Executive Briefings

Demand-Driven Retailing: The 2008 Retail Strategies Agenda

For retailers, technology spending to support business initiative represented only 1.9% of revenue in 2006, one of the lowest when compared to peers in other industries. Yet at the same time, consumer expectations are changing at a torrid pace, forcing retailers to continually distinguish themselves through innovation, sustainability, global expansion, and better customer service. Meeting these expectations will require retailers to become increasingly demand driven, creating an operating environment in which systems and processes capture consumer behavior at each point of interaction, facilitating profitable response across a network of suppliers and employees to fulfill customer expectations and ultimately shape future demand.

AMR Research's Retail Strategies 2008 research agenda is designed to guide operations and technology executives to successfully align technology initiatives and business strategies to become demand driven.

Here are the demand-driven strategies that will keep the collective industry busy in 2008 and a sneak peak at some of our upcoming research.

Cross-channel consumer interactions: With 85% of purchase decisions made at the point of interaction, retailers will continue to invest heavily in ways to create seamless, cross-channel experiences. Much of the investment will be on traditional in-store applications such as point-of-sale (POS), inventory management, and replenishment systems to help ensure product availability and transaction efficiency. But retailers will also aggressively test and pilot customer- and employee-facing advanced-selling technologies. These technologically progressive products (digital displays, kiosks, and handhelds) help create a closed-loop selling strategy that uses customer and product insights to empower employees and provide customers with timely and relevant information.

To ensure that customers have seamless interactions with retailers regardless of how they interact--in person, online, or by phone--and to capitalize on the lucrative cross-channel shopper, almost 70% of retailers are investing in next-generation e-commerce platforms. Most recognize that they can no longer run independent channels as consumers demand consistency throughout their shopping interactions.

From the late 1990s through mid-2002, retailers invested in first-generation e-commerce applications to meet growing consumer demand. But these rudimentary, standalone, oftentimes highly customized systems have stymied retailer efforts to meet evolving cross-channel consumer expectations. Most retailers are now in the middle of technology do-overs, implementing e-commerce systems that meet the demands of today's shopper.

We'll continue to work with clients to benchmark the industry's operational and technology priorities, and take a deep look at the software vendor landscape to identify differences in important functional components.

Effective management of real estate: In this hyper-competitive retail environment, real estate executives are continually at the forefront of expansion and development strategies. This has forced retailers to embrace a holistic real estate management approach designed to streamline not only new store planning and execution, but also store portfolio decisions that include remodels, closures, and relocation.

Organizations are now managing the entire portfolio of real estate assets through a single lens by integrating market planning, site selection, project management, lease administration, and facilities management processes. Our 2008 agenda will dive into trends for real estate executives to use in their strategic plans and for executing daily operations.

Demand intelligence is at the heart of effective consumer-centric merchandising: Merchandising has always been a cornerstone to retail operations. In 2008, we expect retailers to forge new business models, aligning planning, promotion, pricing, and inventory strategies processes to accurately sense, forecast, and respond to consumer demand. This new model is a closed-loop planning and execution process that allows retailers to ally product and promotional decisions with channel- and store-specific consumer demand signals.

Assortment planning has long been a goal in retailing because it lets retailers plan and execute assortments at the local level. In the coming year, retailers will look to replace spreadsheets and disconnected processes with an assortment management system that connects merchandise planning with purchasing and allocation. Thus, software vendors are investing heavily in this space to grab leadership in this wide open market. To help retailers better understand the changing business processes, we'll provide a model that defines how retailers and software vendors should think about assortment management.

With an ever-changing vendor landscape, we'll also evaluate software vendors in this space and map their functionality to the main components of assortment management (assortment planning, store clustering, size profiling, key item and flow plan, and allocation).

Pricing strategies and tactics define your position in the market with your customers. The prevalence and adoption of pricing tools is on the rise, and retailers are looking for systems that provide pre-season price intelligence for initial and promotional pricing as well as in-season intelligence for promotional and clearance pricing. These optimization systems, in conjunction with a common demand forecast for an item lifecycle, will advance item planning and allow retailers to create better sales and inventory plans to buy, price, and assort smarter instead of reacting during disconnected in-season processes such as allocation and clearance pricing execution. We'll continue to work with clients to identify critical lifecycle pricing business requirements as well as keep abreast of software provider development priorities in this area.

