Black Friday deals, but make sure they’re sustainable.

For those of us living in the United States, we find ourselves facing the beginning of the holiday season. And that also means Black Friday for retailers. That used to mean the day after Thanksgiving we would all take our overstuffed bellies down to the local mall to gorge ourselves on great shopping deals. Officially kicking off our holiday shopping adventures. With the rise of online shopping, we started having Cyber-Monday when we would all go back to work and take advantage of our companies’ high-speed internet to do our eCommerce shopping. And of course today we have access to everything via our mobile phones and Black Friday is now Black Friday Week…pretty soon it will be Black Friday Month. But things changing in other ways as well. Consumers are becoming savvier in how they shop, how they take advantage of what appears to be endless deals and most importantly are becoming more conscious about the entire shopping experience.

There is a great piece in the Wall Street Journal that highlights some of the nuances when it comes to retailers’ target demographics – click here. The findings from the piece are that shoppers still want to come into stores, they are very smart about scouring the internet and social media for deals and a growing population is becoming more aware of the impact their shopping has on our planet. This last point may be the most important driver for many Black Fridays to come. Couple this with another recent story coming from the United Nations, warning that as a planet we are woefully behind when it comes to addressing our climate change issues – click here.

Can’t replicate this online!!!

Savvy retailers need to rethink how they approach this season and prepare to make long term changes.

• Online might be more convenient, but the experience still matters. We all know that eCommerce has become an integral part of any retailers or consumer goods companies’ strategy for reaching the consumer. While the percentage of retail that is done online has not hit double digits yet, 9% in the United States for 2019 according to some studies, it commands a disproportional amount of our attention. And we cannot discount the fact that much of this is driven by mega-disruptor Amazon. But even Amazon has recognized the fact that to truly grow as a retailer…you need to connect with the consumer. And that means having some type of physical presence. This coming Friday I am sure we will still see a large number of people sleeping out to be the first in line for the deals, a tsunami of people inundating the local stores and countless stories on the news of the crush of humanity that descended on local stores. While this might not be the experience every consumer is looking for, it demonstrates that people are still looking to get to a store, interact in person and shop the old fashion way. Retailers and brands need to constantly think about how to create a fraction of that excitement for the rest of the shopping season and year overall, but they need to recognize that the stores can still drive traffic.
• Offer greater fulfillment options, but not always driven by “next day” or “2-hour” windows. Speaking of Amazon, in my mind, they are the biggest culprit when it comes to spreading this myth that everything has to be delivered tomorrow or within the next 120 minutes. Hey, I enjoy instant gratification as much as the next consumer, but do really need EVERYTHING I order tomorrow? No. Especially not if retailers give me a reason for holding off on getting my goods. Maybe I saw a great deal on a rug for the living room, but I am about to go out of town for a week and would rather not have that item sitting outside my house for a few days (that actually happened to my girlfriend and me). Maybe I want to order my son’s Christmas present in July but don’t want to have it sitting around the house all summer and fall. When retailers think about fulfillment they need to think in terms other than simply next day and 2-hour. How about fulfillment that has the smallest environmental footprint? Flexible fulfillment that meets the consumers’ location needs – going to be at grandma’s for Christmas, maybe have the items fulfilled from a distribution center (DC) closer to her, maybe schedule a pick up from that DC once you pick up your rental car from Hertz so you eliminate the need to dispatch a delivery truck. Flexible fulfillment needs to go beyond what Amazon is force-feeding us to believe is the norm.
• Encourage consumers to participate more actively in the circular aspect of retail. Return volumes, no surprise, see their largest volumes right after Christmas and into January. This past season, according to returns solution provider Optoro, the dollar amount of returns seen post-Christmas season into January was the equivalent of the GDP of the Slovak Republic. But this should not be a surprise, overall as consumers are returning and throwing out a greater amount of product every year. Retailers and brands need to start thinking about ways to not simply reduce these returns, but how can they extract value from the returns and more importantly use it as an opportunity to interact with their consumers. Could we see pop up return centers, modeled on what Amazon and Kohl’s are doing? Kohl’s has returns services within their stores for Amazon products, could other retailers look to offering similar services but as a pop-up? Could some logistics companies expand their pick up services? UPS, FedEx, USPS are all at my buildings’ door every day, could they increase their “backhaul” capacity by taking more returned inventory? Could a savvy retailer partner with some of these firms, encourage their consumers that have received an order from them to use that box to send back items (do not have to be items from that retailer) that can be recycled or donated? Organizations such as Goodwill or the Salvation Army could also be involved with regards to receiving and processing what is “coming back.” Truly encourage a more sustainable circular economy.

