Retail has changed – it’s time to RISE and THRIVE
As we come to the end of a year with many disruptions for everyone, we not only look back at the events that made that year but also how those events are set to shape the year ahead. In this episode, Symphony RetailAI subject matter experts Shaina Finch, Jonathan Tye-Walker and Julian Miller will discuss retail in 2020 and beyond. From supply chain, to marketing and promotions, to category and assortment optimization we will explore how they all come together to meet the needs of an ever-changing consumer.
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Sean: As we come to the end of a year with many disruptions for everyone, we not only look back at the events that made that year but also how those events are set to shape the year ahead. In this episode, Symphony Retail AI subject matter experts, Shaina Finch, Jonathan Tye-Walker and Julian Miller will discuss retail in 2020 and beyond. From supply chain to marketing and promotions to category and assortment optimization, they’ll talk about how they all come together to meet the needs of an ever-changing consumer.
Jonathan Tye-Walker: Hello everyone, my name’s Jonathan Tye-Walker, I’ve been part of the Symphony Retail AI family for over 12 years now. My role flicks between being a solutions consultant, as well as being part of the client delivery team. So I’m happy to be meeting, albeit virtually, Shaina and Julian to have a good old conversation this afternoon.
Julian Miller: Hi everyone, Julian Miller here. Looking forward to having a good conversation with Shaina and Jon this afternoon, I’ve been with Symphony about 15 years, primarily working with the category planning products during that time. So looking forward to discussing how category planning links in with some of the areas that Shaina and Jon are going to talk about.
Shaina Finch: Hi everyone. I’m happy to be here. My name’s Shaina Finch. I’ve been working with Symphony for nine years and my role is really specializing in supply chain. So I had the solutions consulting team focused in the supply chain area and really excited to be here today to talk and collaborate with Julian and Jonathan. If you’ve looked at how trends of customer shopping behavior has evolved throughout the year of 2020, we saw a huge rise and a continuation rise in the omnichannel fulfillment. To be able to provide multiple fulfillment methods, whether it’s pick up in store, home delivery, curbside, however, but also we’re realizing that as we move into 2021, physical stores are here to stay.
So customers are going to continue going to the store. Some customers are going back to their old shopping habits. So they like to go to the store and go down the aisles as they’re fulfilling their shopping list. So really what we see is, your customers expect the best service possible. So you need to enable full visibility of the entire purchase life cycle from source to consumer. Having this information at your fingertips on inventory, okay? A holistic view of inventory from end to end, whether you are managing your own distribution centers from national to regional, to your actual retail stores but to really be able to address dynamic changes in any part of the supply chain.
And so, while we’re meeting the needs of our customers and consumers out there, we need to be able to find a source to fulfill their need. So we don’t miss a sale from one specific location being out of stock of a specific item but being able to work in an omnichannel method where we can supply their demands from multiple locations and to multiple different fulfillment centers and fulfillment methods. So really being able to not have lost sales and be able to continue to grow sales.
Jonathan Tye-Walker: It’s interesting what you’re saying, Shaina, about customers returning to store because from the section of the business that really focuses on customer centric activity, we’ve seen through the course of 2020 with different segments going through different phases of lockdown, especially across different International borders that people are returning to store. And typically, the segments that are returning to store the quickest are not always the same. We’re seeing, for example, the elderly segment, really being quite slow to return to store and therefore the needs to really look after people from through both online and physical install channels. Very important.
Shaina Finch: Yeah, exactly. Retailers need that flexibility to be able to adapt to all different types of their customers’ shopping habits.
Julian Miller: So John, a quick question from me. When we’ve seen that change switching between the channels, have we aligned the promotional activity? So perhaps, you know what we’ve learned about customers in store, when we’ve seen those customers move to online, have we then applied that learning to better target those customers in an online way?
Jonathan Tye-Walker: Yes and no. I think if we look back at 2020, obviously everything we’ve done through the customer lens this year has always been through that window of COVID. And after lockdown one, earlier in the year, we definitely saw people almost polarizing in the customer segments in which they operate and people tended to become increasingly price sensitive. So therefore, people were out there trying to add more value to their baskets.
It became really important for retailers then, to look at the promotions that they were running, particularly mass media promotions and make sure that they were offering value to the price sensitive customer segments. Look at those categories that perhaps are dominated typically by more quality driven households or quality of even products and scale back some of the activity that they were seeing in that space, move it towards categories that will actually support people at a time of crisis when they were going through unprecedented behavioral patterns.
Julian Miller: Yeah. I guess initially, in unprecedented times, what we saw was retailers just pulling promotions and not running them at all but I guess that was a strategy that had a fairly finite length of life before consumers would start to rebel against that, right?