Many retailers will see their web channel become a larger percentage of their revenue in the coming year. To support this additional growth in the cross-channel environment, merchandising and inventory planning organizations and processes must adapt. We'll provide insight into how you can look beyond the front end of e-commerce and build an operating model that supports the integration of all channels. Why? With improved channel integration, retailers deliver more effective assortments and improve customer service.

Balancing inventory and service levels by examining replenishment and collaboration strategies is a priority: Store-level execution is where customer expectations are met. Flawless execution of merchandising strategies across channels will deliver the intended value. To improve execution and on-shelf availability, we expect retailers to re-examine their replenishment strategies and how they approach supplier collaboration in 2008.

Demand-driven retailers use consumer insights to transform their business. This transformation extends to store-level replenishment as retailers strive to determine the optimal replenishment strategy to make sure product is in stock when customers want it, without overburdening inventory. Our upcoming research will highlight the emerging business processes for direct-store-delivered (DSD) product, vendor-managed inventory (VMI), and scan-based trading (SBT). We'll also provide perspectives on aligning items with the appropriate replenishment strategy to satisfy inventory, availability, and cost goals. Finally, to assist retailers with technology decisions, we'll profile leading vendors supporting these key replenishment processes.

Many retailers continue to wrestle with the value of supplier collaboration and how this collaboration can help grow channel opportunities. Compounding the problem is the fact that the majority of retailers, wholesalers, and manufacturers do not think in terms of vertical integration. We'll explore whether developing networked ecosystems, a virtual integration if you will, within their value chain is the answer. This virtual integration equips an organization to adapt processes and technologies to create a more agile response to subtle changes in demand or trends by sharing data up and down the extended value network.

Don't forget about ERP, spending trends, technology adoption, and service providers: Retailers will continue to build out their IT infrastructure in the coming year with best of breed versus ERP continuing to dominate the conversation, although they are not mutually exclusive. Global growth will also be a priority and access to data and systems to support that growth paramount. Finally, we expect retailers to keep one eye local as they to try better understand the competitive landscape and keep up with their peers.

We'll continue to assist our clients in understanding the ramifications of global expansion as well as provide updates on the process and technology maturity of their peers. Globalization is vital to growth for many, but with it comes risk and uncertainty as retailers take on competition abroad and on their home turf.

We'll provide insight into technical maturity and future investment plans by retailers in emerging markets to help retailers and software providers ensure they bring distinct and useful products to the market. To help retailers remain competitive at home, look for research in 2008 that highlights adoption rates of demand-driven retailing technology, business processes, operating models, and IT spending trends. While this research will resonate with all segments of retail, look for us to dive a little deeper into the nuances of fast-moving consumer goods (FMCG) and apparel retailing.

To get a handle on operations locally and globally, business intelligence (BI) will move to the forefront in importance. Retailers want to move beyond basic reporting into intelligent analysis and closed-loop problem solving. In 2008, we expect three categories of providers to emerge in this software category: retail software suite providers, traditional cross-industry intelligence vendors, and retail-focused BI vendors. We'll help clients identify the capabilities of these vendors, what requirements leading retailers are embracing, and best practices for deploying and using these systems in the retail world.

As for the ERP question, the retail industry has become much more interested in the concept of retail ERP since the publication of our groundbreaking Retail ERP suites Report in 2005. Since that time vendors have stepped up to fill out the functionality for retail enterprise backbone systems. What's next? Providing application backbones to companies that have expanded beyond retail and need a unified environment that supports retail, wholesale, and manufacturing operations. In 2008 we'll revisit this topic and provide an updated look at how the software vendors covered in the inaugural report rate in their ability to support enterprises that have expanded beyond the retail.

We also recognize retailers have many application priorities. To guide software providers in 2008, we will take a fresh look at the retail software markets to provide detailed information about revenue sources, market size by retail segment, and market size by functional area. To assist with longer-range planning, we will also forecast market size and growth for the next five years (2008-2012).

