Surviving the retail revolution

Change is everywhere in supply chain today, but no sector faces more turmoil or uncertainty than retail. In one sense, retailers should wield plenty of power, owning as they do the biggest slice of economic demand – consumer spending. Walmart most certainly demonstrated such power through the 1980s and ‘90s with its iron grip on shoppers translating into a near religious dedication to demand-driven supply chains. No longer: the Amazon age has fragmented the power of demand and retailers are suffering.

The ground shakes beneath your feet

Hi-tech is usually thought of as a business in constant change. Healthcare is another seeing epic shifts in structure. And no one claims that the consumer products or industrial sectors are tranquil. But retail is a business built on the supply chain equivalent of the San Andreas Fault. Compared to their peers in other industries, retail supply chain executives almost unanimously say that they are managing change in everything from service offerings to SKU assortments and even channels (see chart below). Anxiety is more than understandable.

And yet, times of change are also times of opportunity. For those bold enough to embrace uncertainty, this revolution may open the door to new growth. This week’s news had three stories from very different angles that offer at least a little hope for embattled retail supply chain leaders.

Ways to win

Digest demand data. Google just acquired a British start-up called Rangespan that specialises in analysing real-time retail sales data to predict what will sell and to whom. The firm was only founded in 2011, and although the value of the deal was undisclosed, the fact that it was started by ex-Amazon employees hints that it was pretty big. I recently spent a couple of hours with Google’s supply chain team in San José and told them (as though they didn’t know already) that massive data analytics around micro-niches of demand is a natural edge that they bring to the party. You may not be Google, but following its lead here is not a bad idea for anyone.

Make shopping awesome. Apple, which was already awesome, poached Angela Ahrendts away from Burberry (which is also awesome) to run its retail business and is giving her $68 million worth of restricted stock as a signing bonus. Apple stores have the highest sales per square foot of any retailer by a mile, and yet the appeal of bringing even more firepower to the total shopping experience was strong enough to make this marriage happen.
Both Apple and Burberry are deeply vertically integrated with a store experience that is defined less by merchandise assortment than by lifestyle. It works because the customer loves it. You may not be Apple, but finding a way to make shoppers love your store and brand is definitely worthwhile.

Engage everywhere. Tesco announced plans for a new Hudl smartphone similar to the Samsung Galaxy S5. Unlike Apple or Google, Tesco’s core business is under siege from low-budget competitors and some observers criticise the UK retailer for failing to respond with even lower prices. I think this is short-sighted and fails to credit Tesco for attacking omnichannel retail with aggressive e-commerce capabilities designed to enhance total demand capture.

The Hudl, which has already sold 550,000 units, is loaded with shopping support apps and content delivery capabilities that could grab more spending on everything from financial services and telecoms to soup and salad. The lesson here is to be easy access for your shoppers.

New rules

The US Department of Commerce reports that e-commerce sales constitute only 7% as a share of total US retail sales. For the complacent, this sounds comfortingly small. For anyone working supply chain in retail, however, the truth is anything but comforting. Learning how to digest demand data, make shopping awesome and engage everywhere is not proving easy for anyone, including big guys like Google, Apple and Tesco. And yet, all will need to play by these rules from now on.