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.
Really try it before you buy it.
Like many of my fellow road warriors, we have become keenly aware when we get to stay in a hotel room that offers a superior experience. A clean room is the basic expectations; a comfortable room is what we expect but a stylish room on top…that is the ultimate customer experience. That is why it caught my attention this week when I saw a piece on West Elm, which is a brand under the Williams-Sonoma family, opening up hotels. A furniture store getting into hospitality? You must be crazy…next thing you will tell me is that Apple is looking to get into the luxury car business…oh wait, never mind.
So why is West Elm’s play in hospitality an example of how retail is being transformed right before our very eyes? It all comes down to the customer experience. Retail is truly transforming into a constant dance and balance between service, assortment and availability. We the consumer seek better experiences, enhanced services and unlimited access to a variety of inventory choices. That is why we see brands such as Urban Outfitters purchasing a pizza chain, click here for story. Or why giant book retailer Barnes and Nobles has so many Starbucks in their stores. Retailers are striving to find other ways to make their brick and mortar assets more attractive, to create an experience and services above and beyond their core product. When it comes to the furniture business, their stores are truly show rooms. It is a challenge for brands such as Restoration Hardware, Pottery Barn, West Elm or Crate & Barrel to carry massive amounts of inventory within their stores. Rather they want to use their real estate to allow customers to sit or lie on their products. The challenge is to ensure their network can fulfill any sale quickly and efficiently. While it is nice to walk into a West Elm to sit on a Hamilton sofa or lie on their Nash series beds, what if you could truly experience these pieces. In their true elements?
Enter the hotel idea. Think of this as taking the show room concept into the world of the car sales and allowing for a true test drive of the product. Yes, you can see how the furniture looks like in the West Elm store, but how much better to spend a few nights sleeping on that bed? We have already seen other hotel brands such as Marriott making their beddings and other products available to purchase. I have spent plenty of time in hotels where the high end soaps and lotions in the bathrooms can also be purchased in the store or online. But this is a new play, for a retailer to get into the hospitality space. To explore a new way of providing the customer with an experience built around their product.
The underlying challenge for West Elm will be integrating the demand signals that this new channel will produce. And ensuring that they have the systems in place and flexibility in place to manage their inventories to meet the new demands from this channel. There will not be the direct contact with in store sales associates, nor the ability to guide one through the online assets. Rather, the whims of the consumer will be taking place in the privacy of their hotel rooms. As each hotel manager creates their specific experience in their location, West Elm will need to be ready for sudden jumps in demand that come out of the blue.
A great example of a retailer finding new channels to create customer experience…that will also drive more sales. I wonder what kind of rewards program the West Elm hotel will have.
As the last days of summer come to lazy close—sigh—retailers and parents of school children should all be squealing with glee. Okay maybe that’s an exaggeration, but the end of summer does mark the beginning of the retail race to the black. They are looking to beginning to build up their holiday season inventories while ensuring they capture as much back to school revenue as possible. However the back to school season is a microcosm of the shifting sands in the retail world.
Back to school is the second largest sales driver, right behind the end of year holidays – accounting for over $27b worth of sales. But while this time of the year is a boon for retail, there are signs this rosy picture is cracking because of the usual disruptors. Their disruptions come primarily in the form of growth in consumerization, and the pressures from ecommerce giants such as Amazon.
Let’s dig into some NRF numbers:
- 97% of online sites visited are either super centers or office supply sites.
- 84% of parents will only purchase online if free shipping is offered.
- Over a third of parents will make purchases online.
Retailers that are in this space are probably selling commodity items – a heavy percentage of office supplies. (Click here for an example list.)
These items are difficult to differentiate through value-added services, customization, or contextual experiences. They are often based on convenience and price, and are usually not overly bulky but can be heavy. Why is this important?
Consumers are going to shop for these products and look for value and cost to be the biggest drivers. This is in the sweet spot for the likes of Amazon and Jet.com. But could some of the items – like paper and books – place an additional strain on fulfillment for retailers? Possibly. What is the opportunity for retailers to thwart being overwhelmed by Amazon’s ecommerce prowess?
Here are some strategies:
- Focus on an in-depth understanding of your network. Where can you hold back inventory? Can you fulfill from different nodes, and are there parts of your network that can push inventory out earlier in the process? Bring more flexibility to your distribution and fulfillment capacities to control your costs, but most importantly, retain customers through profitable fulfillment. As the data from NRF reminds retailers, consumers want and expect free shipping, how can retailers better leverage a network view of their inventory to address this trend.