Jonathan Tye-Walker: It did completely. And what we saw going forward was as people started to come through early lock downs, then promotions had to take more of a strategic role. And at the same time, coming back to what Shaina was saying, as people started to migrate their shopping behavior online, you saw segments of households that were what we would call, digital natives, being squeezed out of online channels by people who were formally in-store one channel shoppers migrating to that online space. As the slots became less available, those people who were more what we call those digital natives, got squeezed out. So we started to have to use personalized marketing to really look after that segment in a different way.
Shaina Finch: You look back to earlier in the year, people that were very hesitant to go out and wanting to online shop only, some of these consumers were paying more money for products that they normally wouldn’t pay. Very similar to what Jonathan was talking about earlier, where now they’re focusing on promotion. So you can see this trend of people saying, “Well, in the beginning, I want chicken and I will pay the premium price because this is the only option I have.” But now that people are going back to their traditional assortment and their preferences or maybe the preferences have changed, you really need to be able to offer what you have in store and online, as much as possible.
Julian Miller: I think what’s interesting about that is, if we think about how retailers have done online assortments in the past, it’s almost been this concept of the endless shelf. So, anything that you can find in any store at the retailer, you can order online. And actually what we’re starting to see retailers ask now is, “Well, actually I don’t want an endless shelf online because it’s not just inefficient from a supply chain perspective but it’s confusing when my shopper gets online.” Because first thing, an assortment that is so vast and has every possible product but it’s not easy for them to actually find the product that they’re looking for. It’s the paradox of choice almost.
So what we’re seeing retailers ask us now is to apply a lot of the concepts that we’ve been applying in bricks and mortar stores but to an online world. So, how is the transferability between different items, which items can we safely eliminate from our assortments online without causing a problem to shoppers because there’s a reasonable alternative in place. So it’s interesting, I think, how that channel is changing and how we approach that channel from a analytical and supply chain point of view, as well.
Jonathan Tye-Walker: That’s absolutely right. And if you don’t mind me jumping in there very quickly just to say that one of the things that we’re hearing from a lot of retail clients is, how do I best use promotions as a vehicle to help people return to a new state of normal after 2020? What’s the balance between my promotional activity and my personalized marketing activity to really help my customer base, whatever their segment, really recover and get back to a way of life that they are comfortable with.
And that’s one of the things that’s really come out this year in terms of how to allocate my promotional activity, particularly 2020, is to make sure that the whole community is being looked after and no one’s being left behind. Be they price sensitive households or be they elderly, vulnerable households, who were locked down. And together with suppliers, we’re actually seeing a lot of activity where retailers are asking bigger picture questions than they have done previously.
Julian Miller: The constant changing in customer behavior through a fairly exceptional year and vendor response to that is creating continuous change in the retail environment. And then the question really becomes, how do you cope with implementing that change and how do your supply chains react quickly to that change?
Shaina Finch: Yep. I agree with that Julian, especially to your point earlier. It is confusing.
Jonathan Tye-Walker: I like what Julian was saying there about your online assortment, as well, because thinking about things from again, through that customer lens, we saw very choice sensitive customers, people who are typically shopping at the deli or people who are typically buying their fresh fish in store suddenly lost a channel for them to be buying food. And I was going to ask Julian, to what extent did you see some of those more niche areas of in-store or the higher quality areas of in-store appearing through online channels? Is that something you’ve seen at all?
Julian Miller: Yeah absolutely, we’ve seen that. And what we’ve seen when we’ve done the analysis is items that have really shone, if you like, in these unusual times. So items that have perhaps sat in a fairly mid position in the store and then for whatever reason they’ve really shot up in terms of best sales performance. And that can be because people have suddenly started ordering these items online, which never happened before.
And what we’re seeing is manufacturers and retailers wanting to protect these items. So I was talking to a manufacturer recently and they’ve identified a group of items that they call hero items and they’ve used various metrics to identify these. But these are items that suddenly became important and they’ve realized that these items need to continue to be protected in the supply chains and in the stores to actually make sure that that demand can be met as in when it appears.
Jonathan Tye-Walker: That makes perfect sense because let’s say one of the things we were seeing from again, a customer perspective, was of those massive swell in online customers that we saw earlier this year that led to such a significant growth in sales through that channel, quite a few people have actually stayed online in that channel. And quite a few of those are those quality driven households who are looking for those more niche products, as I say, in the deli counter, for example. So getting that balance and that assortment right online is going to be increasingly important to ensure that they’re catering for both end of the price sensitivity segments.
Julian Miller: So I guess the question I wonder about is, how do we keep up with all of this from a supply chain perspective? So I guess Shaina, this is probably a question for you really but with all this change and these ripples that we’re going to continue to see, how do we respond to that?
