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Q&A: In-Store Replenishment and Other Retail Fulfillment Concerns

It's no secret that Amazon is the greatest disruptor in the history of retail. The question is, how can traditional retailers, even very large ones, compete against a giant that can plow hundreds of millions into warehousing, order fulfillment and delivery? Customer satisfaction - and possibly the survival of many retailers - rides on the answer.

Q&A: In-Store Replenishment and Other Retail Fulfillment Concerns

If you can't beat Amazon on pricing, then you have to rely on the one thing you have that the e-commerce behemoth doesn't have and can't control: your network of stores. The following are excerpts from conversations between SupplyChainBrain editors and industry experts on how in-store fulfillment can successfully differentiate retailers from Amazon.

Q: As e-commerce grew and grew, the ďbrick-and-mortar store is deadĒ refrain became a sort of mantra. And, as one retail chain after another goes under, it sometimes does look like the store is a dinosaur on its last leg. Do you buy that?

James Prewitt, vice president of industry strategy, JDA: Itís difficult to look at retail, to try to address retail as a whole, and make a statement like, the physical store is dead. Thatís not necessarily the case. You have to really look at retail within its segments and understand how those segments are performing. One of the areas that have clearly been underperforming has been the U.S. department store.

Q: How so? Walk us through that.

Prewitt: Youíre now in a position where the percent of apparel sold through the U.S. department store will be equal to the percent of apparel sold by Amazon alone. So while the total quantity of the apparel being sold is the same, the channel has shifted. It shifted from the department store to the e-commerce channel, and specifically itís shifted to Amazon.

I think itís the changing shopper, itís the value proposition that Amazon delivers to the customer, itís the spread of price. I think this time last year we were talking about [Amazon] Prime at 25 percent of U.S. households. Itís at 50 percent now, and typically those Prime customers spend twice as much as non-Prime customers. So itís the changing needs of the shopper. Amazon has done a great job of addressing that.

And itís not just soft lines anymore. Itís moving into automotive, itís moving into grocery, itís moving into CPG, itís moving throughout retail.

Q: Yet losing money, isnít it?

Prewitt: Amazon is making some money, primarily through their web services, but for them the value proposition to actually drive revenue comes from bringing more households up on Prime, which theyíre doing a very good job of. And as those Prime members spend more, the opportunities for Amazon to make even more money exist.

Q: If e-commerce is driving sales to such a compelling extent, why are my online sales not really competitive with Amazonís?

Brent Dorfman, head of strategy, Radial: Imagine youíre a traditional retailer: youíre coming out of an environment where everybody was just selling out of stores, and in those stores, everybody plays by the same rules. Everybody has to make money and everybody has the same costs for labor ó so itís all about who can have the best product and the best customer experience. Now you jump into e-commerce and youíre going up against a company, Amazon, that owns the entire e-commerce world, and they fundamentally play by different rules. So these retailers are facing a real world right now where if they want to make money in e-commerce, they have to lose on pricing or lose on consumer experience. And what theyíre finding is that their customers arenít willing to give up either.

Q: I have to enter the e-commerce fray, but I canít afford to give customers what they demand, so now what? I seem to be damned if I do and damned if I donít.

Dorfman: You take advantage of what you have that Amazon doesnít. You will never be able invest the capital in over a hundred distribution centers across the country. But you already have a network of stores across the country, and by definition, your stores are in the markets where your customers are. So while it isnít possible for you to go and invest hundreds of millions and even billions of dollars in this network of distribution centers like Amazon, you can start shifting to online customer sales out of your stores and get the same consumer experience that Amazon is giving. And actually sometimes get an even better consumer experience.

Q: How much of this is theoretical versus actually taking place?

Dorfman: What weíre seeing with these retailers that are winning, that are finding ways to survive the Amazon storm, is theyíre creating an experience around their localized inventory, whether thatís in their stores, whether thatís in their own regional distribution centers, whether theyíre going with a 3PL that can localize inventory in multiple shared customer sites across the country ó they are finding a way to get their inventory out into local markets without having to invest tons of capital. And thatís giving them the ability to satisfy that customer whoís demanding next-day or two-day delivery and also isnít willing to pay for shipping.

If youíre going to sell something that Amazon is also selling, youíre not going to beat them on price. One of the biggest reasons why we are recommending retailers not sell on Amazon is because as soon as you go on Amazon, it owns your data and they can compete directly against you. And the game of getting to the top of an Amazon search is ultimately all about either price or being an Amazon preferred vendor. This is not a game that a traditional retailer can win because they will get squeezed down to the lowest possible margin.