- Leverage the digital supply chain to focus on creating a user profile. Can retailers follow their customers as they progress from pre-K to college and beyond? This insight may open up opportunities to provide location-based value-added services. If a child is about to be a junior in high school, inform them of a local college prep program. Create some contextual wrappers around your inventory. Leverage the digital mirror to your supply chain to create stickiness to your brand. Hopefully this not allows for a degree of brand loyalty, but allows the retailer to do a better job with demand sensing and shaping.
Back to school can be stressful enough – as retailers let’s not have the added stress of how to continue to drive and capture revenue in a world of omnichannel and consumer-driven supply chains. There are opportunities to protect revenue but also uncover new opportunities; the retailers that start to think network and digital are pointed in the right direction.
 Data from NRF – https://nrf.com/news/infographic-look-back-school-supplies-lists-and-online-shopping
 Consumerization of the retail supply chain is the shift in dynamic towards the consumer. The consumer has become the focal point in the retail supply chain.
Late last night, in the UK, the news came out that the English populous had voted to leave the European Union. The finally tally was 48.1% to remain and 51.9% to leave – the impacts on the financial markets were immediate and as expected quite negative as the Pound Sterling dropped to its lowest levels versus the US Dollar since 1985, the stock markets across the global rapidly shed value and the impacts on British companies also suffered drastic losses on the market. Bell weather British retailers such as Marks & Spencer, Sports Direct and Tesco have suffered double digit percentage losses on the open markets. The repercussions are only beginning to be felt throughout the global economy. Let’s take a quick look at some areas that will feel the impact.
- Disruptions to our supply chains come in many forms: One common thread with supply chains, is the fear and dislike of disruptions and unknowns. Often times we focus on such disruptions such as raw material cost fluctuating, demand being fickle or transportation costs to name a few, but Brexit reminds us that one large disrupting force are geo-politically driven. The severing of ties to the open market will impact supply chains when it comes to tariffs, trade agreements, freedom of labor movements, access to capital to name a few. How supply chains react to such disruptors comes down to how nimble and how flexible the supply chain network has been built. No supply chain can prepare for every possible disruptor, but how quickly the supply chain can lean on its digital mirror to react faster will separate which supply chains that simply survive and which thrive in moments of chaos. Supply chains must be nimble enough to be able to react to such changes – which markets will become more profitable, where may new costs impact profits, what about labor costs – these are but a few questions that supply chains must be able to address in order to survive and thrive in this environment.
- Impacts on the United Kingdom: As mentioned above, UK based firms as well as the currency is already feeling the impact. And this is simply the beginning of these changes. When it comes to such supply chains as retail, there will be issues around access to labor as well as the open markets. According to The Wall Street Journal, retail, which is Britain’s largest private sector, has leaned on labor coming from the European Union to bolster their needs. The labor tends to be more economically than locally hired assets. One of those countries, Poland, has by some reports close to 1m workers in England. Many of whom are in the retail sector. What will happen now with this labor pool? In addition, this labor pool sends back close to 1b pounds home annually, helping that local economy with discretionary spending. Retail will be impacted both in the UK and Poland in this example. The leave vote has also stoked some fires for North Ireland and Scotland to reconsider their stance within the United Kingdom, as both voted heavily to remain in the EU. If these nations break off what does that do for UK based nations and their supply chains? Will there be a move of services, financial and even manufacturing to these geographically close markets?
- Wake up call for the EU: The European Union has just seen the second largest economy and one of the major players of its Union turn their back on the club. The statement coming from across the English Channel was, we are better off not being part of the one of the largest global markets and rather go it alone. The shift within the EU will tilt even more towards Germany. As the lean manufacturing powerhouse of the EU, it will continue to see its influence and power growing now that the UK can no longer wield the influence it had when it was part of the EU. What remains to be seen is which EU nations step up to try and counter balance Germany? France? Italy? None of the above? The silver lining in this vote is the possible kick in the pants this gives the EU to address issues from debt to immigration to trade. There are two clear paths the EU can follow – a slow and painful break down or a reawakening and resurgence as a stronger entity.
What all this reminds us, is that our supply chains are under constant pressure from disruptors. They can can come from natural events such as earthquakes in Japan, Tsunamis in the Indian Ocean or volcanic explosions in Iceland. Disruptors can pop up because of misinterpretations of demand signals, poor communications between suppliers, errors in forecasting and the list goes on. Finally we have witnessed, once again, a major supply chain disruptor that comes from geopolitical events. The standard operating procedure should be to expect these to continue to be part of our supply chains.
