Retailers are wondering what the 2011 holiday season will bring, and whether they will experience the results of their preparation and investments, or lack thereof. Will consumers be ready to shop after two years of economic uncertainty? Will online sales continue to rise? Will there be a last-minute uptick in traffic? Only time will tell. With the most crucial spending period of the year just weeks away, retailers have made particularly careful decisions on the amount of merchandise they need to properly stock their stores. Holiday sales from November to December 2010 rose 5.7 percent (to $462bn) compared with 2009 - the largest seasonal percentage increase since 2004, according to the NRF. These figures have retailers wondering if they can improve results even more this year.
No doubt, retailers can expect consumers to continue to be very discerning in their holiday shopping, and this will result in profit pressure for retailers. Retailers are also faced with fending off competition, sometimes coming from growing e-commerce sales and new entrants, local niche merchants and social commerce web sites.
What can companies do - now and throughout the year - to manage these risks and prepare for the holiday shopping season as well as other peak selling periods? Navigating the advantages that technology may provide in engaging both loyal and new consumers can determine the difference between retailers ending the year in the red or in the black.
Holiday-Ready, or Simply Ready
Why is so much attention paid to what happens during the holidays, which formally kicks off with the post-Thanksgiving Black Friday weekend in the U.S. and other regions? It's because for many stores, the holidays are what carries them through the year. You read a lot about how retailers should prepare themselves for the holiday season, but truth be told, retailers aren't simply focused on November through December sales, and the strategies they put in place for a successful selling season are no less sophisticated than the ones they implement the rest of the year. In order to be successful, retailers need to manage their business 24/7, 365 days a year, with a continual emphasis on ensuring proper inventory levels in their supply chains.
There are several strategies that retailers can adopt to maximize in-store and online sales while keeping inventory low this season. Two significant trends in particular are playing out in various buying segments.
A Single Version of the Truth
Historically, retailers have struggled with a lack of trust and commitment when it comes to dealing with their vendors, but this is really beginning to change. Faced with ever-increasing competition, retailers are looking for ways to make sure their key performance indicators are being clearly communicated to vendors, and that they have the tools in place to drive and manage those metrics and behavioral change they're looking to see vendors take on.
There's no question that savvy retailers are cultivating their vendor relationships more, and treat those relationships more like collaborative partnerships. They're expecting more, but they're willing to share more. The rationale is that when vendors and retailers freely give each other visibility into their supply chains and sales activity, the entire value chain becomes more agile and lean, reducing process inefficiency and excess inventory in the system. For example, one well-known retailer collaborates with all of its top vendors to share order and demand information for the foreseeable future. These numbers are updated on a daily basis and are shared using an online tool. At any point in time, both the vendor and retailer can see what the other party's outlook is - what can be called "a single version of the truth".
In the past, those retailers that provided vendors with point-of-sale (POS) data did so in a variety of looks, feels and data feeds, presenting a challenge for the vendor and retailer to be looking at a single version of the truth. Varied approaches also posed problems for vendors wanting to manage their various trading partners' POS data in a single repository. Technology has really caught up in this respect, and there are now shared-view tools that retailers don't have to make costly investments in that provide retailers and suppliers with a single, online (shared) view of the retailer's POS data. With these tools, both buyers and vendors can efficiently work together to ensure that the supply chain is inventoried correctly and action is appropriately taken when outliers have been identified warranting immediate attention. Shared-view technology allows the retailer and the vendor to look at the same sales activity by region, product, segment, category, etc. as opposed to the retailer just sending a POS activity data feed into the vendor's BI tool, which would then need to be converted into vendor "language". Unless the retailer is willing to convert its nomenclature to match the vendor's, which typically doesn't happen, it can quickly turn into a he said/she said type situation. They think they're saying the same things, but they're not.
Anna's Linens is another good example of a retailer that proactively decided to share its view of POS data with their vendors, so that their conversations would be in the same language. The retailer recognized that continuing to improve their ability to exchange information with vendor partners would further enhance their level of performance, and chose to expand their electronic delivery of POS data. They believe that providing POS information to vendors improves their ability to work strategically with their trading partners.
Drop Shipping for the Holidays
More and more, retailers are looking for easy ways to increase their holiday sales with no cash outlay for inventory. As a result, we've seen a 100-percent increase in retailers' use of drop ship - the method of supply chain management where the retailer has no inventory or stock, but transfers its orders with the shipping details to the wholesaler/distributor or manufacturer of a product. In turn, they ship the order directly to the customer with branded shipping labels, packing slips, gift cards, etc, ensuring that the customer associates the experience with that retailer banner. This also allows the retailer to sell products it normally wouldn't carry on its shelves or online - often niche items - which captures the attention of more consumers. While the majority of goods being sold to consumers today are still coming out of retailers' warehouses, or being purchased at the retailer's store, there's a growing expanse of goods that are being shipped directly from the vendor to the consumer. This pure vendor-to-consumer model will explode over the next five years. This strategy also aids the retailer in determining which products are good candidates to bring into physical inventory thereby reducing the risk of slow moving, costly inventory.
This holiday season, retailers will experience challenges brought about by the implications of an uncertain economic environment, along with an even more experienced consumer than in 2010. To succeed in today's highly competitive market, successful retailers will understand and embrace the philosophy that they are only as good as their vendors and other supply chain partners.
Source: SPS Commerce
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