Retail Stores Closing - Digital Transformation for Retail is Urgent

Fixing the Retail Supply Chain

It’s common knowledge that retail is under tremendous pressure from ecommerce and changing consumer buying habits. But how bad is it? And what can retailers do to remain competitive?

Well, it’s really bad.

Many retailers have gone bankrupt under the online onslaught, retailers like Borders, Aeropostale, RadioShack and Payless Shoes. While others are keeping their heads above water for now, the signs are ominous, with major retailers like Sears, JC Penney, Kmart, Macy’s and Kohl’s closing hundreds of stores.

It’s bad, and it’s getting worse. 2017 looks like it is going to be the worst year yet.

According to retail think tank Fung Global Retail & Technology, the number of store closings this year is triple what it was last year over the same period.

Credit Suisse says the worst year for store closings was 2008, when there were 6,163 closings. With 5,300 closing announcements at the half way mark, 2017 looks like it’s going to be the worst year by far. (Source: CNN Money)

What Can Retailers Do to Survive?

With brick and mortar stores and labor costs, retailers are at a disadvantage. They have to cut costs across their supply chains, address inflated inventory levels, drive down logistics costs, work more closely with their suppliers, and still provide a relevant product selection and exceptional service to the consumer.

This is almost impossible to do with traditional, enterprise-centric systems. These systems were not originally designed to work seamlessly to support today’s fast-moving and globally-connected supply chains. Critical data, like point-of-sale data, consumption patterns, and inventory levels, are not available to all trading partners in real time. Instead, the data lies siloed and stagnant, while the supply chain runs on stale data and guesses.

The results are disconnected and poor planning and execution, inflated inventory levels, high logistics costs due to expedites, frequent out-of-stocks, and poor service levels.

This combination of high costs and poor service is causing a lot of retailers to lose customers, market share, and profitability.

Closing the Innovation Gap

While online and omni-channel retailers like Amazon and Walmart continue to invest heavily in technology, most retailers have not, leaving them lagging and struggling to make old technology work in a new world.

IHL Group reports that while industries like Finance and Banking invest up to 6% of revenue in IT, Retail historically has only invested 1-2% in technology, grocers less than 1%.

Typical IT spend percentage of revenue for Finance and Banking is 6%, while Retail spends a meager 1-2% - IHL Group Click To Tweet

It’s time for retailers to shed their old supply chain technology and seriously consider investing in consumer-driven networks, networks that connect the entire end-to-end supply chain in real time.

These networks are specifically designed to connect all trading partners in real time, eliminating complex and costly integrations, siloed data, and batch transfers.

They flow real-time data from the consumer to all nodes in the network, helping align supply to demand. The most advanced networks use AI to optimize and autonomously execute many functions, such as adjusting forecasts based on real-time sales data, and updating orders accordingly.

How Can a Consumer-Driven Digital Network Help?

Here’s a quick explanation of how it works.

The Results

The results of such digitalization can be staggering. Perhaps one of the most interesting examples I’m aware of is Del Monte during the tough economic climate of 2008-9. Del Monte underwent a digital transformation to a consumer-driven network and saw dramatic supply chain improvements: 99% in-stock, in-store, with 25 days of supply (DOS) across the supply chain. Typical DOS for this market runs at more than double that, 60-75 days. Del Monte also experienced an overall jump in sales and profits. AMR Research reported:

In this time of economic uncertainty, being demand driven matters. If you’re not yet a believer, consider this case study. On February 25, the Del Monte Foods Company, a manufacturer and distributor of food and pet products, raised fiscal 2009 guidance on earnings and sales after reporting that its profits gained nearly 14% in the third quarter. Del Monte shares jumped $0.86, or 13.1%, to $7.40 in midday trading on the first day.
Source: “Del Monte Achieves Demand-Driven Success,” AMR Research, April 2009

The time is long overdue for retailers to consider connecting to consumer-driven networks and enjoying all the benefits they provide. While not curing all that ails retail, agile and responsive networks address a fundamental and costly flaw in the current supply chain model, and would go a long way to making retail much more competitive and consumer-driven.

For more information on how a consumer-driven network can transform retail, take a look at the report and checklist: Is Your Supply Network Really Shelf-Connected?

Nigel Duckworth

Direct Response Marketing and Design at One Network Enterprises
Nigel Duckworth is a marketing specialist who focuses on direct response communication and design.
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