The retail industry is currently undergoing a massive transformation driven by digital technology innovations that are fundamentally changing the way retailers interact with consumers. This shift is forcing retailers to rethink and transform their approach to how they do business going forward. In my first blog post on this topic I explored the nature of that change, the new Millennial shopper who is driving it, and how retailers must evolve to survive and thrive in this new environment. In this part two I will discuss the three key areas where retailers must evolve their businesses as well as provide an overview of how to get started.
Product-focused merchandising starts with product investment strategies developed from analyzing “known” metrics for merchandise performance and product profitability. It uses category management and “wedge” assortment planning based on store size, volume and sell-through for each category to execute on this strategy. (See my Real Results Magazine article: Breaking the Wedge: The Dawn of Intelligent Retail) This approach has little connection to what customers actually want to buy, but rather, focuses on what the retailer wants to sell—the proverbial “push” strategy. Therefore, it is often out of step with fast changing consumer demand.
In contrast, consumer-focused merchandising creates curated and personalized assortments based on an understanding of the customer, their preferences and path to purchase. This information is gathered from analyzing structured and unstructured loyalty data, social network signals, all-channel shopping patterns, and predictive analytics, as well as other potential “big data” sources.
Retailers can use customer segmentation data to support customer rationalization strategies that recognize that some customer segments are more profitable and have a higher lifetime value than others. Like product rationalization strategies that help analyze SKU proliferation data to find the most profitable products, customer rationalization allows retailers to tailor assortments and merchandising plans to cater to their most profitable customers.
By better understanding profitable customers and providing the merchandise they want, revenue and customer loyalty are increased while inventory levels, markdowns and obsolescence are reduced.
Supply Chain Evolution
In traditional product-focused supply chains, retailers issue orders to suppliers for what they plan to sell based on pre-defined planning parameters. The suppliers use constraint-based lead times and production schedules to tell the retailer how much and when they can deliver. But with lengthening lead times from global supply chains and with the product-focused merchandising strategy already out of step with changing consumer demand, this stratified approach to supply chain operations only amplifies the disconnect between customer demand, production and fulfillment. As a result, inventories are out of balance and expected sales levels are never achieved.
In a consumer engagement supply chain, demand forecasts are derived from carefully listening to what the customers want on a real-time basis. Customer buying intent is derived from social and mobile cues and daily POS data to adjust forecasts to ever-changing consumer demand. Retailers collaborate with suppliers on flexible and responsive production schedules that quickly adapt to this changing demand. Rather than pushing products, customer-focused supply chains concentrate on delivering innovation and competitively differentiated services in areas of most interest to their customers. By eliminating the disconnect between demand and production, this approach can increase sales, customer loyalty and positive share of voice on social networks.
Customer Experience Evolution
The area where retail operations are changing the most, and where retailers have the most work to do, is in the evolution of the customer experience. In product-focused retail, it is all about transactions. A customer comes into the store, buys a product and leaves—the relationship with the customer ends at the point of sale.
Where product-focused retail really falters is beyond the store, in e-commerce channels. A product-focused approach online tends to focus on price, but it is hard to compete with Walmart and Amazon on that basis. Moreover, it is not what is important to today’s shoppers. They are interested in the shopping experience and want trusted advisors to help navigate their entire purchasing ecosystem. If you don’t provide that relationship and seamless shopping experience, the consumers will turn to other sources beyond your control or influence, namely, your competitors.
To evolve your merchandising, supply chain and customer experience, there is so much to consider. How do you know where to start? As with any transformative change, the way forward may not be easy or clear. That’s why it is best not to go it alone. Look for a trusted partner who can help guide you through the transformation one step at a time; a partner who can mentor and advise you throughout the process and collaborate on the final goal by integrating people, processes and technology. Although the current transformation is based on new digital technologies, technology is not the only thing to consider—it is simply an enabler of the change. Transformation will come from how you leverage the new digital technologies to go to market.
There are four key disciplines you should look for when selecting a trusted partner to help guide your transformation.
- Experience – Does the partner have a track record of helping other retailers through similar transformative change?
- Change Management – Has the partner incorporated multi-faceted change management techniques into their transformation methodologies?
- Enabling Technologies – Does the partner have the enabling technologies to support the transformation and the experience implementing them in similar retail environments?
- References – Does the partner have customers similar to you that you can consult to better understand the process, share lessons learned and verify past success?
One of the reasons selecting the right partner is so important is that the first step on your transformation journey is to conduct a self-assessment of your current business model, resources and capabilities. It’s very difficult to conduct an accurate, unbiased analysis using only internal resources for obvious reasons. Using a partner with limited experience can be even worse since they tend to rely on internal sources and thus can lend undeserved credibility to biased internal views. An experienced partner can help drive the discovery process, analysis and planning that’s aligned to your business objectives and growth plans.
JDA can be your trusted partner to help provide 20/20 vision and a realistic roadmap tailored to your unique business needs. JDA has the retail experience, a track record of leading successful change management programs, the complete, integrated retail platform technology, and a host of satisfied customers to reference. JDA is the right choice.