LL Bean, a privately owned outdoor clothing and equipment company, has always prided itself not only in well crafted products but in having extremely generous policies when it comes to exchanges. The Maine based retailer had a “no questions” asked return policy…. with no time limits. Bought a pair of their outdoor boots in 1983, you can exchange them today. This was a brilliant policy of the company. It demonstrates outrageous customer care, no worries about receipts or time constraints. It implicitly told the market that they were confident in their product. That LL Bean was confident that the design, workmanship and supply chain was robust to create products that would last. Hopefully the vast majority of customers would never need to return their items!
Unfortunately, it appears that this policy might no longer be feasible, read article here. Why? LL Bean, similar to a plethora of other retailers are undergoing a change when it comes to how they manage their business. With their business faces a number of daunting headwinds, LL Bean is trying to find ways to keep their employees happy, continue to produce quality merchandise and compete in an ever chaotic world. But for a company that was a pioneer in focusing on the customer, it would be ashamed to see them cut the very service that more retailers are starting to slowly come around to.
Is this move also an indication of a greater issue that will grow in the retail supply chain? That of returns and reverse logistics? Retailers from LL Bean to Walmart have a growing area they must focus on – what happens to product post sale. By some estimates up to 12% of retail inventory is in the returns channel at any moment, for pure play eCommerce retailers that number might be as high as 50%. That represents a tremendous opportunity and challenge for retailers. They have to plan for possibly having to re-slot some of this inventory, inspect and possibly refurbish product, and then possibly having to discount the product if it comes back too late in a season. I have seen some examples of retailers not even wanting a customer to return the item, they just refund the price and tell them to keep it. Costs too much to re-slot. It is also an opportunity. Can retailers become more sophisticated with their returns channels? Actually reallocated that inventory dynamically to go to other consumers rather than back to a distribution center? Can the returns channel as a whole become a discount/outlet styled extension for the retailers? Have the inventory in the returns channel create an after market for goods. Rather than taking them back into their normal supply chain, allow the purchase of this inventory to take place in a secondary market.
This future state for retail is possible but starts with greater visibility into the overall network, a network that must extend beyond the customer purchase. But retailer networks need to catch up, otherwise we will see more retailers putting a handbrake on customer service levels like LL Bean is rumored to be contemplating. That would be unfortunate.
 According to UPS presentation at RILA 2017.
The Charles Dickens’ novel, A Christmas Carol, Ebenezer Scrooge gets a visit from the ghosts of Christmas past, present and future. They all take their turns trying to melt the dark heart of Scrooge. Eventually Scrooge wakes up with a whole new outlook on Christmas. So what does this story have to do with retailers and their Christmas? A recent story in the Wall Street Journal points out that retailers, while trying to resist it, have looked to employ deep discounting to flush out inventories and to capture customers this holiday season. Click here for article.
Retailers, as we have stated on this blog, have been scrambling to keep up with customer demands and the shifting sands of retail. We witnessed this even more so this year during the beginning of the holiday season – Black Friday. Retailers were scrambling to allure customers to both their brick and mortar stores as well as their eCommerce assets. Clearly they are continuing to scramble to figure out what is the best combination of discounting and holding the line. The challenge for retailers is that the ghosts of retail past are exactly that…the past.
Consumers have become accustom, if not expect to see discounting take place early and often. Why would the major gift giving season of the December change this mentality? If everyone is discounting…is there really any discount? So what are retailers to do?
- Consumers expect discounts…so you will have to provide them. But can retailers be savvier with them? Follow the Jet.com model – provide discounts but some caveats such as non-returnable. Rather than simply discounting, bundle items. The article points out discounting done at Ralph Lauren on a scarf, what about bundling it with gloves. Discount the bundle but look to capture a higher amount of revenue.
- Lean on your supply chain network for greater nimbleness – the ghosts of Christmas past never had to deal with such new fulfillment models as deliver to home, order on line and deliver to store…add these to the traditional brick and mortar distribution methods. Underlying all these new models are retailers’ supply chains. The ability for retailers to position inventory, respond to demand and fulfill more effectively is vital. As consumers expect more from their experience, retailers need to keep pace. The supply chain is the best way of doing so.
No one wants a visit from ghosts, let alone during Christmas. Retailers are seeing ghosts themselves. They are reacting to consumers’ demands and leaning on discounting to draw them into their stores. The ghost of Christmas past when they had control of their pricing is exactly that, the past. Focus on the future, the game is constantly changing. Nimble retailers, who leverage their supply chain network will have the opportunity stay ahead of their competitors.