As we rapidly close in on Black Friday, retailers and brands need to implementing more long term thinking and strategies. Consumers are becoming more demanding, but not simply on price and choice of product. How can retailers and brands be savvier when it comes to meeting consumer demands, that go beyond what we deem as traditional expectations?

A good time to ponder this is when we need to tune out our family’s political debates over the turkey on Thursday!

Customization: more than monograms and pant hems.

We as consumers have demanded and started to expect that our brands and retailers provide us products that are personalized. Beyond simply adding our initials to the sleeves of our Ralph Lauren shirt or having to hem our new Hugo Boss suit, product customization is moving towards a place where the consumer can dictate what they want from the brands and retailers.

All one has to do is look at how we can customize our automobiles – BMW’s Spartanburg factory could run a full year worth of production and never produce the same car twice. Or how we can call up our sneaker companies such as Adidas, New Balance or Nike to create customized footwear for our enjoyment. The market is also seeing the rise of brands looking to create bespoken clothing such as Indochino, Suit Supply or MTailor who look to create suits, shirts and other items simply by taking your measurements over their apps. Of course these services are not without some growing pain issues…I have two Indochino suits that both have a sizing story associated with them!

Indochino suit…looks good. But it took some work to get here…

While customized products are becoming more of the norm, what brands and retailers need to starting thinking about goes beyond simply products. Customize the entire experience for consumers. The inventory is only a part of the overall retail ecosystem. Consumers expect greater information about their purchase, flexible fulfillment and friendly return policies.

• Greater information, greater insights expecting by consumers. The experience for consumers starts much earlier than it did 20 years ago. Brands and retailers need to be there when that journey begins. That means rich data, entertaining information and deeper knowledge sharing. Where did the product come from? How was it manufactured? What was its journey to its final destination? Can I customize this information – shopper A might be more environmentally conscious so give her lots of data on the sustainability efforts, while shopper B is more interested in how others use that product so give him YouTube videos or Instagram pages of how the product is being leveraged.
• 2 Hour fulfillment? Sure as long as it is one option. Retail giant Amazon has trained us that the 2 hour fulfillment window is nirvana. Is it really? While instant gratification, in this case 120 minute, is a driver for consumers, it is not always the right option for fulfillment. Savvy brands and retailers are starting to realize that they need to rethink this, rather than chasing Amazon, set their own strategy when it comes to order fulfillment. It is hard to compete when Amazon’s fulfillment costs, as they have only continued to rise to the tune of $34 billion annually. Fulfillment needs to be seen as part of the customization process. Want it delivered in 2 hours or in a month, sure. Need it shipped to a local pick up locker for you to retrieve after work, okay. Want it shipped to your vacation hotel next week, absolutely. Retailers and brands need to start thinking about customization in this context – when I want it isn’t always within 2 hours.
• Circular life of inventory demands for better returns. Returns and the circular aspects of retail are becoming of greater importance. Rather than viewing this as a cost center, savvy brands and retailers are seeing returns as a way to pull back working capital into their supply chains, as a touch point with customers and as overall good business. Retail giants such as Home Depot still view returns as a cost center, trying to minimize the overall cost of processing the returns as much as possible. A short term cost cutting strategy. While other retailers such as Kohl’s has been willing to take the chance, and dance with the devil, allowing Amazon returns to be processed within their stores. Inviting the biggest disruptor into your store! Smart. Get those customers into your physical store, allow them the ease of returning that Amazon item and yes try to sell them something from your inventory. I have heard customers say, “well I needed to get product A, and had to return this Amazon item, so might as well do it all at Kohl’s.” This is simply the beginning. More retailers will realize that they need to offer simple and customized returns for their products, sometimes it might call upon partnering with other players in the space.

