A Need for Speed
The National Retail Federation is predicting holiday retail sales to rise almost 3% to $465.6 billion, which represents far slower growth than last year’s 5.2% gain. Based on a shaky economy and high unemployment, many retailers are taking a wait-and-see approach to stocking their shelves this year, which has resulted in a later “peak” season than normal. For many businesses, this phenomenon will result in a rush to get goods on shelves if demand picks up at the last minute, driving the need for more air cargo shipments.
To prepare for a “typical” holiday peak season when economic conditions are favorable, retailers plan holiday inventory far in advance and move merchandise from manufacturing facilities around the world to U.S. storefronts between mid-August and November via ocean freight. But fears of uncertainty are trickling down to the rest of the supply chain. Many retailers are reevaluating the costs of overstocking and storing surplus inventory and have placed ocean shipments on hold.
In 2009, retailers faced similar unpredictable economic conditions and underestimated holiday sales. Many companies took reactionary measures when demand began to improve and expedited merchandise to stores using air freight, restocking their shelves just in time to enjoy increased sales and profits. History has a tendency to repeat itself, and with fluctuating oil prices and a heightened industry demand for the fastest mode of transport, air cargo shipments are as critical now as they were two years ago.
Below are some key tips to help retailers optimize air cargo shipments when faced with a condensed peak season.
• Maximize pallet space. While weight is a factor when it comes to air cargo, space also matters. Optimally package and consolidate goods to maximize pallet space and reduce the chance of incurring dimensional weight fees. In addition to avoiding unnecessary fees, efficient packing will enable retailers to transport more merchandise per pallet and free up space on the aircraft for additional shipments.
• Save time, use technology. Shipments often are delayed due to improper paperwork and incomplete customs documents. Use shipping software to generate air shipment labels and all required paperwork to save costs and reduce errors. Many programs can also be integrated with a company’s information systems to facilitate internal reporting and customer service processes down the road.
• Avoid flying blind. Having full tracking visibility of air freight from the time of shipment to delivery is critical. Visibility enables retailers to identify any potential problems and keep shipments on track, avoiding potential costs and customer service issues. Some third-party logistics providers (3PLs) offer automated proactive notifications to alert companies of any issues with their shipments en route and notify them at the time of final delivery. These automated tools can play a major role in managing unexpected delays.
• Identify the right logistics partner. Retailers don’t have to navigate the challenges of peak season alone. A 3PL can help companies identify the smartest strategies. Many 3PLs have the global infrastructure and resources to help retailers respond to market fluctuations. Many offer guaranteed express air freight and small package services, such as time-definite delivery with one- and two-day transit times for particularly time-sensitive goods.
Using multiple providers can create unnecessary disconnects in the supply chain, reducing efficiency and often resulting in higher rates and mark-ups charged by independent shippers.
• Weigh your costs. Speed and reliability are critical year-round but become especially important during a condensed peak season. When planning for the holiday rush, price shouldn’t be the only criteria that retailers use when selecting a carrier. The repercussions of a shipment arriving after Dec. 25 will likely end up costing more in the long run.
By mastering air cargo operations, retailers can create a framework for optimizing future air cargo shipments, putting them ahead of the game for whatever might be in store for 2012.
Ken Burkeen is marketing director, retail and consumer products division, UPS.
Global Expansion: Retailers look to emerging marketsfor growth, opportunities
Amid an uneven and slow recovery at home and financial volatility in established European markets, U.S. chain retailers are increasingly looking to emerging global markets to expand operations, increase overall revenues and gain a competitive advantage. The reasons are obvious: Consumer spending is on the rise in many of these areas, boosted by, in some instances for the first time ever, a growing middle class. Equally important, emerging markets present significant opportunities for store growth.
“Many of our retail customers see expansion into emerging markets as a way to get into markets that are not saturated, especially in light of how competitive things have become in emerging markets,” said Michael Griffiths, global industry product director, distribution and retail, Microsoft.
In some instances, new markets are on more solid footing than older, established ones.