What a year 2016 has been. With a unexpected result in the United States presidential elections, the United Kingdom deciding to leave the European Union, one of the world’s largest shipping companies (Hanjin) going bankrupt, Olympic games being held for the first time in South America to name a few, I think we are all ready to close the chapter on this year and look forward to 2017. With every new year we in the retail world, also begin to look towards our annual pilgrimage to the Javits Center in New York City for the biggest retail show of the year – NRF. I have lost track of how many of these I have attended. The nice part is they always teach me something, there is always something new and exciting. So what should we expect during this version? Here are some trends I would keep an eye on:
- The store version 2.0…or is it 3.0 – Okay okay this might be boring and something that I already discussed last year, but the reality for retail is that the store is continuing to undergo a massive metamorphosis. The age of the massive, cold, heartless store is over. Stores will remain points of sale and fulfillment, but how they achieve these goals is what is continuing to evolve. Are retailers going to leverage stores as do brands such as Restoration Hardware with certain stores that are truly only showrooms, allowing the consumer to experience the furniture and housewares in a variety of settings? Will stores morph towards the Apple Store model – a fulfillment center, a showroom, a service and maintenance center. What about stores such as Bass Pro shops, a store where the experience is as much a part of the store as is purchasing product. Brands and retailers will continue to work on figuring out what their stores need to resemble or what mix they want to employ. This will have an impact on their inventory strategies, labor mix, store technologies and integrated omnichannel strategy.
- Retail supply chains, back to the glory days? An interesting report came out recently from the University of Auburn and RILA that looked at where retailers were going to invest their funds over the next year. The supply chain, while not earth shattering news, was one area of focus and investment. But, it is investments not in squeezing out more cost savings from the supply chain but instead investments towards making the supply chain the engine for growth and expansion. I couldn’t agree more! The primary function of a well-oiled supply chain is to get the right product or service, to the customer at the right time, right price and for the right margin. Simple! Too often retail has looked at supply chains as where they can squeeze out cost and instead looked to the customer facing assets – web sites, eCommerce, mobile, CRM to name a few – where they should invest treasure with the idea of capturing customers. This remains important, but now retailers, the smart ones, are recognizing that unless they have a nimble and efficient supply chain, can they meet their customer’s expectations? Expectations that are stoked by, at times, overpromising with the front end bells and whistles? It will be interesting to see how supply chains are discussed and viewed at NRF.
- IoT and digital how are retailers doing? Last year it was interesting to see the number of vendors and discussions that included some degree of IoT (internet of things). Will this hold the attention of the audience again this year or are already past this? I hope not. Reality for retailers and really most industries is that the digital journey, of which IoT is a part of, is only beginning. The digital transformation – where companies are raising expectations to expecting over 40% of their revenue will be generated from digital by 2020[i] – is only beginning. How will retailers begin to adopt digital technologies such as smart displays, virtual reality, connected products via IoT, greater digital connectivity with both customers and their ecosystem? We cannot, and I trust we have not, buried the idea of digital transformation or digital enablers such as IoT. It will be interesting to see how much of the narrative continues to contain a digital focus at NRF.
These are three big themes I will be looking for at NRF. You might ask yourself – well what about omni channel or mobile commerce or even social commerce. I am sure these topics will remain a constant. However, I think it is time we stop trying to categorize commerce and just call it what it is – commerce. There was a great article earlier this year from the Harvard Business press that talked about consumers moving to a model of ambient commerce. A world where being able to purchase, transact and acquire products is always on. Consumers no longer have to think about shopping or transacting. Retailers must be aware of this new reality.
A few weeks away from our annual kick off for retail in New York City and NRF. Hope to see you there.
[i] Gartner, “Create an Industry Vision for Digital Business.” April 11, 2016
It’s December and retailers have kicked into high gear to meet the increasing demands of holiday consumer shoppers, both in store and online. If the Thanksgiving to Cyber Monday time frame in the United States is any indication, the strain felt by the retail supply chains is not going to subside during the Christmas season.
A recent article in the Wall Street Journal highlights the struggles retailers such as Toys “R” Us faced last year when it came to fulfilling all the online orders that taxed their systems. Click here for article. So what are we to make of this? Should retailers
Plenty to go around! If your supply chain is up to par.
throw their hands up and allow the mighty Amazon to march on, unabated? Of course not. Retailers must be increasingly savvy when it comes to their integrated online and brick and mortar strategies.
