An Industry shifts – Retail Supply Chain strikes again

Retail Supply Chain Driver Digital Marketing

Retail Supply Chain is Going Through a Massive Shift

As the US economy staggers and consumers remain austerity-oriented, dollar stores or discount stores are presenting a more viable model in retail supply chain.

So much so that big names such as Walmart has decided to adopt the “bargain” strategy by opening smaller stores.

Shopping centres in North America are witnessing an influx of bargain store chains, prompting a fall in vacancy rates at these shopping complexes to 8.6% in 60 major US markets last year. The figures came from Cassidy Turley research, who also noted a “seismic shift in retail shopping centers.” Over the past three years, bargain retail brands such as Dollar General, Dollar Tree, and Family Dollar have opened an average 2,000 new stores each.

Meanwhile, big names in US retail such as J.C. Penney, Sears, Staples and RadioShack are in a precarious situation where they draw traffic to smaller stores nearby. The two latter companies even announced earlier in March their plans to close a combined 1,325 stores. “The challenges of the weak economy are being replaced by the challenges of e-commerce,” said Garrick Brown, director of research at real estate firm Cassidy Turley.

“Dollar stores have just had insane, insane levels of new growth.” “Online retail undoubtedly has snatched some sales away from brick-and-mortar stores but the heat seems to be at the discount store sector.

THE-5-STAR-BUSINESS-NETWORK-Book-Cover1“However, bargain stores have an opportunistic supply chain with an unstable stocking model. With little supply chain planning and low margins, can they sustain their growth over the giants once the latter figure out how to catch up, or expand?” said Vivek Sood – CEO of Global Supply Chain Group.

Already, Walmart has started to tackle small discount stores by planning to open 300 new Walmart Express and Walmart Neighborhood Market stores by the end of this year. This came after the US giant posted lacklustre results in the last fiscal year, with a 3% drop in consolidated operating income, a 0.4% drop in sales during holiday shopping months and a 1.7% fall in foot traffic during the period.

It is even more challenging for Walmart as the American Customer Satisfaction Index (ACSI) indicated the lowest score for the giant as both department and discount retailer in 2013. Meanwhile, dollar stores scored very high in the ACSI survey.

“There’s room for manoeuvre as Walmart can utilise its vast business network and supply chain power to further segment its customer base and cater to their needs more efficiently. With the recent opening of hybrid and smaller store format, Walmart may be able to win customers on their fill-in shopping trips,” said Sood, who also wrote the “5-Star Business Network” book.

The key thing to remember is that the three retail supply chains – for traditional box retail format, for online retail and for discount stores – are widely different.

Online retailers can operate like 5-STAR networks working to secure customer orders on one hand, and the cheapest source of supply on the other hand. Matching supply to demand in the most profitable manner can allow to optimise profitability on every transaction if they know how to handle big data.

Traditional box retailers have a very traditional planning and control based supply chain based on forecasting demand and trying to optimise fulfilment most cost effectively. With eroding pricing power, traditional supply chain model is under intense cost pressure leaving the door open for online retailers as well as the discount retailers.

Discount retailers have an interesting supply chain model. Opportunistic purchases, shifting product mixes, end-of-the-line clearances and one-offs dominate the supply chain model. Lower prices attract customers and impulse purchases enhance the margins. That is driving the growth of this sector. However, this supply chain model depends on the weaknesses of the traditional retailers and cannot replace them, and therein lies its biggest weakness.

So, what can we expect?

Expect the traditional big-box retail to survive – though in a pared down, more expensive version of the current format.

Discount retail will remain a high growth, yet shifting format.

And online should continue to grow briskly as per the trend. It will be interesting to see what actually happens. This is not a clash of businesses – it is a clash of business models.

 

 

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  • SCM CEO says:

    Hey! this blog wrote on 2011, you wrote Walmart was opening 300 new stores and discount strategies. Now walmart is a big player in retail sector. It is targeting 10% revenue from private labels by 2019. The company opened its 22nd store in Ludhiana late last month, which is the sixth in the state, where it began with and the second in the Punjab city.

    Currently, it’s revenue from private labels is 6-7 percent, could you give your views “Can Walmart achieve it’s target 2019?”

  • CEO SCM says:

    Usually, I never comment on blogs but your article is so convincing that I never stop myself to say something about it. As I belongs to the similar field, I agree that “This is not a clash of businesses – it is a clash of business models.” digital supply chain is now in trend, If retail supply chain accept these revolution change, so it won’t be a massive look, it will be rapid growing sector.

    • John SCM says:

      Supply chain leaders must assess their company’s risk culture to determine their readiness to explore and adopt emerging offerings

      Am I right?

  • Josie SC manager says:

    As you explained how the trend will be changing in the upcoming years. Here is what
    I expect the use of attribution modeling to grow in 2013 as more and more small and mid-size retailers particular start to realize that they need to be aware of how their audience interacts across ALL of their media channels and the value of knowing about all campaign touch points.

    Off all of the trends, however, I feel that the greatest push will be in ‘joining up’ online to offline technologies (and vice versa). We will see online strategies emerge to support offline store trade in a response to the downward trend of high street retail revenues. There will be a much greater focus on meeting the lifestyle needs and demands of the consumer and the bridging of the online-offline commerce gap.

    • Magnum Oliva says:

      Attribution modeling is the method used to measure the monetary impact a piece of communication has on real business goals, for example, sales, customer retention, revenue, and profit.

      Attribution modeling, in essence, means reporting on the impact of communication activity using metrics like:

      • Turnover

      • Profit

      • Customer retention

      • Volume of sales

      Instead of metrics like:

      • Share of voice

      • Web visits

      • Click through rate (CTR)

      • Impressions

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