Shaina Finch: What’s really important is going back to earlier, is really being able to provide this 360 degree view of inventory to address these dynamic changes and be able to support a complex logistic network. So to be able to understand what your inventory levels are and where you can source from. So that means multiple vendors that may be able to go and order to, in case your [DC 00:13:04] that you typically order from is out of stock. So being able to manage almost a what if scenario and to be able to react.
And what’s also interesting to segue into the inventory piece is on Jonathan’s point on promotions is to then even be able to provide those insights down at the store level. So if you look at, for example, if items or overstock or it’s fresh items that are going to go bad, to give that visibility to the store manager to be able to decide, I’m going to put this item on clearance or a manager’s special to be able to reduce the potential waste. So I think to be able to provide those type of insights on promotions all the way down to the store level can be really helpful.
Jonathan Tye-Walker: Yeah. One of the first questions we always get is, when we’re talking to a retailer and we’re talking about forecasting promotional activity, the impact and how this feeds down to an individual store level, it’s a very common question. I think it’s a challenge for retailers in 2021 is to join up their supply chain with their front of house forecasting capabilities, absolutely.
Julian Miller: Yeah. And I think it’s so important, isn’t it? If you run a successful promotion but you didn’t get the stock order right, you wipe out all your profits on the promotion would be wastage.
Shaina Finch: Yep, exactly. And another thing to add onto that, outside of promotions, maybe it’s an item you can no longer promote. So think of it like the imperfect inventory initiative, okay? So it’s a fresh item and it may not be as beautiful to the consumer eye but you can take that item and transform it to another item. Whether it’s a produce you can take and put into, I don’t know, another type of recipe within your bakery or deli department. Or taking some meat products from the shelf and being able to put it into a meat grind and sell it as ground beef or cook it and put it on a salad. So I think it’s really important to understand, too, how you could still optimize your sales and reduce waste by being able to transform that item into another sellable good.
Jonathan Tye-Walker: That’s interesting. I never thought of that perspective before but I guess it’s just another way of being that little bit more efficient and we can be a little bit more efficient in lots of ways, we can really save some money.
Julian Miller: So Shaina, as not a supply chain expert, can you help me understand why or how rather controlling your wastage would be linked to demand forecasting and how that would help the two pieces come together?
Shaina Finch: Absolutely. That’s a great question. Really being able to improve your forecasting accuracy and manage a demand forecast will really help you in the end in the ordering process, right? Not to over order. So you really want to be able to tie together your demand forecasting with also your replenishment. So to be able to understand whether week to week, day to day, what your expected demand is and also to take into account different impacts that are occurring, whether it’s another government announcement, it’s holidays, we have major weather impacts whether it’s a hurricane in North America or a blizzard in the UK.
But to be able to react to that, whether it’s going to have a positive or negative effect to your demand and then to be able to tie in, your optimized replenishment. Okay, now we have our predicted demand that we’ve been able to understand over time and what are these different types of variables that are going to be important in making sure you’re not over ordering or under ordering. So if you take, for example, if I place this order today, when will my next order be received? So you’re not basically ordering outside of that horizon. So if you can think of it almost as a just in time method, which can be really important especially with fresh items but also not to mention outside of fresh your inventory carrying cost is a big overlay.
Julian Miller: And I guess, for some fairly obvious touch points with category management there, in that, the planogram is often the starting point for what’s going to be on the shelf and planogram does a couple of things. First of all, it defines the assortment. So it defines what products we’re actually going to put on the shelf to begin with. And then second of all, it says, approximately what quantities of each product go in each position on the shelf. So I think they’re fairly important inputs into the forecasting.
And I guess what that says is actually there’s huge importance on the analytical thinking that’s gone into that to begin with. So when we’re thinking about the assortment, actually understanding the transferrable demand, the transferability between items, if we don’t do a good job at that, at the assortment stage and if we don’t put the right number of facings of an item for a product on the shelf, when that gets passed into the supply chain to order the product and forecast the quantities, if that’s not well balanced and well thought out, that’s going to cause problems down the line in terms of being able to be accurate about the forecast, right?
Shaina Finch: Yeah, absolutely. Because what’s really important about that is you have an item you may carry year round at one specific shelf address but whether you’re getting into the holiday season or you want to push those goods out and you put it on an end cap or the front of the store, that’s going to increase sales. So those different types of promo vehicles or extra placement in the store will have an impact to the forecast. That also gives me a good question for you, Julian, is I’ve seen a lot of times where, okay, because you have to buy cleaning products that’s gone on increase in demand or whichever the product is, they’ve taken over some other shelf space of maybe items that are out of stock or they popped up a location where they could add that additional stock because they had increased their buying and needed to increase their shelf space. So is that something that you see that retailers need to do to be able to adjust the planogram on the fly in the case of, okay, they had to order more than typical, which we have seen.