Of course the drive towards greater product customization will continue. Whether it is your BMW X5 or your new pair of Adidas, we expect our brands and retailers to try to amaze us by better meeting our personalized needs. But it is simply not in the product, but in all that surrounds the retail experience.

Returns…major cost or hidden asset for retail?

Try this on for size: in 2017 there were $351 billion worth of returns in the United States retail market. Putting this figure in perspective, were that dollar value the revenue of a retailer, it would be the second largest retailer behind Walmart (Walmart is at $482 billion, with the second-place retailer, Costco at $116 billion in revenue).[1] Returns have always been a part of retail, but often not seen as a priority for retailers. Retailers and brands can no longer look at this part of their supply chain as an afterthought but need to be savvy enough to determine how they can leverage this inventory in strategic manners. Returns represents working inventory that, properly utilized, are an asset that have value within the supply chain. These assets have two key components – the physical asset as well as the financial aspect associated with the physical assets.

The returns channel is the last step in inventory lifecycle – for those who have spent enough time in the supply chain space, you would have come across the SCOR model. The SCOR model is a framework for anyone in supply chain knows is crucial to their business. It encompasses: plan, source, make, deliver, return and enable. The returns aspect is one that has been ignored for too long. This no longer a luxury for retailers and brands. Returns represent inventory, and that amount of inventory will be growing. Due in large part to the rise of ecommerce coupled with more lax return policy. Coupled with the amount of revenue this represents – both the accounts payable owed back to the consumer, as well as the handling costs associated with accepting returns – the returns portion of supply chains can either act as an anchor or offer a subtle catalyst for these retailers.

So how should retailers and brands view this aspect of their business?

Use returns to reduce both physical and financial friction

As mentioned above, returns truly represent a growing amount of inventory. However, it’s inventory that retailers don’t necessarily plan for, and in turn, doesn’t always get reallocated in a way that makes sense for the business. It’s time for retailers to begin intelligently leveraging this inventory to address other demands from consumers. For example, Consumer A just initiated a return process, meanwhile consumer B is on their phone looking at that same product. Rather than having return go to a store or distribution center, handled, re-slotted and then re-entered into the sales channel – incurring additional financial cost at each step. Couldn’t a retailer put in place a system that allows the product to be “returned” from consumer A to B? Via digital and other methods there could be ways to ensure the product remains viable. This would reduce friction of the supply chain, accelerate the flow of inventory and eliminate the associated financial costs associated with returns handling.

Better handling of returns means better sustainability

In 2016, the average American threw away close to 81 lbs. of clothing, which translated to 26 billion pounds of textiles ending up in landfills.[2] Doubtless these discarded items are in various states of repair, but certainly some of them could be saved – especially those items that sat in the back of a closet unused because it wasn’t the right style, color, or fit. Might this be an opportunity for retailers and brands to help the environment by encouraging inventory to come back to the supply chain rather than ending in the landfill? Brands like Levi’s and Madewell offer consumers bring in used clothing – regardless of the brand – a discount toward a new item.[3] In fact, Levi’s goes so far as to offer a line of jeans made from recycled cotton, as well as refurbished vintage denim. Other items might be donated to a charity like Goodwill. These initiatives not only encourage consumers to recycle (which is really another form of returns) inventory that would otherwise be discarded, while giving them incentives to buy more products from these brands. Think of this aspect as an alternative method to dealing with the physical aspect of the returns.

The returns business is one step away from new “ownerless” models

A concept that is quickly becoming reality is the notion of ownership – or lack thereof. We’ve gone from owning cars to renting by the hour with services like Zipcar. Or just paying for the ride via Didi Chuxing, Uber and Lyft. The notion of having a closet full of clothing we own is being challenged by the clothing rental services such as Rent the Runway. The line between outright owning and just owning the experience has blurred. A growing number of brands and retailers are starting to add similar offerings. Home Depot and Nike are integrating services that allow consumers to either rent tools and equipment for DIY projects or subscribing to a sneaker service[4] to your growing child[5]. These are examples of how returns and the reverse logistics aspect of supply chains, when taken on as a strategic asset, can open new business opportunities. These new models, hybrid return aspect of the supply chain, opens new avenues for increased financial flows for retailers, while applying new methods to the physical assets.