With an expansive list of things to do, many retailers are not equipped to go through this alone. An ever-growing list of alternatives, domestically and abroad, makes choosing a partner daunting. Our research in 2008 will provide a detailed review of consulting and outsourcing service providers that support retailers with business process optimization, redesign, technology implementations, and support activities. To get retailers to short lists more quickly, we'll rank service providers' abilities in retail supply chain, store operations, home office planning, and demand intelligence. Finally, we'll provide best practices for working with these companies to get our clients' initiatives off to a good start.

Rounding out our coverage with a little help from our friends: Using our demand-driven retailing model, we focus intensely on store and cross-channel operations, consumer-centric merchandising, on-shelf availability, and product development. To complete our coverage spectrum we work closely with our value chain and enterprise teams to cover a wide range of retailer and software provider inquiries. Here is peak at what our value chain and enterprise teams will be looking at in 2008.

Value Chain Strategies: The crux of Value Chain Strategies research is to look through a business and operations strategy lens at the transformation of supply chain operations, pinpointing the best practices, IT investments, organizational needs, and measurement strategies required to make the change. It will be about the fundamentals of supply chain transformation. While demand-driven supply networks may have started logically with product-orientated consumer goods manufacturers selling product on retail shelves, it has expanded across industries. Our research helps organizations striving to grow by translating demand-based customer information into enterprise execution to create value-adding activities.

The research will be based on two core areas: becoming demand-driven and transforming from a supply chain into a value network. Look for us to provide pragmatic advice on topics such as benchmarking supply chains, developing a demand-driven scorecard, surfacing the 10 critical projects leaders are using for their own transformation, developing broad supply chain leadership skills, reducing risk and complexity, advice on global integration and logistics strategies, identifying the changes needed in sales and marketing to become demand-driven, and the implications of demand driven on manufacturing and product supply.

Enterprise Strategies: The Enterprise Strategies' service is focusing on the new IT story in 2008. This continues the theme of business and IT uniting to support business needs. IT needs to be one with the business and as a result, we will focus our research on better managing the strategies around applications and architecture. This ranges from enterprise architecture and enterprise applications management to customer-facing platforms and enterprise performance management.

We will also weave the concept of the performance-driven business network throughout our advice and written research.
http://www.amrresearch.com

 

For retailers, technology spending to support business initiative represented only 1.9% of revenue in 2006, one of the lowest when compared to peers in other industries. Yet at the same time, consumer expectations are changing at a torrid pace, forcing retailers to continually distinguish themselves through innovation, sustainability, global expansion, and better customer service. Meeting these expectations will require retailers to become increasingly demand driven, creating an operating environment in which systems and processes capture consumer behavior at each point of interaction, facilitating profitable response across a network of suppliers and employees to fulfill customer expectations and ultimately shape future demand.

AMR Research's Retail Strategies 2008 research agenda is designed to guide operations and technology executives to successfully align technology initiatives and business strategies to become demand driven.

Here are the demand-driven strategies that will keep the collective industry busy in 2008 and a sneak peak at some of our upcoming research.

Cross-channel consumer interactions: With 85% of purchase decisions made at the point of interaction, retailers will continue to invest heavily in ways to create seamless, cross-channel experiences. Much of the investment will be on traditional in-store applications such as point-of-sale (POS), inventory management, and replenishment systems to help ensure product availability and transaction efficiency. But retailers will also aggressively test and pilot customer- and employee-facing advanced-selling technologies. These technologically progressive products (digital displays, kiosks, and handhelds) help create a closed-loop selling strategy that uses customer and product insights to empower employees and provide customers with timely and relevant information.

To ensure that customers have seamless interactions with retailers regardless of how they interact--in person, online, or by phone--and to capitalize on the lucrative cross-channel shopper, almost 70% of retailers are investing in next-generation e-commerce platforms. Most recognize that they can no longer run independent channels as consumers demand consistency throughout their shopping interactions.

From the late 1990s through mid-2002, retailers invested in first-generation e-commerce applications to meet growing consumer demand. But these rudimentary, standalone, oftentimes highly customized systems have stymied retailer efforts to meet evolving cross-channel consumer expectations. Most retailers are now in the middle of technology do-overs, implementing e-commerce systems that meet the demands of today's shopper.