You should keep your product off of Amazon, keep it on channels that you control. And that doesnít just have to be on your own web site or in your own stores. You can still sell through partners as long as they allow you to maintain your brand at the right price point. So, no, if you go directly against Amazon on their site, you will not be able to compete with them on price. If you maintain some integrity of your brand, then you absolutely can still win.

Q: Letís talk about the feasibility of fulfilling orders through the store. How widespread can that practice be?

Nick Banich, partner, Miebach: The biggest thing about omnichannel sales is that the customer doesnít know or care if and how things move from one route to market or from one channel to the other. Omnichannel may have big implications and be a big difference for the enterprise, but the consumer just wants the product, they want the same experience.

One thing that weíre looking at is network studies. Weíre trying to be very pragmatic and tactical with retailers and figure out what are the next trends, and how do you enable that in your evolutionary path. And the big thing thatís happening now is buy online, pickup in store. The next step many are looking at rolling out is shipping from the store and using that store as a logistics node in the network.

Q: Surely, cost is a constant concern when you speak with clients.

Banich: There are a lot of challenges to overcome there from a cost standpoint, but itís really about understanding how all my different nodes in the network work today, and can I leverage this wide footprint that is close to the customer? If people want to be more customer-centric, whatís better than the store around the corner, right?

Itís interesting because I remember 10 to 15 years ago the store was going to be dead, brick-and-mortar was over with, itís all going to be e-comm, click-and-go, and now youíre seeing Amazonís opening up retail stores for grocery, for books, for whatever it might be.

Q: What does that tell you?

Banich: That the store is an asset. The store has always been an asset and not just financially. Itís where you can actually control the interaction with the consumer. I think the biggest shift weíre going to see in retail over the next 10 years or so will be in the role of the store, and that store absolutely has to be an asset. Now, do you need one on every corner or is it better to have two or three in every metropolitan area? Where they are more of a showcase for the consumer connection, where the consumer can interact and feel the product, try the product? Where there are classes and seminars or sessions? Itís all built around the brand and the image. I think the store absolutely is going to shift and you need to see that the store is the hub for the consumer.

Q: How do you execute on a promise of omnichannel?

Al Dekin, senior vice president of sales, Locus Robotics: One of the major challenges in addressing productivity and the like and bringing in technologies is trying to figure out which one works best for which channel, right? So, often times you see purpose-built solutions for store replenishment or for wholesale or for e-comm. I think one of the promises we see in robotics is the ability to actually leverage that single technology across all those channels.

So if youíre a retailer that is looking to leverage existing infrastructure in a way that can maintain your store replenishment needs, but also perhaps carve out and deliver some e-commerce fulfillment capabilities, robotics has a lot of promise for really being a solution that can help in both areas.

Q: Your view seems to be that the retailer has to actually pay attention to the customer now. Is that really so?

Guy Courtin, vice president for industry solution for Infor Retail, GT Nexus: You and I and the rest are driving the retail supply chain. We are having much more influence than ever. We have all the power now. We have a voice in social, we have a reach in mobile, we have expectations because of the internet and companies like Alibaba and Amazon. So now retailers have to respond to that in a much more dynamic, much more rapid, much more efficient way. Thatís the biggest trend.

Q: Well, itís certainly true that our expectations have ramped up to a level never seen before. So what does the retailer do to meet those demands?

Courtin: It all goes back to the consumer. If the warehouse management system or the warehouse itself does not live up to expectations, it is not the warehouse that suffers in a way, itís the brand. So that brand ó the retailer ó has to make sure that it manages relationships ó whether itís with the supply chain, whether itís with the distributors, suppliers, manufacturers ó the retailer has to manage things in such a way that they can ensure that their brand is sustained by the rest of the supply chain. Thatís the part thatís exciting, thatís the part thatís also very complicated and in a way very scary.

Q: Why?

Courtin: Itís the part that really falls outside your four walls. You have to control your brand, to control your customer satisfaction ó and how do you do that today when you have a massive network, when you have a network thatís always changing, that is constantly moving? I think thatís the part the savvy retailers are getting and are working on. Those retailers that are sort of stuck in the past and not recognizing that are getting burned. 

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Resource Links:
Locus Robotics
GT Nexus

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