Returns and reverse logistics used to be seen as the red headed step child of supply chain. Today, brands, retailers really any business that offers a product must look at this part of their business through a different, more strategic lens. If they can master this part of their inventories life cycle, they can unlock new revenue opportunities, get ahead of the curve when it comes to sustainability and enhance their customer responsiveness. The gauntlet has been thrown, but not thrown away, put back into the supply chain.

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[1] National Retail Federation

[2] https://www.huffingtonpost.com/entry/youre-likely-going-to-throw-away-81-pounds-of-clothing-this-year_us_57572bc8e4b08f74f6c069d3

[3] https://www.madewell.com/madewell_feature/dowell.jsp?sidecar=true

[4] https://www.homedepot.com/c/tool_and_truck_rental

[5] https://app.easykicks.com/

After market supply chain – getting ready for prime time

A few months ago I wrote a piece of research that broached the after market supply chain. Click here for link. This topic continues to grow in importance, especially for retailers. Why? Primarily due to the continued growth of the consumer’s voice within the retail supply chain. The saying “the customer is always right” has taken on a whole new degree of importance. Whereas this statement was limited to a finite number of interactions between consumer and retailer, today this saying carries much more gravitas. Consumer’s have a greater awareness to a larger portion of the retailer supply chain, and with that awareness comes greater expectations. One area where retailers are starting to feel this impact is in the after sales supply chain. Consumers want choice not only prior to the moment of truth, at the point of making a purchase, but also expect it post sales. The notion of “all sales are final” is rapidly becoming a dated concept. So what are retailers to do?

• Make sure you have a strategy…okay this might seem too simple, but there are number of retailers ranging from Nordstrom to Target that offer free returns. In 2015, close to 50% of retailers offered these services, placing a massive strain on their cash flow statements. So have a plan. Providing free returns, just because the likes of Amazon and Zappos are doing it, does not necessarily make business sense for your business. Consider creating a tiered returns policies. Big spenders or loyal customers can qualify for free returns, other customers fall into different levels. Perform some ABC cost analysis on the entire supply chain – figure out the true costs. Because nothing is truly “free.” Then create a logical strategy strategy of how to deal with the reverse supply chain.
• Can you turn the after sales into a strategic advantage? The after sales supply chain should be seen as an extension of your relationship with your customer. Returns are not a negative – the customer is not saying they don’t like your product – rather it is part of the customer journey. Can  you learn from why the customer returned the item? Is there something that you could alter to the process? How far back in the supply chain can you change procedures to ensure returns are lowered? And you can make returns another revenue opportunity? There are some retailers that seek to incentive customers to return in store, knowing that over 50% of these will convert on another purchase. Could retailers drive those numbers higher? Viewing after sales supply chain as part of your customers’ journey is crucial to unlocking some strategic opportunities with post sales supply chains.
• Another data source – mine it! Why are consumers returning the product? Wrong size, color, style…the number of reasons is endless. Retailers need to embrace this level of data that could be ingested back into the supply chain. Can the product be redesigned? Is the marketing of the product not appropriate? Was there a better way to promote the item? Was the style just wrong? Retailers must embrace the data and information that the after sales supply chain can render. The ability to take the information, processes it quickly and render better decisions based on this information could prove to be a data lake worth swimming in.
• Don’t hesitate to lean on your solution providers to offer solutions. One theme I saw at NRF was some innovative thinking about how to handle the after sales supply chain. From software players such as JDA and IBM to service providers such as Wipro. Retailers shouldn’t hesitate to look their existing service and solution providers to assist with this journey. Don’t be shy about expecting your software and service providers to become a true partner when it comes to handling the post sales supply chain.

The after sales supply chain is evolving beyond being a cost center and a “nuisance” to retailers. It is part of the consumer journey and consumer expectations. Retailers, service providers and software vendors all have an opportunity in the after sales supply chain. Consumers are already there expecting better post sales service, it is up to the savvy retailers to meet those expectations.