We'll continue to work with clients to benchmark the industry's operational and technology priorities, and take a deep look at the software vendor landscape to identify differences in important functional components.

Effective management of real estate: In this hyper-competitive retail environment, real estate executives are continually at the forefront of expansion and development strategies. This has forced retailers to embrace a holistic real estate management approach designed to streamline not only new store planning and execution, but also store portfolio decisions that include remodels, closures, and relocation.

Organizations are now managing the entire portfolio of real estate assets through a single lens by integrating market planning, site selection, project management, lease administration, and facilities management processes. Our 2008 agenda will dive into trends for real estate executives to use in their strategic plans and for executing daily operations.

Demand intelligence is at the heart of effective consumer-centric merchandising: Merchandising has always been a cornerstone to retail operations. In 2008, we expect retailers to forge new business models, aligning planning, promotion, pricing, and inventory strategies processes to accurately sense, forecast, and respond to consumer demand. This new model is a closed-loop planning and execution process that allows retailers to ally product and promotional decisions with channel- and store-specific consumer demand signals.

Assortment planning has long been a goal in retailing because it lets retailers plan and execute assortments at the local level. In the coming year, retailers will look to replace spreadsheets and disconnected processes with an assortment management system that connects merchandise planning with purchasing and allocation. Thus, software vendors are investing heavily in this space to grab leadership in this wide open market. To help retailers better understand the changing business processes, we'll provide a model that defines how retailers and software vendors should think about assortment management.

With an ever-changing vendor landscape, we'll also evaluate software vendors in this space and map their functionality to the main components of assortment management (assortment planning, store clustering, size profiling, key item and flow plan, and allocation).

Pricing strategies and tactics define your position in the market with your customers. The prevalence and adoption of pricing tools is on the rise, and retailers are looking for systems that provide pre-season price intelligence for initial and promotional pricing as well as in-season intelligence for promotional and clearance pricing. These optimization systems, in conjunction with a common demand forecast for an item lifecycle, will advance item planning and allow retailers to create better sales and inventory plans to buy, price, and assort smarter instead of reacting during disconnected in-season processes such as allocation and clearance pricing execution. We'll continue to work with clients to identify critical lifecycle pricing business requirements as well as keep abreast of software provider development priorities in this area.

Many retailers will see their web channel become a larger percentage of their revenue in the coming year. To support this additional growth in the cross-channel environment, merchandising and inventory planning organizations and processes must adapt. We'll provide insight into how you can look beyond the front end of e-commerce and build an operating model that supports the integration of all channels. Why? With improved channel integration, retailers deliver more effective assortments and improve customer service.

Balancing inventory and service levels by examining replenishment and collaboration strategies is a priority: Store-level execution is where customer expectations are met. Flawless execution of merchandising strategies across channels will deliver the intended value. To improve execution and on-shelf availability, we expect retailers to re-examine their replenishment strategies and how they approach supplier collaboration in 2008.

Demand-driven retailers use consumer insights to transform their business. This transformation extends to store-level replenishment as retailers strive to determine the optimal replenishment strategy to make sure product is in stock when customers want it, without overburdening inventory. Our upcoming research will highlight the emerging business processes for direct-store-delivered (DSD) product, vendor-managed inventory (VMI), and scan-based trading (SBT). We'll also provide perspectives on aligning items with the appropriate replenishment strategy to satisfy inventory, availability, and cost goals. Finally, to assist retailers with technology decisions, we'll profile leading vendors supporting these key replenishment processes.

Many retailers continue to wrestle with the value of supplier collaboration and how this collaboration can help grow channel opportunities. Compounding the problem is the fact that the majority of retailers, wholesalers, and manufacturers do not think in terms of vertical integration. We'll explore whether developing networked ecosystems, a virtual integration if you will, within their value chain is the answer. This virtual integration equips an organization to adapt processes and technologies to create a more agile response to subtle changes in demand or trends by sharing data up and down the extended value network.

Don't forget about ERP, spending trends, technology adoption, and service providers: Retailers will continue to build out their IT infrastructure in the coming year with best of breed versus ERP continuing to dominate the conversation, although they are not mutually exclusive. Global growth will also be a priority and access to data and systems to support that growth paramount. Finally, we expect retailers to keep one eye local as they to try better understand the competitive landscape and keep up with their peers.

