Posts Tagged 'Omnichannel'

How omnichannel makes inventory management tougher

RetailWire panelists recently had plenty to say about the supply-chain challenges triggered by stores’ push into omnichannel programs. Here’s my brief comment:

One cause of volatility is the growth of “ship from store” fulfillment of e-commerce orders (rather than shipping from a dedicated distribution center). This makes it harder to track sales and inventories at the individual location level, and makes replenishment more unpredictable. If e-commerce order fulfillment is totally randomized from one brick-and-mortar location to another (depending on who has the goods in stock and the costs of shipping), the customer looking for something on an actual store visit is more likely to be disappointed.

And here’s an additional comment on the same topic, specific to Target’s challenges:

Given Target’s spotty history of in-stock rates in its brick and mortar stores, there is a risk involved in depending too heavily on “ship from store.” As the Braintrust discussed a week ago, using stores as mini-distribution centers makes it tougher to assess actual demand in a given location accurately — in turn making replenishment more unpredictable. So if the “flow center” concept helps Target address this problem…good idea and worth rolling out to other regions.

And, finally, a comment about how Best Buy is successfully addressing the same issues:

Demand planning has become more complicated with the onset of omnichannel initiatives like “Buy online – pickup in store” and “Ship from store.” It makes forecasting by location more difficult if physical stores are also being used as mini-warehouses. Retailers run the risk of alienating customers who have made the effort to shop at a physical store, if they can’t find what they want in stock.

Best Buy has long been a leader in helping customers use the website to identify in-stock levels at their nearest store. But the company obviously decided that this wasn’t enough, and only a boost in stock levels would drive more sales. Retailers often get rewarded by Wall Street for driving down their comp-store inventories, but perhaps Best Buy’s results will point in a smarter direction.

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Did Walmart deserve the punishment?

By “punishment,” I mean the 10% drop in Walmart’s stock price yesterday (February 20) when the company reported slower-than-expected sales and profits in its e-commerce business. My comment at RetailWire expresses a contrary opinion about the market reaction:

Walmart’s stock took a similar hit a few years ago when management decided to investment-spend in the store experience — more payroll in areas like fresh food, remodeling and refixturing as needed, and so on. These were smart strategic choices that weren’t meant to please investors only interested in the latest quarter. Walmart’s decisions at the time have been rewarded with better results ever since.

I look at the 10 percent drop in stock price as a similar overreaction. Walmart is now starting to come up against its own numbers after the Jet.com acquisition, and (more importantly) it’s doing major spending on logistics and marketing to gain omnichannel market share. I’m no stock picker, but maybe this is a buy opportunity …

Holiday 2017, in several observations

Starting with Black Friday, I’m stringing together a few comments on RetailWire about the holiday 2017 shopping season. By all estimates (and retailers’ reports), sales were better than expected considering the doom-and-gloom early in 2017 about the “death of brick and mortar” at the hands of Amazon. Here’s the thread:

1. Most of the anecdotal evidence and reports from retailers suggests that foot traffic was down, especially on Friday, but overall sales volume was good. This suggests that stores’ omnichannel strategies are working to drive total sales, instead of the “silo” effect of looking at e-commerce and brick-and-mortar as two separate businesses.

There is also a sense of higher discretionary spending, which will tend to benefit department stores along with off-pricers specializing in apparel. Early cold weather doesn’t hurt, either.

2. Several factors came into play, including low unemployment, the “wealth perception” of high stock prices, and a break on the weather that helped drive sales of seasonal goods. But I think there are two other key factors in this holiday season’s apparent success: First, the large number of store closings during the first half “cleared the deck” for those left standing to gain market share. And, even more important, most brick-and-mortar stores finally figured out how to leverage their own e-commerce business into a true “omnichannel” experience for their customers.