- Be judicious with online promotions. Easier said than done, as the majority of consumers expect to get deals online, and better prices. But, retailers need to start being disciplined with their promotion and pricing strategies, and avoid running a promotion for the sake of it. They truly need to understand why and how this promotion will impact their bottom line.
- Have a network view of all distribution nodes. The advantage traditional retailers have is the real estate they have invested in. While it is not always a positive, retailers must take a holistic view of their assets. Can they distribute popular, standard or fast moving items from their stores? View them as forward-positioned distribution centers. Hold back inventory that is more unique, less likely to be mass purchased back in true distribution centers.
- Don’t be afraid to set expectations with customers. This is difficult, especially considering Amazon isn’t shy about taking a financial hit on some of their fulfillment promises. But why can’t retailers have a deeper understanding of their product assortment with associated costs? Certain items need to have a cutoff date – if you do not order by this point then there is no guarantee it will arrive by the desired date. Yes, this is available sometimes, but make these options crystal clear.
At times, retailers must feel like they are the dog that constantly chases cars – run, run, run, but alas the car is always faster than you. In a way retailers need to stop focusing all their attention on the car (aka Amazon) but rather focus on other dogs – can they out run them? Focus on your supply chain network. Is it flexible enough to allow the retailer to seek new offerings, new business models? Without the visibility and understanding of what is possible, what can you really hope for?
Retail faces a daunting task. Not only do they have to compete with the likes of Amazon but they have to keep up with our, the consumers’, needs and desires. A challenge, but a great opportunity.
In a recent article, Crate & Barrel, announced that it would start selling other brands on their website. Click here for article. This is not a new concept. Companies such as Lord & Taylor, Saks, Macy’s, Walmart and JCrew are already selling other brands on their ecommerce platform. In the case of JCrew you can even purchase products such as New Balance sneakers in their brick and mortar stores as well. According to the WSJ article, there are more than 250 retailers already offering this functionality. This begs the question, are retailers and more specifically their eCommerce activities gravitating towards become more of a market place?
Are we seeing another influence on retail from the likes of Amazon and Ebay, two online pioneers that made their businesses through offering their clients almost unlimited selection of products from a wide swath of brands. For the likes of Crate & Barrel it makes sense for their customers. For obvious reasons, they want customers who come to their web site to have access to the widest array of goods for the home. However, they cannot grow their inventory offered as fast as if they allow others to join their marketplace. Rather than spend time scouring for new products, niche vendors and the latest trend, Crate & Barrel can open up their platform and incentivize these brands to come to them. Makes sense, right? Yes, but there are some key issues these brands have to consider:
- Transforming their eCommerce assets into a marketplace places greater pressure on the brand’s supply chain. The value that an Amazon offers when it allows vendors to sell their products via the marketplace is the massive supply chain and fulfillment engine that goes behind that front end web site. Retailers like Crate & Barrel and other traditional brick and mortar brands have struggled to seamlessly and easily bring eCommerce to their offerings. If they now take on a greater array of product through their site, product that falls outside their control, can their supply chains keep pace?
- It’s the brand stupid. One appealing factor for brands to associate with the likes of Crate & Barrel is to ride on their brand presence and reach. For Crate & Barrel the positive is being able to offer their customers a deeper and wider product assortment. The risk for Crate & Barrel is that it is their brand that is on the mast head. What happens if one of the vendors they allow onto their online asset sells defective or subpar products? The real issue is that it is the brand, Crate & Barrel that will suffer.
So what does this mean? As more of these brands begin to explore the strategy of creating mini-marketplaces on their web site, they have the opportunity to expand their offerings to their customers (don’t forget as we have stated many times, the customer has now gained the power in the retail relationship) but they will have to rely upon their supply chain network at a more intimate level. These brands must be able to have absolute clarity with regards to which suppliers are being allowed onto the marketplace. There must be absolute understanding into the product offering, what happens post sale and how will disputes be handled by the entities involved. They must also have clarity as to the impact these relationships have on their financial supply chains. This requires a supply chain network that has a deep degree of insights and visibility, but also the capacity to have the flexibility to manage a marketplace that itself needs to be nimble enough in order to truly achieve the aspirations of the medium.
This is yet another example of the continuous evolution of retail. I wonder when I can start buying my groceries with that Basque Honey dining table on the Crate & Barrel site?
