I read a fascinating post by Doug Stephens in Retail Prophet blog. To put it short, Mr Stephens is playing with a thought that physical retail outlets have to transform into showrooms, rather than places to take your stuff and go.
So are retail software vendors like Erply really cutting the branch they are sitting on, by providing omni-channel retail experience and providing a software platform for e-commerce? A traditional retail supply chain starts with producers, then there are wholesale companies, followed by actual retail store chain.
How Should Retailers Compete with Online?
Today, an increasing number of people order the products directly from Internet stores, which get their merchandize directly from factory. This way web stores act as a combination of wholesale and retail. Then there are companies that make things and immediately market these in Internet, skipping both wholesale and retail. So what will it be for retail chains and single brick-and-mortar stores?
Citing Mr. Stephens: “How can retailers continue to buy products in mass quantity at wholesale, ship them, inventory them, merchandise them, train their staff on them, manage them and attempt to sell them, when the consumer has a growing myriad of options, channels and brands through which to buy those very same products?
How many of today’s retailers will simply stand by and watch an ever-increasing percentage of their sales cleave off to an expanding mosaic of online competitors – which, by the way, may include many of their own suppliers who are now selling direct to consumers?”
You might remember the song “Video Killed the Radio Star” by a British band The Buggles. Have radio stars disappeared? For MTV generation, it seemed pretty much inevitable. In real life there still are radio DJ-s, because there are many situations in which you need your eyes for something else. Driving a car with a video screen in front of your eyes? Please get on the back seat now.
True, the supply chain may and has to change. Economic structures have always been evolving. Before late 19th century and the advent of large retail stores, the main physical sales outlet was a market, crammed with single-vendor stalls. In many countries, marketplaces still rule the retail business. Wholesale has always been there, with huge success stories like East India Company created by shippers.
Cross Docking as a Retail Shortcut
There have always been shortcuts in retail supply chain. Direct selling in Internet is just one of these. Technology and software have provided many ways to drop supply links. Let me give you an example. Walmart is well known for using a practice called cross docking. Some say it’s the centerpiece of their retail business strategy.
The idea of cross docking is to minimize links in supply chain, sharing information with suppliers, and linking purchasing to sales in a more direct way. The technical backbone of Walmart’s supply chain innovation is inventory management software, which allows automated re-ordering, cross docking and other inventory tactics.
Cross docking, supported by retail software, is the cornerstone of Walmart’s strategy to replenish inventory efficiently. It means products from an incoming semi-trailer truck or railroad car are immediately loaded into outbound trucks, trailers, or rail cars, with little or no storage in between.
Avoiding extra storage saves both warehouse space and addition loading operation. Cross-docking applies for distribution centers, but in many cases merchandize arrives to a large retail store straight from a factory or a food processing plant. Supermarket chains like Walmart sell a lot of private label products, too. These products are branded as retailer’s own brands, and often transported directly from producer to retailer, skipping distributors.
Retail supply chain shortcuts
As said, conventional retail supply chain used to feature producers, wholesale companies and retailers. Economy is changing, and supply chain shortcuts are widespread. Now we have four main types of retail supply chain.
1) Traditional Supply: Producer -> Wholesale -> Retailer -> Consumer
2) Supermarket Private Label: Producer -> Retailer -> Consumer
3) Internet as a Store: Producer -> Wholesale / Web Retailer -> Consumer
4) Internet as Intermedium: Producer or Artisan -> Consumer
You can see that Internet has taken a large bite from brick-and-mortar retailers’ cake. People buy a lot of stuff via Internet. Let’s take a look a numbers. In a press release, U.S. Census Bureau reports that “in third quarter of 2014, the estimate of U.S. retail e-commerce sales was $78.1 billion. Total retail sales for the third quarter of 2014 were estimated at $1,185.1 billion.”
To illustrate e-commerce growth, U.S. Census Bureau provides a comparison of 2013 and 2014. “The third quarter 2014 e-commerce estimate increased 16.2 percent from the third quarter of 2013 while total retail sales increased 4.2 percent in the same period. E-commerce sales in the third quarter of 2014 accounted for 6.6 percent of total sales.”
Are we talking about physical retail outlet being forced out of the game? Not really, many companies in Internet as a Store model have both e-commerce and physical retail outlets. The fourth model, Internet as Intermedium, is dominated by software companies. For physical products, this models is mainly for small producers, making handicraft or expensive high end stuff for small audiences.
