Originally Published on PA Times
In the past 5 years there have been several trends that have changed the way retailers operate their businesses. Many of them have to do with how consumers use technology to make a purchase. Pure e-commerce retailers have gained momentum causing brick-and-mortar retailers to re-think and re-design their online channels. Meanwhile, mobile technology has surged allowing consumers to go shopping on their personal device from their pocket at anytime. Moreover, these shifts have caused changes in customer expectations. If a customer doesn’t find the right product through the sales channel that they choose (be it a physical store, mobile shopping, or online) or even the right size or color, they will go to your competitor before you can even pick up the phone to call a neighboring store to check the inventory. These trends have caused retailers to step back and think about what would be the most effective, and efficient way to allocate inventory between these channels in order to satisfy consumers. And it now seems that many of the top retailers have found the answer: “Omni-Channel Retailing.”
In order to compete with online giants like Amazon retailers must become as agile as Amazon. This means that no matter where the customer purchases the product they should be able to receive it very quickly at a minimum cost to them, and to the retailer. In a recent article for Wall Street Journal, Sears VP of logistics services put it this way:
“If you want to go head-to-head with Amazon, you go out and build a bunch of distribution centers,” said Jeff Starecheski, VP Sears, referring to the dramatic steps some competitors consider to stave off the e-commerce rival. But Sears and its sister retail chain Kmart blanket the country with about 2,000 stores. “We’re already close to the customers,” he says. Sears just needed a delivery strategy.[1]
This is the key concept to understand: (So allow me to repeat it)
“…with about 2,000 stores … we’re already close to the customers,” he says. Sears just needed a delivery strategy.
What retailers need is a strategy to allow stores to become fulfillment centers. This means that a store must not only carry enough inventory to satisfy forecasted demand, but also additional stock to satisfy any online or mobile orders that will be fulfilled though their location. At the same time, simply dumping more inventory into your stores, and DC’s will only cost you more when you end up marking you’re your slow selling inventory at the end of the season. Many retailers are already set up to reach their customers, what they need is a smart fulfillment strategy that will have the inventory in place in advance to avoid unnecessary transfers, and markdowns. The only way to achieve this feat is to accomplish all of this proactively.
How do you build a smart fulfillment strategy?
Recently Amazon has caught a lot of attention claiming that they could now ship products before the customer even orders it. While the claim is a bit misleading, what Amazon is really doing is determining the chances that a groups of customers from the same geographical area will buy a product (based on past data they collect on these consumers) and shipping the packages to the nearest hub or distribution center.[2] Essentially, their strategy is to anticipate orders to create better fulfillment. In order to stay ahead of the consumer, and to make sure that your products are fulfilled in the most cost efficient manner, retailers need predictive analytics technology. In fact the most successful retailer organizations have already realized this. A quick look at Google Trends reveals that there has been an over 300% spike in worldwide searches for predictive analytics since 2010. Moreover, Gartner’s Emerging Technologies Hype Cycle shows predictive analytics as the most proven emerging technology in 2012. Sears and Amazon are not the only ones that have begun to wake up to this reality. Macy’s has also noticed this trend:
“We’re finding that customers don’t really care from where we pull the goods, as long as we fill the order accurately and the delivery is timely,” said Karen Hoguet, Macy’s CFO, in February on her firm’s fourth-quarter conference call. “We’ve built algorithms to help us determine from where to pull the inventory, and we are learning more each day about how we need to refine these formulas.”[3]
How can I get started?
Retailers don’t need to develop their own algorithms. At Retalon we’ve developed predictive analytics technology for retailers for over 10 years, including smart fulfillment tools, price optimization, inventory management and more. Retailers should begin by getting a personalized analytic assessment. This will allow you to see exactly what kind of benefits you can expect from a retail predictive analytics solution. Retailers that are currently using smart fulfillment tools running on predictive analytics technology are seeing significant benefits such as 40% in inventory cost reduction, as well as a boost of 20% in sales in the same category.
You can either stay behind, react to your consumers, and change technological trends while putting out fires, or you can use predictive analytics technology to stay ahead of your customers, and your competition. It looks like the most successful & influential retailers have already started to make the change. Will you?