I recently attending the WWD CEO apparel summit in New York City. The event brought together a number of executives from the fashion world from the likes of Dior to Neiman Marcus, as well as fashion superstars such as Ralph Lauren, Vera Wang, Joseph Abboud and Diane von Furstenberg. Other than a fabulous two days at the Pierre Hotel, I took away some key themes to the event. The main talking points:
- Supply chains are for more than simply cost control. Supply chains have long been seen as centers to control cost, but they are finally starting to be recognized as tools of differentiation, tools that need to be leveraged to gain opportunities within the space. The CEO from Neiman Marcus highlighted as his top initiative the supply chain. Without an efficient and robust supply chain, all the efforts Neiman Marcus are making to redefine their stores and customer interactions will fall short. The supply chains must be increasingly nimble to meet the shifts within the retail world. As we pass through the omni channel stage of retail and evolve to a state of constant retail, or ambient commerce, the supply chain has to be nimbler and more flexible.
- Stores aren’t dead, just being redefined. As mentioned above, the store is not dead. Far from it. Brands such as Neiman Marcus recognize that the physical store remains an essential cog in the retail universe. However, it is undergoing a transformation and will continue to undergo changes. From bringing beauty salons, restaurants or coffee shops the real estate footprint for fashion and retail. The question for these brands is how do they better manage their ability to fulfill. As stores change dynamics, what are the repercussions of the overall network’s strategy? Brands and retailers must become even more sensitive to how they manage their inventory positioning and fulfillment as their distribution footprint constantly shifts. The retail footprint is evolving, the store is being redefined and driving the overall retail experience. As was often stated at the conference – retail and fashion cannot view physical stores as separate from web commerce, but both must go hand in hand. All one had to do was listen to Hudson Bay and why they acquired mobile eCommerce darling, Gilt. Truly creating a full retail footprint.
- Consumers are the queens and kings of fashion and retail. The consumer runs the show, according to the numbers presented by MasterCard, close to 70% of the purchases are made by a female buyer. That buyer is also becoming increasingly driven by experiences and driving the relationship. Clearly the consumer continues to grow in strength. She expects to have unique products available, experiences but does not necessarily want everything immediately. Consumers want to have visibility into when they can expect product, but do not necessarily expect it always right now. Retailers and the brands need to keep this in mind, while they need to be sensitive to their consumers’ wants and desires, they must balance the importance between experience, available inventory and meeting consumer needs.
Hearing the presentations from main stage as well as the hallway conversation reinforce the notions that retail continues to evolve, and at an unprecedented pace. While these changes are happening at a breath taking pace, the fundamentals around inventory, supply chains and the consumer must be kept in focus.
The recent news that Warby Parker and Bonobos would be exploring opening a greater number of physical stores, coupled with Amazon themselves becoming more present in the physical space. Why? These are all eCommerce giants. Retailers who built their brands and businesses by bypassing all the costs and constraints that traditional retail was burdened with. In parallel we are seeing brick and mortar brands such as Sears and Gap, continue to readjust their store footprints. They are looking to shutter more of their stores, hopefully working to a profitable number and type of stores. So what gives?
We are witnessing a balancing. Retail will most likely never be all online or all in person, but it will be a state of constant retail. We, as consumers, will be able to search for, experience, acquire and return products constantly, with fewer and fewer boundaries. There is no more omni channel or eCommerce, but really simply “commerce.” Whether it is social shopping like we see with Facebook or Salesforce, pop up stores, mobile commerce via trucks and vans, buy on line pick up in store, personal shoppers, subscription based shopping and the list of retail options continues to grow – how we shop, how we purchase and acquire “stuff” continues to evolve.
But what is the one underlying aspect we must always be aware of, that our brands have to be conscious of? Their inventory. At the core of this new shift in retail is the constant challenge – how do I make sure I have the right product at the right place and for the right margins? Being able to fulfill orders out of a dedicated distribution center for online sales, is challenging enough. As these retailers start growing their brick and mortar footprint, they will have to adjust their inventory strategy, fulfillment efforts and overall distribution tactics.
An overarching theme this recent news emphasizes is the continued shift in retail. Omni channel is really only a stage in the journey towards always on commerce: ambient commerce. A state of commerce when we are always able to transact and have fulfillment occur in multiple locations. Consumers will not distinguish between how they are accessing the brands, and expect experiences to be similar regardless of how they arrived at the decision making point. This shift in the retail landscape continues to emphasis the importance of have deeper view into the overall network and how inventory flows. Whether traditional or eCommerce retail giants, as consumers demand greater reduction in commerce friction, the network must support an inventory strategy that can keep up.