Supply and demand
The era of the “push” supply chain, where retailers do their best to determine consumer demand well ahead of time and offer a select assortment, is ending. E-commerce platforms that offer a nearly limitless supply of inventory, along with a high degree of digital customization, have changed consumer expectations across all channels.
Even in brick-and-mortar stores, consumers now expect to be able to “pull” the items they want, when and where they want them. If a product is out of stock, consumers expect it to be fulfilled from another store or a warehouse. Consumers also do not differentiate among shopping channels, meaning features like picking up online orders in stores are now a “must have” instead of a “nice extra.”
Here are two retailers that are working to transition to a demand-driven supply chain.
Lowe’s: Lowe’s Companies Inc. is among the first users of an omnichannel fulfillment solution that is being jointly developed by JDA Software Group Inc. and IBM. The application combines JDA intelligent fulfillment and labor productivity solutions with IBM Commerce and order management technology.
Lowe’s is employing the fulfillment tool to create an omnichannel and transparent supply chain by synchronizing comprehensive order capture and order management with precision retail planning, efficient labor productivity and intelligent fulfillment.
By applying knowledge of the retailer’s inventory planning and allocation during order processing, the combined solution helps resolve such issues as in-store pickup of online orders and fulfilling orders from alternate store locations in the background, in real time.
“[Lowe’s is enabled] to deliver exceptional omnichannel fulfillment services, which gives our customers more flexible options to shop with us,” said Robin Bornkamp, Lowe’s VP inventory and demand planning.
Home Hardware: Canada’s Home Hardware chain has tapped Shopatron to complete an implementation of an in-store pickup platform. Through Shopatron’s e-commerce fulfillment platform for in-store pickup, Home Hardware customers can order online for same-day in-store pickup, or have products shipped directly to a local Home Hardware store or building center location for local pickup. The retailer completed a national rollout to its stores across all provinces in 2014 and is considering an expansion to ship-to-home capabilities.
“The addition of in-store pickup e-commerce at Home Hardware has been a tremendous success,” said Jack Baillie, director of marketing at Home Hardware. “The strong majority of stores are reporting growth in new customers and frequency of returning customers. We are seeing in-store- pickup customer demand expanding from standard merchandise to include niche/specialty products not normally stocked and sold at local stores.”
Similarities: There are a few similarities between Lowe’s and Home Hardware’s efforts to align supply chain with consumer demand. First, it is no coincidence that two DIY/hardware retailers are among the pioneers in this area. This space has fewer overall SKUs than many other retail verticals, as there is less variation in factors such as size and color, making it easier to track inventory in real time.
The relative lack of SKU variety also makes DIY/hardware an excellent area for in-store pickup of online orders, as there is less need to see, touch and feel items before purchase.
In addition, both Lowe’s and Home Hardware are using demand-driven supply chain as a pillar of store-centric omnichannel retailing. Increased customer control of product availability is being used as a mechanism to drive traffic to the store, which offers opportunity for incremental and add-on sales no other channel can deliver.
Another slam dunk for Foot Locker
Foot Locker Inc. is riding the wave of shoppers’ growing desire for athletic footwear — especially trendy basketball shoes — into all-time record sales.
The retailer reported a whopping 10.2% increase in same store sales for the fourth quarter ended Jan. 31. Quarterly net earnings were $146 million, or $1.01 per share, compared to $121 million, or $0.81 per share, in the year-ago period. Excluding non-recurring items, the company earned $1 per share, beating analysts' estimates of $0.91 per share. Its total sales climbed 6.7% to $1.91 billion.
"Our strong top-line performance was accompanied by continued discipline in managing expenses," added Lauren Peters, Executive Vice President and Chief Financial Officer. "As a result, we set many new records for our company in 2014, including increasing our gross margin rate to 33.2 percent of sales and improving our annual SG&A expense rate to below 20 percent for the first time."
Foot Locker has seen impressive growth for several quarters as shoppers increasingly crave more athletic apparel and footwear. For fiscal 2014, total sales at Foot Locker increased 9.9% in 2014 to $7,151 million, the highest level of sales ever recorded by the company, compared with sales of $6,505 million last year. Same store sales increased 8% in 2014.
During fiscal 2014, Foot Locker opened 86 new stores, remodeled/relocated 319 stores, and closed 136 stores. As of Jan. 31, the company operated 3,423 stores in 23 countries in North America, Europe, Australia, and New Zealand.
Despite the large splash caused by the September 2014 launch of Apple Pay, the general consensus is that mobile payment is still in the infancy stage. Amazon.com recently shut down the beta of Amazon Wallet, and Google Wallet and even Apple Pay have not yet achieved widespread use. CurrentC, the mobile payment service under development from the retailer consortium Merchant Customer Exchange, is still in pilot.
“In the U.S., the mobile payment field is still quite muddy, and there are more questions with fewer answers when it comes to which mobile payment solutions will be the frontrunners in this growing area,” said Perry Kramer, VP and practice lead, Boston Retail Partners.
But while mobile payment is growing at a tempo that is best described as “slow and low,” the overall market is getting increasingly competitive. At presstime, Samsung Electronics Corp. entered into a deal to acquire digital wallet platform LoopPay, reportedly to integrate the technology into one of its upcoming phones. And Visa Inc. revealed plans to expand its online payment service, Visa Checkout, to a total of 16 global markets by yearend.
One of the major impediments to the growth of mobile payment has been the expense and long testing/implementation cycle associated with the Near Field Communication (NFC) technology that is required to support most mobile payment solutions, according to Kramer.
But adoption should see an uptick this year. Boston Retail Partners data show that 10% of retailers support NFC payments today, and 35% plan to support them by October 2015.
“Like all significant changes in retail, consumers will drive the shift to mobile payments,” Kramer said.
He added that retailers are becoming more receptive to NFC-based mobile payment because it is often quicker than EMV-compliant card-base transactions, and they are already investing in POS upgrades to meet the October 2015 EMV compliance deadline.
Sucharita Mulpuru, senior analyst with Forrester Research, agrees that mobile payment adoption has so far come at a sluggish pace, despite the hype surrounding Apple Pay.
“I don’t think Apple Pay has really changed anything yet,” Mulpuru said. “It’s got people talking about mobile payment and there is excitement on the part of retailers and banks, but I don’t think consumer behavior has been changed at all. And retailers who are being circumspect about getting involved are realizing there’s not much in it for them.”
Mulpuru said “reducing friction,” often cited as a leading benefit of NFC-based mobile payment, is a compelling enough reason for retailer adoption. However, both she and Kramer noted that retailers are adding NFC readers as they overhaul POS systems to meet EMV compliance regulations. She also believes proprietary mobile payment systems launched by retailers may be a good option with better consumer tracking and rewards capabilities, but there are issues.
“The jury is still out on CurrentC,” Mulpuru said. “Softcard (formerly known as Isis) fell apart, so that doesn’t speak highly of consortiums. There are very few companies that have that Starbucks’ level of brand engagement, so there are very few cases where we could expect the same level of mobile engagement.”