The Store As Media
Retail supply chain can be tweaked in many marvelous ways, especially if there is a good retail software solution powering the businesses. In the end though, a physical product has to reach the physical person who bought it. We could add delivery services, store pickup and other delivery methods to the four models above. Obviously things get complicated. This is why the bell does not yet toll for brick-and-mortar stores, and it never may toll.
Doug Stephens writes in Retail Prophet, “the physical store is has the potential to be the most powerful and effective form of media available to a brand because it offers an experience, which if crafted properly, cannot be replicated online”. Mr. Stephens points out that physical retail stores should repurpose to something like a showroom, where consumers can actually touch and sense the products, which they may actually buy later from home via Internet.
“Given their innately live, sensorial and experiential quality, physical stores have the potential to become powerful media points from which retailers can articulate their brand story, excite consumers about products and then funnel their purchase to any number of channels, devices and distributors,” Mr. Stephens writes.
“Skids of products and rows of shelving will give way to more gallery-esque store designs and artful merchandising, allowing space for in-store media and interactivity with product. Social media will be infused into the experience offering at-the-shelf reviews, ratings and comparisons of products. The store in essence will become an immersive and experiential advertisement for the products it represents and a direct portal to the entire universe of distribution channels available.”
How to Meet the Future of Retail Business
Mr. Stephens speculates that “retailers who can design and execute these sorts of outstanding customer experiences will likely charge an upfront fee or “card rate” to their product vendors based on the volume of positive exposure they bring to the products they represent in store.” He underlines the significance of advanced metrics and detailed customer analysis, something similar to Google Analytics and ROI (return of investment) calculation for companies.
There were times when it seemed that everything in economy will just get bigger and better. In real life, growth is never linear of omni-directional. As the French poet and philosopher Paul Valéry wrote in 1937: “The future, like everything else, is no longer quite what it used to be. By that I mean we can no longer think of it with any confidence in our inductions.”
The future will bring changes to retail industry. Some of these are already in making, but there is no point to plunge into existential horror. Future is fun, if you meet it with open mind and modern tools. Retail software provides a wide range of features that help retailers target customers more efficiently, and optimize retail chain and inventory.
How Retail Software Can Help You
There are two qualities that you as a retailer should always look for, when choosing a modern retail software suite:
1) Real-time 360degree view. This means that all data can be seen in real time and arranged into reports that are easy to read. Adjusting for the future is not so difficult, if you know precisely where you are today.
For example, Modern retail software lets a retailer create real time X-reports, so you can view registers’ totals with breakdown of payment type at the POS. This provides a possibility to take tactical measures to boost cash flow, like creating temporary discounts and marketing support.
Strategically, retail software reports help to adjust with changing business environment, pick a right selection of merchandize and estimate, which sales channels are a priority. Reading news and commentary is important; however the data showing how your own customers and suppliers are acting, is inevitable in building successful strategies to meet the future of retail business.
2) Interconnected software systems. Cloud computing is wonderful, as it connects retail software systems that used to be separate entities. POS and other sales software is connected to inventory software, customer management to product information etc. This allows to set up retail software automation that makes your retail business fast and flexible without the need for extra human resources.
For example you can set up your POS software, so that it immediately tells inventory management software to order new products, if the stock is near empty. Or use PIM (product information management) features to communicate price lists changes that are connected to stock replenishment and sales history. Or trivial but still great things like having trans-continental loyalty programs for the whole franchise chain.
The Future of Retail
Even though retail business is changing, the future in bright for brick-and-mortar stores. It may take some substantial adjustment. Our society is more and more driven by software applications. Online and offline sales are not opposite things. If it’s physical goods, e-commerce has to deliver these to a customer in the end. Brick-and-mortar stores have the advantage of being a showroom where customer can see, touch and smell the merchandize before buying.
One possible model for physical retailers is to become something like a showroom. This seems logical for home electronics or bulkier goods. For small everyday items, this is an unlikely development. With e-commerce, the current advantage still seems to be the price. If physical retailers use good retail software, they can easily optimize their supply and sales environment, so they can beat e-commerce and online marketplaces.
Or, what is even more favorable solution, a brick-and-mortar retail chain that already has physical warehousing and delivery solution, can add e-commerce and mobile commerce to their retail channels. Retail software like Erply’s ERP retail suite has built-in e-commerce integration, allowing cross-channel sales, synchronizing POS, inventory and CRM data for the whole company in real time.
Retail software is far from killing physical retail business or retail business as such. The opposite: retail software powers inevitable changes. The future or retail is omni-channel commerce, and retail management software provides all the right tools for it.