The retail apocalypse, omnichannel and supply chain analytics

Three of the most important themes in retail right now are the retail apocalypse, omnichannel and supply chain data analytics. In our view, this is not a coincidence: the industry is abuzz with talk about the tools that will bring retail into the future and improve customer experiences; meanwhile, we’re bearing witness to the destruction of numerous brands that have failed to adapt. In this piece, we explore how these three themes are interwoven in an attempt to articulate exactly what the challenges and opportunities are in contemporary retail.

What is the retail apocalypse? CB Insights, the leading intelligence platform and media company on high-growth private companies, has studied the phenomenon better than any other company. The ‘retail apocalypse’ is a catch-all term for the nearly 80 major retail bankruptcies since 2015. This year has already seen bankruptcies of nine major brands – Beauty Brands, Charlotte Russe, Diesel, FullBeauty Brands, Gymboree, IMS (Innovative Mattress Solutions), Payless Shoesource, Shopko and Things Remembered.

More illuminating than the number and names of the restructuring companies, though, is the insight into the reasons why the companies failed. David’s Bridal cited its struggle to keep up with online competitors when it filed Chapter 11 in November 2018; the month prior Sears pointed to the challenge of personalizing the customer experience and improving operational efficiency; in August 2018 Brookstone hired liquidators to close 100 stores due to declining mall foot traffic.

“Retailers who survive the e-commerce disruption by executing on omnichannel will do so by executing a fulfillment strategy that is as nimble as possible,” said Chris Kirchner, CEO of Slync. “Survivors will have to find solutions that provide real-time supply chain data in order to balance competitive threats and ever-shifting consumer demands.”

In general, companies that recently expanded their brick-and-mortar footprints were the worst off. Doubling-down on physical retail stores indicated a lack of commitment to e-commerce and blindness to the fact that physical locations were less and less productive. Plus, the debt used to finance growth in real estate holdings quickly became burdensome.

It turns out that holding small, diverse inventories in a large number of physical stores and then waiting for consumers to walk in and hopefully find everything they’re looking for is a fairly inefficient way to drive customer engagement and average ticket size. But haphazard, one-off service offerings that aren’t integrated into a larger strategy – or the company’s whole supply chain – don’t work well, either.

“Companies are creating new offerings in response to new threats and emerging opportunities. All too often, however, these piecemeal offerings cost a lot and produce little additional value, grinding profit margins down,” wrote McKinsey & Company analysts Raj Kumar, Tim Lange and Patrik Silen in their recent report “Building omnichannel excellence.”

The most successful retailers and consumer packaged goods companies are now implementing omnichannel strategies to leverage both the analytics and personalization of online shopping with the customer experience of products in a physical setting into a seamless environment.

What does omnichannel mean? In theory, omnichannel allows customers to research products in an online setting, go to a physical store where their preferences are already known and inventories have been adjusted accordingly, and either pick up items or have them delivered to their homes in a painless process. Omnichannel strategies therefore imply an integration of online and physical customer-facing branding experiences as well as an integrated supply chain. Implementing these strategies is expensive and risky because to succeed they have to be built on data-driven insights about the customer at each stage of the purchasing funnel. What makes a customer click on and start researching a certain product? What makes a customer continue to engage with a brand? If a customer expresses interest in one product, how can the retailer identify and suggest associated products?

Answering those questions means precisely triangulating every B2C segment the brand reaches and determining what motivates that specific consumer, and then designing a supply chain that meets those customer expectations.

“Companies may mistakenly believe that they can find and apply a standard best-in-class solution that suits every company in the marketplace,” wrote Kumar et al. “In practice, good omnichannel supply networks are always made to measure. A company cannot copy a successful solution from another player without recognizing the unique circumstances that shaped it.”

A successful omnichannel supply chain strategy has to optimize internal lead-time and maximize it for the customer, who may care more about low-cost shipping than fast shipping. That requires a sophisticated modeling of network nodes and flows, collaboration with third-party logistics providers (3PLs) to source on-demand transportation capacity, a focus on customer segments, and aggressive adoption of analytics technology.

Analytics are especially important for optimized exception management. Imagine a case where a significant supply chain disruption causes a product to run out in a number of retail locations – the retailer now needs to figure out the best source for supply replenishment. It could be from a distribution center, another retail location or a home-delivery channel.

“Slync helps manage case replenishment and warehouse efficiency,” Kirchner said. “Who gets resolution first? Who is your most valuable customer? Delivering instant answers to those questions is critical to exception management.”

Best-in-class omnichannel strategies sometimes actually have a surprising result – they keep brick-and-mortar locations with underperforming sales intact because of their cross-channel impact. Omnichannel strategists have started talking about the so-called “e-commerce halo,” in which a store plays several roles in an overall strategy. A single store could house a showroom for consumers to touch and try products, a fulfillment center to ship products ordered online and a place where people snap attractive photographs of the products and their setting and share them online. Ultimately, to assess a store’s value to a brand, all of those cross-channel analytics have to be taken into account; few brands think that they can help themselves by eliminating all of their physical locations.

“The combination of advanced geospatial techniques and machine learning, applied to cutting-edge data on consumer behavior, is unleashing powerful new insights for retailers,” wrote a McKinsey team led by Alana Podreciks in a 2018 report. “In particular, it’s helping retailers make better decisions about expanding or contracting their store networks. It’s also helping them develop store-level action plans to improve performance. In addition, some retailers are using these insights to mobilize their sales force and prioritize their investments.”

Software-as-a-service platforms like Slync bridge the gap between data about customer preferences, inventory management and 3PL performance. Slync truly belongs in any omnichannel toolkit; it provides an integration and intelligence layer that lifts data from all partners, analyzes it according to specific metrics and generates actionable insights.