And now, a Google/Walmart tie-up

To expand on my last post (about Kohl’s and Amazon), now comes word of a stronger alliance between Walmart and Google. Here’s my comment from RetailWire, in which I comment that each company brings specific strengths and weaknesses to the partnership:

When the majority of product searches start at Amazon, that’s a huge advantage — it combines the predictive intelligence of an SEO company with the execution skill of a best-in-class e-tailer. But is Amazon invulnerable? Of course not, and that’s part of the reason why the company is filling in its portfolio with brick-and-mortar acquisitions (Whole Foods) or alliances (Kohl’s).

So an expanded partnership between Walmart and Google has potential: It provides Walmart with more robust search capacity and web traffic, and it offers Google a stronger e-commerce platform. But unless Walmart adds more second-party retailers (and their goods) to its site, it’s not going to catch up to Amazon’s head start for awhile.

Holiday hiring and the “omnichannel” challenge

Two recent (and related) comments from RetailWire on the subject of holiday hiring and whether stores are prepared to deal with the operational demands of omnichannel. First up, my take on the kinds of stresses on payroll and customer service that stores are trying to manage today:

BOPIS can have an impact on customer service especially in those stores where payroll is being stretched to manage “omnichannel” process instead of the shopper in the store. I’m thinking particularly of department stores (Macy’s, for one) whose higher-touch service standards have slipped while they are asking the same sales associates to cover additional tasks.

But there is another kind of “customer service” (in self-selection stores like Target and many others) that really depends on efficient restocking of fixtures and quick checkout. I don’t see BOPIS having the same kind of stressful effect on these stores’ service standards.

And here’s the second comment, published a few days later after Target and Macy’s revealed their holiday hiring plan:

Target’s hiring forecast vs. 2016 is a healthy sign, and Macy’s announcement is also a positive in light of the smaller store base. What both retailers are signaling is that they are figuring out the manpower requirements of omnichannel initiatives like BOPIS and ship-from-store without sacrificing the service standards they need to maintain in their core brick-and-mortar business. This seems to be a particular challenge at Macy’s, so it’s good to see them recognizing the cost of a solution.

 

 

 

Is omnichannel really less cost-effective?

CNBC recently ran a story (linked below) about the relative costs of brick-and-mortar, e-commerce and omnichannel retail. Their results were surprising and I expressed my skepticism on a recent RetailWire post:

I was skeptical about the analysis when I saw it reported on CNBC last week. Does the study factor in the efficiencies that might be achieved by leveraging physical stores’ payrolls and inventory levels? Does it continue to look at the silos of brick-and-mortar and e-commerce as separate expense centers? Are some retailers with negotiating leverage with the big freight carriers able to achieve cost efficiencies through ship-from store and also save operating expense in their e-commerce distribution centers?

I’m also skeptical as a longtime (1982-2006) employee of Kohl’s, which is pushing its omnichannel initiatives hard. Kohl’s has always managed its expenses carefully, even in down times, and I doubt they would be pursuing omnichannel aggressively if it were truly an SG&A-buster.

http://www.cnbc.com/2017/04/19/think-running-retail-stores-is-more-expensive-than-selling-online-think-again.html

Why Kohl’s needs a large store count

Amid all of this year’s news about stores closures, Kohl’s maintains that its large location count is a strategic advantage. (At the same time, it intends to re-size some of its existing stores.) Here’s a recent RetailWire comment following Kohl’s announcement:

I’ll start with my usual “full disclosure” that I worked for Kohl’s (and with Kevin Mansell) from 1982 to 2006. Convenience has always been one of the legs of Kohl’s strategy, and its real estate portfolio was intentionally built apart from regional malls. (I think Mr. Mansell mentioned on CNBC that only 80 of Kohl’s stores are located in regionals.) Maintaining this footprint is not only important as Macy’s and JCP continue their strategic retreat — not to mention whatever happens to Sears — but also as a way to leverage the e-commerce business that represents 15% of Kohl’s sales today.

As to the smaller or downsized stores, the trick for Kohl’s will be to keep narrowing its assortments to fit these formats. This is just as true in full-sized stores — when Kohl’s takes a position on a key brand like UnderArmour (or activewear in general), something has to give.


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