We'll continue to assist our clients in understanding the ramifications of global expansion as well as provide updates on the process and technology maturity of their peers. Globalization is vital to growth for many, but with it comes risk and uncertainty as retailers take on competition abroad and on their home turf.

We'll provide insight into technical maturity and future investment plans by retailers in emerging markets to help retailers and software providers ensure they bring distinct and useful products to the market. To help retailers remain competitive at home, look for research in 2008 that highlights adoption rates of demand-driven retailing technology, business processes, operating models, and IT spending trends. While this research will resonate with all segments of retail, look for us to dive a little deeper into the nuances of fast-moving consumer goods (FMCG) and apparel retailing.

To get a handle on operations locally and globally, business intelligence (BI) will move to the forefront in importance. Retailers want to move beyond basic reporting into intelligent analysis and closed-loop problem solving. In 2008, we expect three categories of providers to emerge in this software category: retail software suite providers, traditional cross-industry intelligence vendors, and retail-focused BI vendors. We'll help clients identify the capabilities of these vendors, what requirements leading retailers are embracing, and best practices for deploying and using these systems in the retail world.

As for the ERP question, the retail industry has become much more interested in the concept of retail ERP since the publication of our groundbreaking Retail ERP suites Report in 2005. Since that time vendors have stepped up to fill out the functionality for retail enterprise backbone systems. What's next? Providing application backbones to companies that have expanded beyond retail and need a unified environment that supports retail, wholesale, and manufacturing operations. In 2008 we'll revisit this topic and provide an updated look at how the software vendors covered in the inaugural report rate in their ability to support enterprises that have expanded beyond the retail.

We also recognize retailers have many application priorities. To guide software providers in 2008, we will take a fresh look at the retail software markets to provide detailed information about revenue sources, market size by retail segment, and market size by functional area. To assist with longer-range planning, we will also forecast market size and growth for the next five years (2008-2012).

With an expansive list of things to do, many retailers are not equipped to go through this alone. An ever-growing list of alternatives, domestically and abroad, makes choosing a partner daunting. Our research in 2008 will provide a detailed review of consulting and outsourcing service providers that support retailers with business process optimization, redesign, technology implementations, and support activities. To get retailers to short lists more quickly, we'll rank service providers' abilities in retail supply chain, store operations, home office planning, and demand intelligence. Finally, we'll provide best practices for working with these companies to get our clients' initiatives off to a good start.

Rounding out our coverage with a little help from our friends: Using our demand-driven retailing model, we focus intensely on store and cross-channel operations, consumer-centric merchandising, on-shelf availability, and product development. To complete our coverage spectrum we work closely with our value chain and enterprise teams to cover a wide range of retailer and software provider inquiries. Here is peak at what our value chain and enterprise teams will be looking at in 2008.

Value Chain Strategies: The crux of Value Chain Strategies research is to look through a business and operations strategy lens at the transformation of supply chain operations, pinpointing the best practices, IT investments, organizational needs, and measurement strategies required to make the change. It will be about the fundamentals of supply chain transformation. While demand-driven supply networks may have started logically with product-orientated consumer goods manufacturers selling product on retail shelves, it has expanded across industries. Our research helps organizations striving to grow by translating demand-based customer information into enterprise execution to create value-adding activities.

The research will be based on two core areas: becoming demand-driven and transforming from a supply chain into a value network. Look for us to provide pragmatic advice on topics such as benchmarking supply chains, developing a demand-driven scorecard, surfacing the 10 critical projects leaders are using for their own transformation, developing broad supply chain leadership skills, reducing risk and complexity, advice on global integration and logistics strategies, identifying the changes needed in sales and marketing to become demand-driven, and the implications of demand driven on manufacturing and product supply.

Enterprise Strategies: The Enterprise Strategies' service is focusing on the new IT story in 2008. This continues the theme of business and IT uniting to support business needs. IT needs to be one with the business and as a result, we will focus our research on better managing the strategies around applications and architecture. This ranges from enterprise architecture and enterprise applications management to customer-facing platforms and enterprise performance management.

We will also weave the concept of the performance-driven business network throughout our advice and written research.
http://www.amrresearch.com