“Emerging markets were impacted much less severely by the 2008-2010 recession, and these markets are now proving their sustainable growth,” said Mike Moriarty, partner in the > retail practice of A.T. Kearney, and co-author of the Global Retail Development Index (GRDI), an annual study that ranks the top 30 developing countries for retail expansion worldwide. The index ranks the attractiveness of retail expansion in emerging markets based on economic and political risk, the retail market, and the difference between gross domestic product growth and retail growth.
As to where the growth is, during the 10 years of international retail growth tracked by A.T. Kearney, five countries have consistently ranked in the top 10: China, India, Russia, Vietnam and Chile. The growth trajectory of the retail market in these countries has consistently surpassed other developing markets, according to A.T. Kearney.
But while Asia is key to the global economy, South America is emerging as a potential retail powerhouse. Indeed, three of the top five countries in the 2011 A.T. Kearney study were from South America (see chart, left).
Brazil, which is now the world’s eighth-largest economy, led the rankings with an expected GDP growth of 5% over the next few years, a large and mostly urban population, and surging retail sales. Also, the country will host both the 2016 Summer Olympic Games and the 2014 FIFA World Cup. Preparations for the events are expected to generate billions of dollars in new investments.
“South America, especially the southern part, is roaring on all cylinders,” Moriarty said. “The nations are becoming more open and business-friendly, and the consumers are becoming more globalized.”
For some reason, however, most U.S. retailers, Wal-Mart being a notable exception, have ignored South America.
“European retailers are there, and I fear they will be the ones who have the opportunity to take best advantage of the economic benefits that a rising South America offers,” Moriarty said.
The strong showing of Latin America in the 2011 study is a reflection of the faster pace of growth of the economies in the region, as opposed to a sign of falling retail potential in China or India. China recently overtook Japan as the world’s second-largest economy, while India is expected to grow even faster than China in the long run, given its younger population.
“China is a complex market,” Moriarty added, “but one with tremendous opportunities, especially in the Tier 2, 3 and 4 cities.”
Brands thinking of entering China need to be aware that Internet penetration in the vast country is immense.
“The Internet makes shoppers smarter and requires you to sharpen your strategy even more. If you open up a store, make sure the store and brand experience is in sync with what’s on your website,” Moriarty said.
As for India, the time to enter is now, according to the most recent GRDI study, with forecasted annual growth of 8.7% in the GDP through 2016 and increased consumer spending among the factors contributing to the favorable retail climate.
Foreign direct investment regulations continue to require single-brand retailers to enter India through an Indian partner or joint venture. But a committee of secretaries has given a green signal to FDI in multi-brand retail. Although the move requires political approval, it is the first step toward relaxing the regulations.
FRANCHISE VS. DIRECT While global expansion is increasingly being viewed as a priority, creating a consistent and profitable performance across borders can be a challenge.
Many U.S. retailers, particularly on the apparel side, have opted to pursue global expansion by entering into franchise agreements with international partners. Such arrangements allow retailers to enter a market quicker than they might have on their own. But in the long run, they could constrain a retailer’s success, Moriarty warned.
“The desire to get into a market quickly can cause you to make business decisions you might regret later,” he said. “If you decide to franchise, go in with your eyes open and understand that the distributor is there to serve the market, not grow it. You have to build the market. All too often, brands become disappointed with their global partners because they are not working with the same passion and love of brand and product that the principal has.”
Some retailers that previously sought to grow globally with a partner are now going direct. In May 2011, for example, Coach Inc. announced it was taking back control of its retail business rights on the Chinese mainland, Hong Kong and Macau from its distributor. Last year, Burberry said it had agreed to buy out its franchisees in mainland China. The shifts allow retailers more control over the merchandise and how it is marketed, and also mean profits from the stores will move from simply wholesale earnings to retail.
That is not to say, however, that franchising does not make sense for some retailers. Consider the success of McDonald’s global efforts.
“If you opt for the franchise model, understand clearly that this is your model and why the strategy makes sense,” Moriarty said. “Don’t go into the situation out of weakness.”
Having the right business systems and information technology in place is as crucial to global expansion and success as it is to domestic operations.
“Many companies that expand into other markets fail, not because the concept or products are bad but because they keep introducing new systems and processes [in each market]. There is too much > effort involved, and things become too dysfunctional to succeed,” said Michael Griffiths of Microsoft, whose Microsoft Dynamics AX for Retail (see story, left) is available in 50 countries.
