Will digitization of retail supply chain eventually lead to Balkanization of online retail?

Digitization of retail supply chain is creating strange consequences. Here is one example:

Analysts are openly questioning the survivability of JC Penney. Lurid headlines such as this one abound in press. Will Ashworth opines in the linked article:

When Johnson took over from Mike Ullman last February, the company had weaknesses, but it wasn’t yet on the brink of extinction. Now, though, the American retail icon is in serious trouble … so much so it’s conceivable that JCPenney could be on the same well-known downward path Woolworth’s traveled 15 years ago.

Retail companies around the world are going through a period of intense change. Old models are rapidly dying down and new models are emerging. As discussed in my book THE 5-STAR BUSINESS NETWORKS, newer business models are emerging to replace the redundant models. The pace of change is accelerating at the same time. Again Will Ashworth provides some historical context in the same article:

For those unaware, the F.W. Woolworth Company was the original five-and-dime store founded in 1879 by Frank Woolworth. By the time Sam Walton was opening his version of the discount store — Walmart (NYSE:WMT) — in 1962, Woolworth’s had more than 2,000 stores and was a corporate behemoth.
Unfortunately, expansion in the 1950s and 1960s was its ultimately undoing, adding stores but not profits. In 1997, Roger Farah, the current president of Ralph Lauren (NYSE:RL), was the top man at Woolworth’s and the one to pull the plug on the 400 stores that still existed. A year later, it changed its name to Venator Group, and three years after that to Foot Locker(NYSE:FL), its strongest brand.
Walmart, meanwhile, went from startup to replacing Woolworth in the Dow Jones Industrial Average.

It took Walmart more than two decades to replace F.W.Woolworth Company. Today, with the rapid uptake of online purchasing by the masses, the business model is again up for grab. Amazon doubled its revenue by $24 Billion in 3 years, and commands a PE multiple of more than 100. Walmart is nearly stagnant, hunting for growth in developing markets, and get a PE multiple in the teens. Do these statistics portend the things to come in near future? At least the first impression tells us that the market expects Amazon to be the new leader in a few years time.

However, there is another side to the story which is not yet fully explored. As the purchasing moves online, it also becomes increasingly specialized. Consumers buy from retailers who build relationships with them by providing knowledge and specialist information. While Amazon is fighting for margins around 1.5%, and bases its strategy around fast delivery – online specialty stores have proven that in return for product education, customers will pay handsomely and wait for the products longer. This extra margin allows online specialty stores to invest time in formalizing and digitizing their knowledge base, and provide more accurate customized answer to customer queries. For example, see this report from The Times of India which states the following:

“Despite the trend towards mass merchandising, we believe that niche merchants can hold their own very well. To do so, they must find ways to differentiate through high quality merchandise, deeper product catalogues or exceptional service in that category. Apparel and baby products, for instance, are categories where a specialist has several advantages over a generalist,” the report said. For instance, Amazon found it difficult to compete with Diapers.com and Zappos-acquiring both companies eventually.

Added to this is the fact that many online specialty stores are owned by passionate and highly knowledgeable people in the realm of their respective product range. This passion creates the advantage that large format online retailers may not be able to match, and leads us to ask where does the future of online retailers (or retailers in general) lie?
Any takers to that question?

 

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  • Kevin Peterson says:

    The world is changing constantly and quickly. Digital technologies and their related information flows continue to disrupt industries – creating new opportunities for customer service, revenue streams, efficiencies, and competitive advantage. Those that once viewed Amazon’s wild success as primarily a retail concern have now reconsidered, and if they want to be successful, re-positioned.

    Amazon has raised the bar with regard to customer service, and now many business-to-business (B2B) companies expect the same service levels as today’s consumers. How manufacturers are responding to this “Amazon effect” is a prevalent theme heard from the respondents of JDA’s, which will be announced tomorrow.

    I must be sure It lead to the balkanization of online retail in India.

    • Supply chain says:

      Yes, you are right, it will be lead to the balkanization. In addition to ensuring the security of valuable information assets, companies also have the challenge of achieving an appropriate level of sustainability, while pioneering and advancing the digital supply chain overall.

  • Gleb Sargin says:

    Although You Are Correct With Your Statement Retail companies around the world are going through a period of intense change. I don’t think digitization will affect the retail supply chain.

    • John Chaw says:

      Defiantly, digitization will affect the retail supply chain. The rapid growth of technology has led to advances in the supply chain and, in particular, the digital supply chain. As the century unfolds, we are seeing a more joined up supply chain, with efficient, robust and technologically advanced systems integration.

  • Christopher supply chain says:

    Walmart or Amazon both are massively adapting digitization in their supply chains to grow and compete for the market as well. But it is not limited to the retails sector as I read “Digitization In Supply Chain: Five Key Trends” (https://bit.ly/2N73YDA)

    The extreme, but realistic use case is virtual inventory for maintenance parts in capital equipment situations. Operational technology includes IoT to know what needs to be fixed, 3D printing or robotics to make the part and drones or Uberization to deliver it. Mix and match these tools to get better business results in aerospace, building controls, energy infrastructure and more.

    Twist your mind a little and see a whole range of opportunities in almost any business.

    Digitization is quickly moving from hype to reality. It’s time to start eating this elephant, one bite at a time.

    I direct SCM World’s cutting-edge, practitioner-driven supply chain content and research, leveraging more than 20,000 senior practitioners within SCM World’s membership. As a research fellow at the Stanford Graduate School of Business, I shaped the direction of the supply chain.
    We should found a new opportunity in these sectors too.

    • Ella (SCM) says:

      The supply chain exists to streamline the processes involved in procurement and as a way of increasing efficiencies business-wide. Not only will efficiency remain at the heart of the supply chain, but with digitalization enabling high levels of connectivity, we’ll see greater transparency and collaboration across different departments.

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