You don’t have to be a retailer to recognize the impact of e-commerce on our shopping habits. Who hasn’t gone online to research products and make purchases, or used a smartphone to access a retail site? But what do retailers think about this phenomenon and how are they reacting to it?
That was one of the key topics covered in the recently released “The IT in Retail Report 2013” by Martec International, sponsored by JDA Software. The report was based on interviews with CIOs from 150 of UK’s largest retailers. Collectively, these retailers represent 71 percent of total retail sales in UK, so the report is on solid footing, and yields some interesting insights.
Follow the Money
The easiest way to understand what retailers are most concerned about is to look at where they are spending their money. The Martec IT in Retail report is in its tenth year, and in years one through eight, store systems were the number one investment priority for CIOs, reflecting increased competition and the need to improve the in-store experience. That changed last year when e-commerce, and its m-commerce counterpart, became the highest investment priority. The gap widened even further in this year’s survey to show e-commerce investment priorities were over twice as high as the priority for store systems (21 vs. 10 percent). While store systems were still a solid number two priority, clearly retailers have recognized the need to improve their technology for catering to today’s multi-channel shopper.
Interestingly, what makes this shift even more dramatic is the fact the survey has shown total IT spend was down 10 percent compared to last year and has declined by approximately one-third since the recession began in 2008. Also, about one-quarter of the CIOs indicated they have separated their e-commerce spending from their total IT spend category, which might be part of the reason total IT spend numbers have dropped, but might also suggest that the amount spent on e-commerce is actually higher than otherwise indicated.
Two other statistics from the Martec report point out the changing landscape for e-commerce investment. The report shows that m-commerce sales have risen to about one-third of all e-commerce sales, and this percentage continues to increase. Since the use of mobile technologies is new to many retailers, trying to catch up with their customers in this area may be one reason for increased e-commerce investment.
The final statistic from the report I would like to share is that e-commerce is the application cited as most likely to be deployed in a cloud environment. Since cloud deployment generally is faster and less costly, and brings quicker results, this is consistent with the heightened need to address e-commerce issues immediately. Taken as a whole, the input from the CIOs clearly indicates major concerns with how retailers are able to address the increasing importance of multi-channel commerce and there is urgency to put solutions in place.
The Devil is in the Details
While investing in e-commerce solutions is a high priority for the CIOs surveyed, the Martec report also uncovered the key concerns CIOs have with factors that are limiting their success in this area. When asked what their biggest challenge was regarding their multi-channel supply chain, the three overwhelming responses were, in order, inventory control, stock visibility, and profitability. These were cited 3 to 4 times more often than any other concern.
These three concerns directly reflect how retailers have typically approached multi-channel operations. The supply chains of “brick & mortar” stores who were around before the onset of the e-commerce explosion were designed for replenishing stores. When these retailers began offering e-commerce options for their customers, with the much higher volumes of item picking and parcel shipments involved, it was common for these retailers to set up separate fulfillment operations – either outsourced or as separate facilities. These arrangements allowed retailers to respond quickly to e-commerce needs without disrupting mainline store replenishment. Although this meant separate, often duplicate, sets of inventory, since the channels tended to act fairly independently, this was not a big issue.
The game-changer for retailers came with the rapid rise in mobile options for consumers. Now shoppers can stand in your store examining your merchandise while looking up your competitors’ prices on their smartphone. Not only has this brought increased price pressure, it has forced retailers to move from separate channels to providing a seamless multi-channel experience for their customers in order to compete. Offering popular capabilities such as buy online – pick-up in store require a granular view of store inventory that was never necessary before. And the CIOs said they feel this pattern will eventually lead to a “buy anywhere – fulfill anywhere – return anywhere” environment where even the concept of “channels” is obsolete.
What’s the Solution?
Ultimately the winners and losers will be determined by the approach they take to creating a consumer centric all-channel business. We’re witnessing an evolution that we see evolving in three distinct phases. Firstly, the sales and enablement phase that saw investment in transactional websites, CRM and fulfillment capability – essentially the “dash for cash” stage! What was missing from this was the consumer and we see the next phase centered firmly on them, namely providing a seamless shopping journey, where product and offers are tailored or personalized. But there will also be a requirement to offer exemplary service, achieved through an ultra-responsive supply chain, one that delivers against an expectation of always available, buy anywhere, delivery anywhere and at anytime. Then we’ll see the sobering phase, of the pursuit for profitability. This new online era that ushered in margin erosion as a result of higher fulfillment costs will have to be addressed. Absorbing a lower profit contribution from the online channel may have been an option when it only represented just a single digit share of the business, but as the Martec report points out, this is set to change and in some sectors will grow to in excess of a fifth of the business.
Fortunately, the answer is intertwined with the problem. Just as online and mobile technology has enabled shopping to go virtual, so has today’s supply chain technology enabled the inventory visibility and control required for profitable fulfillment to go virtual.
Advanced planning solutions can more accurately stage inventory to match demand patterns while supply chain execution solutions direct the movement of inventory across operations in the most efficient manner and direct the use of labor resources in the most productive way. In-line analytics allow you to make immediate adjustments to adapt to volatile market conditions. As a result, you can profitably offer customers those “buy anywhere – fulfill anywhere – return anywhere” options and make those e-commerce investments pay off.