Running multiple systems in multiple countries, or having to localize the system yourself, is hugely inefficient and costly, Griffiths added. It also doesn’t allow for transparency or consistency across the business.
“Global availability of an IT solution is critical to maximizing resources and business processes,” he said. “In fact, the tech platform that a retailer utilizes can actually be a barrier to success if the solution is regional and not globally available.”
The more consistent and standardized a retailer’s IT platforms are, the more it is able to leverage the business efficiencies it has established in base countries and extend them into new markets, according to Griffiths.
“Not having a single platform also makes it hard to make strategic decisions at the global level,” he added.
With a single solution, retailers can feel confident that, as they expand into new markets, they can keep the same platform and training tools, and reap the benefits they have established in base countries, according to Griffiths, and also provide the same customer experience regardless of the country.
“So ultimately, the cost of expanding is dramatically reduced,” he said.
In terms of store design, experts caution that retailers should be sensitive to the local market.
“It’s importance to define the relevance of your brand in a new market,” said Bruce Dybvad, CEO, Interbrand Design Forum. “You need to be in tune with the customer. Everything from the merchandise assortment to the store design needs to be informed by the local competitive circumstances, as well as consumer sensitivities.”
Retailers are also urged to make local connections.
“Consistency across brand touchpoints is important, but a one-size-fits-all approach can be a mistake,” Dybvad said. “We’ve seen retailers miss opportunities by not adapting their brand appropriately to connect with a new market.”
Timberland’s Lighting Upgrade
Sustainability is fundamental to The Timberland Co., which has committed to reducing its environmental footprint by cutting emissions from its facilities and stores by 50%. The company has identified lighting, which accounts for a significant portion of its total energy use, as a prime source for energy reduction. In 2009, it replaced incandescent and halogen track and flood lighting in many of its stores with LED technology.
“We had been tracking LED technology for a while, and though it was still emerging, we felt we were ready to make the conversion to LEDs based on their progress at that time,” said Al Buell, store planning and construction project manager, Timberland, Stratham, N.H.
Always on the lookout for more efficient technologies, Timberland recently upgraded its lighting again, installing new high-performance LED lamps from Solais Lighting in track and flood applications.
“Timberland executives were committed to using LEDs based on energy efficiency, but they were not getting the desired light output they needed from their first-generation LED lamps,” explained Ryan Hunt, national account sales manager, Standard Electric Supply, Wilmington, Mass., Timberland’s electrical distributor of record. “They wanted an LED lamp that would really draw out the colors in their stores and make their merchandise pop.”
According to Hunt, the aesthetics that Timberland was looking for — along with a much higher lumen output — could be achieved with Solais’ LR38 and LR30 Long-Neck LED lamps. The LEDs have a lumen output of 850 to 1,000, a high color rendering index, strong center-beam candlepower and a lifespan rated at 50,000 hours.
In addition to delivering high performance and superior light quality, the 18 to 21 watts of energy the products consume will enable the retailer to enjoy a 58% to 64% reduction in energy consumption and costs (relative to Timberland’s original 50-watt halogen technology).
Timberland oversaw the installation of 100 to 200 Solais LEDs in each of the four newly constructed stores that it opened between March and June 2011. The retailer also retrofitted a few existing stores with the lamps.
“We love how easy they are to install,” Timberland’s Buell said. “You just screw them right into the existing incandescent or halogen sockets; there’s no fixture change needed.”
According to Buell, green products and practices are always at the forefront of Timberland’s operating decisions.
“As we gain experience and progress with store expansion, we strive to incorporate more environmentally friendly materials in our construction, and energy is always something we consider,” he said. “The efficiency offered by LEDs is great, but we’ve been especially impressed with the Solais lamps, which we feel duplicate the industry’s best-in-class metal halide offering in terms of their light output and color quality, but at a fraction of the energy consumption.”
Buell has identified the Solais LEDs as Timberland’s “go-to” lamps for all new construction and as replacements for the stores’ older lighting technology as it fails. “The color and brightness of the Solais lamps are excellent,” he added. “The store lighting is now exactly where I want it to be.”