Executive Briefings

Retail: Effective Supply Chains Are Critical to Retailers

Analyst Insight: The retail industry will face many difficult challenges in 2010. Unemployment and underemployment are high and living standards for Americans continue to erode, leaving little money for purchases outside of necessities. Also, issues in housing, banking and health care will continue. Although there may not be much sales growth in 2010, retailers can still strengthen their bottom lines by having an effective retail supply chain, which is essential to reduce costs and maintain high service levels.

As consumers continue to trade down, discounters continue to perform well and luxury item retailers continue to suffer; other sectors are somewhere in between. While the worst of the downturn appears to be over, consumers are still cautious. According to a recent National Retail Federation survey, Americans are not ready to declare an end to the recession until unemployment levels subside. So, retail's return will not be sudden, but many believe it will begin recovering in 2010.

For this year, there are three important areas in which retailers can improve their supply chains and reach future success as consumer confidence returns.

Cost Reduction: The recession taught surviving retailers many lessons. One lesson is to become lean. By eliminating redundant positions, re-thinking the organization structure, and reducing unnecessary costs, retailers are stronger. Retailers must continue in this manner or they may find themselves floundering when another downturn occurs.

Reduced Inventories: Several retailers did not survive the recession due to their high inventory levels and inability to adapt to demand changes. Moving forward, successful retailers will be agile with their inventories and will be quick to discontinue low-selling items. Many retailers had great success in 2009 with inventory improvements. And, a paradigm shift in retail has led to merchandisers no longer influencing inventory levels by inundating stores with product, hoping it sells, and taking markdowns when it does not.

Logistics Networks: Many retail logistics networks have not been evaluated in five-plus years and, therefore, reflect a different economic situation. From fuel cost to labor cost and on to offshoring and logistics outsourcing, there have been many changes that can make logistics networks obsolete and ineffective. A realignment of the logistics network can yield significant cost savings and service benefits.

The Outlook

To gain a competitive advantage as they pull out of the recession in 2010 and beyond, retailers will be reducing operating costs, reducing inventories and evaluating their logistics networks. For retailers to survive, they must take the lessons learned from the Great Recession and use them to fully recover and prosper during the Great Comeback.

As consumers continue to trade down, discounters continue to perform well and luxury item retailers continue to suffer; other sectors are somewhere in between. While the worst of the downturn appears to be over, consumers are still cautious. According to a recent National Retail Federation survey, Americans are not ready to declare an end to the recession until unemployment levels subside. So, retail's return will not be sudden, but many believe it will begin recovering in 2010.

For this year, there are three important areas in which retailers can improve their supply chains and reach future success as consumer confidence returns.

Cost Reduction: The recession taught surviving retailers many lessons. One lesson is to become lean. By eliminating redundant positions, re-thinking the organization structure, and reducing unnecessary costs, retailers are stronger. Retailers must continue in this manner or they may find themselves floundering when another downturn occurs.

Reduced Inventories: Several retailers did not survive the recession due to their high inventory levels and inability to adapt to demand changes. Moving forward, successful retailers will be agile with their inventories and will be quick to discontinue low-selling items. Many retailers had great success in 2009 with inventory improvements. And, a paradigm shift in retail has led to merchandisers no longer influencing inventory levels by inundating stores with product, hoping it sells, and taking markdowns when it does not.

Logistics Networks: Many retail logistics networks have not been evaluated in five-plus years and, therefore, reflect a different economic situation. From fuel cost to labor cost and on to offshoring and logistics outsourcing, there have been many changes that can make logistics networks obsolete and ineffective. A realignment of the logistics network can yield significant cost savings and service benefits.

The Outlook

To gain a competitive advantage as they pull out of the recession in 2010 and beyond, retailers will be reducing operating costs, reducing inventories and evaluating their logistics networks. For retailers to survive, they must take the lessons learned from the Great Recession and use them to fully recover and prosper during the Great Comeback.