At a fundamental level, the turmoil that Brexit has unleashed, casts a light on the importance of having a much more robust and clear view of the extend supply chain network. How well does your supply chain have a clear and understanding of the digital mirror of your physical supply chain? The more industrial grade digital supply chain you have to mirror your physical supply chain the greater flexibility your supply chains will have to react to these occurrences. For example, if a UK based grocer depends on supplies from French vineyards for wine, Italian distributors for olives and Spanish farmers for pork, with the new geopolitical shifts how fast can this grocer find new sources of product? How rapidly can they determine the potential cost impacts new tariffs etc may have on their cost to fulfill? Without greater transparency and understanding of the network they might be operating with old data or even no data. A challenge in a market that demands rapid and wise reactions to these disruptions.
End of the day we don’t know what the long term and even short term effects will be. This is unprecedented and will be the first time Article 50 of the Treaty of Lisbon will be enacted. The reality is that there is no “status quo” we are in a world that is constantly changing and demands that our supply chains do the same. How well prepared is your supply chain to deal with such disruptions?
As the famous English saying goes – Stay Calm and check your supply chain.
The whirlwind Spring event season is finally starting to wind down…sort of. Most recently I was in San Francisco attending the Anaplan user conference at the Fairmont. Not a bad location to spend a few days. Although I will say the hallways remind me a bit of the movie The Shining. Over the past year, Anaplan has emerged as one of Silicon Valley’s unicorns. With a valuation over $1billion and a large cash infusion earlier in 2016, the pressure and expectations are mounting. Rightfully so, their ambitions appear to be on par – to become the de facto planning platform. In essence they are looking to replace the old workhorse known as Microsoft Excel. Talk about an ambitious and lofty goal.
Anaplan plays in a host of functional areas, ranging from finance and human resources to sales and supply chain (more on the last later) and in a range of industries from financial services to CPG. Their underlying technology allows these businesses to create the planning models and apps required to manage their operations, in many cases taking Excel spreadsheets head on. As Anaplan’s CMO Grant Halloran stated from main stage – Excel has spread like a virus. I don’t think he meant that in a positive way! But the reality is the tool has been on our desktops for decades, its simplicity and lack of a comparable cross industry platform has made it ubiquitous. Because of this it has spread like a virus. And for all its shortcomings it does work. Is it the most robust planning tool out there? No. But sometimes good enough is better than perfect. So does Anaplan have a chance? Their momentum suggests it does, particular for large use cases where Excel has simply withered under the sheer volume of data, complexity of the process, or both. Let’s focus on one area they have invested heavily in over the past 2 years – supply chain.
Gunning for an icon.
First of all, supply chain means a lot of things to a lot of people. While I believe it goes beyond factories and warehouses, the outer boundaries of what supply chain management is remains a moving target. A clear opportunity for Anaplan – but one that will require both focus and execution, as well as making some hard decisions as to what to ignore. Where does the company continue to invest? Do they want to focus on complex planning around bill of materials and sourcing, does it make more sense to focus on demand planning or do they lean on their work with financial planning and look at the sales & operations planning (S&OP) space? They already have an impressive list of customers in the space headlined by the likes of Diageo and Del Monte. Of course these spaces have some entrenched players that Anaplan has been competing against and scoring some wins. However, to continue to build on these successes they need to continue to bolster their supply chain talent across the board, evolve their strategy, and most importantly, keep building the use case library that demonstrates their ability to address supply chain issues.
The challenge for Anaplan remains that their brand is not fully established within the supply chain space. That can be both an opportunity – being the fresh face in the space – but also a challenge – where is your street cred? Supply chain professionals are fickle, they want to know that you have experience and use cases that are tightly aligned with their needs. But nothing ventured, nothing gained!
There is clearly the desire from the top management at Anaplan. As a unicorn with cash, they should have both the resources and cool factor to continue to attract the appropriate talent to make this vision a reality. But the road is full of grizzled veterans and many have tried to displace Excel. I have joked with colleagues that had Microsoft branded itself as a supply chain vendor they would be the #1 vendor, thanks to Excel. Go bold or go home seems to be the name of the game these days, clearly Anaplan is looking to do so. Maybe the new kid has what the grizzled veterans didn’t – the right technology.
For another view of the event please read my colleague Doug Henschen’s piece – click here.