assortment localization changes the way retailers plan, how they bring product inbound to their DCs, and how they distribute product outbound to the stores and customer order fulfillment locations. It all boils down to buying differently and allocating/replenishing differently. But the systems that support the “buy side” of the retail model were optimized with the assumption that assortments would be standardized and stores would vary very little from one place to another. That’s where gross margin came from, and retailers would redistribute some of the buying efficiencies to consumers in the form of lowered prices and keep the rest to pay for operations and keep stockholders happy.
Similarly, new consumer omnichannel shopping behaviors have created a disconnect between the place where demand is generated and where it’s fulfilled. The entire shopping journey used to always happen in the store, but not anymore! Now it can (and often does) start in the digital domain even when it results in a store-based sale. This change is wreaking havoc on forecast, corrupting the ability of the selling locations (again, usually the stores) to reliably deliver high service levels to consumers. And don’t forget – more handling of inventory increases costs, further sub-optimizing the traditional profitability model.
What a mess! And yet when we asked retailers in a recent study what the “top three” inhibitors to progress are, the #1 stumbling block by far was that “our company’s profitability model is based on standardized assortments and store layouts.” We concluded that “retailers are telling us that they are clinging to a profitability model that is basically dying.”
Three Reasons Why You Should Rethink How Your Assortment Is Connected To Your Supply Chain Processes
With all the foregoing arguments as the backdrop, what are the three reasons that retailers need to rethink how the assortment is connected to supply chain processes?
Here they are:
1. The old “stack ‘em high & watch ‘em fly” model isn’t working anymore. Localization is real.
The question is, how “local” does the assortment need to be? For many retailers, it’s the 80/20 rule, but whatever the right ratio is, retailers need to hyper optimize the standardized, or “core,” part of the assortment in order to better afford the “local” part. This starts with assortment planning, and flows through to forecasting and replenishment – retailers need supporting technologies that can help retailers model ideal assortments by location, forecast demand, and maintain high service levels on a per-SKU basis without over inventorying.
2. One forecast isn’t enough.
Retailers need to re-forecast demand continually, to be able to adjust to, not only per-location sales trend anomalies, but also shifts in consumer sentiment and promotional activity by the competition.
3. Retailers shouldn’t leave direct-to-consumer fulfillment and returns handling to the stores.
Almost anything that causes store personnel to touch a customer order (beyond the checkout process) adds new cost. That drives retailers to think about non-store fulfillment locations either as a part of or separate from the DC. Outbound direct-to-consumer supply chain processes need to be optimized, but retailers must also apply the same merchandise planning processes for fulfillment centers that they would for stores, i.e. assortment, forecasting, and replenishment.
- Read how the best supply chains build customer loyalty by ensuring product availability
- Discover what else 100+ retailers are prioritizing in our exclusive category management research
- Download Viewpoint on AI-enabled forecasting & replenishment in retail
- Watch this video to unlock localized assortments that are connected to your supply chain processes