Julian Miller: Yeah, it’s really common. And actually, I think that perhaps the reason that it’s really common is perhaps a bit of poor planning again, in that upstream process. So, all too often, promotions are put onto the shell without creating a planogram. And if you don’t do that initial work to create a planogram and have some idea of how much shelf space you’re going to need, how often you’re going to have to replenish and what the relative space that you should assign to each product is, then actually to your point, you end up adjusting things further down the line and then you have to steal space from other areas of the store. So to me, I think, it all starts with actually doing that good due diligence in the upstream process. Getting the analysis right, getting the planogram right and using that to feed downstream into the supply chain.
Jonathan Tye-Walker: It makes perfect sense. And the connection between supply chain into shelving assortment into actually what your customers, whoever they may be and whatever their tendency is to buy, either own label or specific brands or high end or low end prices. It needs to be a seamless, integrated operation and we’re seeing that increasingly that retailers are now starting to ask those questions, not in silos anymore but they want that joined up operation. They want to be able to look at the impact from one end of the flow from warehouse to shelf. We are always getting that, like the head of merchandising or the head of commerce is asking questions around the assortment impacts. And then, the [inaudible 00:21:35] impact. It is all coming together in more of a single conversation these days.
Shaina Finch: Yeah, absolutely. The communication is really, really huge. Especially if you’re deciding to put an item on promo, you need to work with the supply chain group because maybe actually the push will come from supply chain. “Hey, we’re really overstock on this item, let’s put it on promotion.” Or vice versa, “We want to promote this item to increase our sales.” And to work together as a team to achieve the best results is really huge to have that communication across the board.
Jonathan Tye-Walker: I think, as well, it’s very natural connection, isn’t there? Between category management and the assortment and ultimately how efficient we are. There’s so many things we can do to improve the forecasting and, excuse me, be better about the allocation to the sea level or to a store level. But actually, if we’ve got too many items in the assortment to begin with and we’re feeding back information into the supply chain, we’re giving the supply chain a bad star. It’s important to get the assortment right at the beginning, to understand those different needs states, understand where transferable demand doesn’t happen and to effectively localize the assortment to the different stores. If we don’t do that process at the start, we’re making problems for ourselves further down the line.
Shaina Finch: I absolutely agree with that. Especially if you look at whether it’s canned green beans or even spaghetti, you don’t need necessarily always 15 types of each of those. It’s more confusing to the consumer when they’re inside the store. So really to be able to determine with assessing your assortment to understand, okay, what are the best performers and what are the items to remove? I think that absolutely makes sense from a consumer shopping point of view and it really does help the supply chain to be able to better forecast and replenish those specific items.
Julian Miller: I would say and jump in if anyone disagrees me but it’s about connectivity between the different elements and it’s about agility to be able to respond to all these changes in customer behavior.
Jonathan Tye-Walker: No disagreements with you there, Julian. I think to add to that, I think, what we saw largely this year is that the retailers that really were able to accommodate the shocks, particularly through their online delivery, through their online capacity, were the retailers that really excelled and thrived this year. And it was those retailers that perhaps didn’t have that capability or just simply that bandwidth at the times of crisis that found it really very difficult. So I think retailers will start to really look at their full digital proposition, as well as their in store, as more of a holistic view.
Julian Miller: So looking into 2021, the retailers that we expect to be successful are the ones who are going to be able to actually connect these different areas of that business. So the ones that will be able to feed their category planning and their promotional analysis into the supply chain and successfully execute that, not just in store, in bricks and mortar store but online, as well.
Jonathan Tye-Walker: Whilst being able to look after all the different customers coming through the door, be they young, be they old and elderly, the vulnerable, be they the price sensitive or the quality driven. I think, yeah. Completely aligned to that.
Shaina Finch: Yep, exactly. And I think that it’s based upon all these different elements, to be able to have insights to the operational side of things, as well. To know what’s going on down to the end store level, up to the headquarter and distribution level, to see what’s really happening in your operations. And then tie that together with how things are performing with your assortments and your promotions and your supply chain. Tying that all together and giving a source of visibility is really, really huge and will really, really help retailers in the long run.
Jonathan Tye-Walker: It’s great to get some new perspectives on some old conversations. And hopefully we get to do it in person next time.
Shaina Finch: All right. Thanks everyone. Really interesting stuff today. I really enjoyed our conversation and look forward to talking again.
Julian Miller: Thanks everyone. Really interesting conversation state. Really enjoyed it. Look forward to doing it again.
Sean: Thank you. Shaina, Jon and Julian for your insights and conversation. To learn more, visit us at symphonyretailai.com.