February 09, 2017 Industry news
Up from 7.2 to 10.1 – that’s the rise in average online retail delivery and collection options forecast by Barclays from 2016 to 2019.
It’s just one indicator of how changing customer behaviour is adding to the challenge for online apparel retailers as they strive for profits in today’s omnichannel marketplace.
At the recent launch of our white paper ‘Where did your profitability go?’– co-authored with LCP Consulting and Cranfield School of Management an expert panel explored the supply chain hot topic of cost-to-serve.
In the brave new commercial world of online, retail is impacted by different cost rules, which means while sales are growing, margins are being hit hard by the rising costs of servicing demanding customers in an ever more complex marketplace.
New customer behaviour that demands a new approach
“In an ideal world,” launch panel member Terry Murphy, Director of National Distribution Centre Operations for John Lewis, noted “we’d encourage customers to go to the shops, pick their purchase there, wrap it themselves and take it home. The reality is that customers are shopping online, we pick in singles rather than cases, pack the item and either pass it to a carrier or into Click and Collect. Customer behaviour is changing fundamentally.”
From an online retail world dominated by desktop PCs and next day delivery only four to five years ago, omnichannel now means retailers are managing round-the-clock sales via smartphones and tablets with a dizzying array of fulfilment choices.
A supply chain ‘playing catch up’
But if customer expectation has been transformed by omnichannel, the supply chain used to satisfy it is, in many cases, playing catch up. Legacy systems are being asked to perform tasks for which they were never designed – adding significantly to retail costs on the way.
LCP Retail Partner Stuart Higgins comments, “We’ve tended to bolt on physical supply chain capabilities to fulfil the need of the online customer and of delivery. Similarly, we tend to work with legacy systems designed to fulfil a very simplistic supply chain that delivers into store.”
Terry Murphy agrees that a legacy system that still doesn’t allow customers to specify the time of Click and Collect pick up – when a significant percentage of customers don’t collect next day anyway – has to change. “Legacy systems are often old and decrepit,” he says, “so we need to invest more in IT.”
So what other factors are in play that add to the online apparel cost-to-serve challenge?
Don’t be everything to everybody: know your customer
Simon Ractcliffe, Sourcing and Supply Chain Director of Fat Face, is in no doubt that many online retailers have fallen into a costly trap of trying to be everything to everybody. However, they’re unable to compete with the likes of Amazon with next day/same day deliveries on virtually their entire inventory – so retailers need to take a decision on their positioning. Are you going to compete on product differentiation or service? Do you want to choose speed, convenience price for fulfilment or personalisation?
As the array of delivery options increases the fragmented channels that make economies of scale difficult is a harsh and costly reality for online retailers, white paper co-author and panel chair Laura Morroll of LCP Consulting agreed.
“Customers who shop across multiple channels can be worth three times more in their lifetime than those who shop on a single channel. However, a number of different studies show that fulfilling that customer can cost two or three times as much as their single channel predecessor.”
The answer, says Simon Ratcliffe, is to know your customer and their priorities – and position your business accordingly to operate efficiently and profitably.
“My guidance is to start at the board level and ask what kind of business are you? And how successful you are in answering this question comes down to your knowledge of your own customer and what their priorities are. If you know these things you can then make your pitch.”
Data-driven decision-making: the missing link
However, informed, board-level decision-making on strategy that impacts supply chain operations and costs is hampered by a frequent lack of supply chain expertise on boards and weak supporting data.
“There are very few businesses,“ adds Simon Ratcliffe, “that take a true data-driven, bottom up approach to either understanding their cost-to-serve or true customer wants and desires. By being better informed around the cost-to-serve and what the customer really wants, decision-makers are better positioned to make a judgement on what’s right for their business.”
“With online retail growth forecast to grow by 13% annually to 2020, there’s no question it’s an opportunity,“ says GS1 UK’s Jacky Broomhead. “But it’s one that demands accurate information at appropriate levels of granularity to ensure businesses understand the cost versus the value of their omnichannel offer. This has to extend the full length and breadth of the apparel supply chain – plus the right systems and KPI’s – if apparel retailers are to control costs and make the most of the market’s huge potential.”
Find out more about the cost-to-serve challenges facing online apparel retailers