October 11, 2016 Opinion piece
Fulfilment is a key battleground for retailers – and at no point has this been more critical in recent years than during the peak period.
Last Christmas, there was a not-so-surprising correlation between the retailers who mastered online fulfilment and those that published strong sales results. While getting products to customers isn’t going to drop off or be taken for granted this year – the challenge lies around how retailers maintain profitability as online market share and fulfilment options continue to increase.
What’s on the horizon in 2016?
As we head into Christmas 2016, retailers are battling against the uncertainties of an impending Brexit. Although the initial slump in consumer confidence is turning already – we’ll have to keep a watchful eye as we build towards the festive period.
For those who didn’t hedge currency, the devaluation of the pound will impact margins– with many retailers agreeing Christmas pricing structures and contracts before the referendum took place.
With little control over macro factors, retailers should consider their internal processes to manage the potential squeeze on margins. As one of the highest operational cost areas retailers will need to keep an even keener eye on their fulfilment offerings to consumers.
According to OC&C, the increasing cost of transactions online has reduced the profitability of leading omnichannel retailers by as much as 1.5%. And with ever more shoppers expecting to do most or even all of their shopping online over the Christmas period this has the potential to only get worse.
Squeezing the most out of peak in 2016
So what can retailers do in order to maintain margins and get the most out of the peak season in 2016?
Know your value proposition
In 2015 retailers turned to strategic discounting and spread the one-day peak over a week to ensure they remained profitable during the discounting frenzy of Black Friday. To continue this success, retailers need to have a true understanding of their end-to-end cost to serve to ensure their value proposition is sustainable.
Few retailers have the complete end to end visibility of the journey a product can make back and forth between a retailer, customer and other 3rd parties. Long term retailers should set KPI’s based on exit margin rather than intake margin to ensure all functional teams are working towards common and sustainable goals and consider how they can align their financial cost structures to take into account the full journey a product makes.
In the short to immediate term, ensuring that merchandising and marketing work closely with their supply chain colleagues will be critical to informing a sustainable value proposition. Having a good understanding of your customer behaviour and aligning your offer with where they fit along the retail holy grail of price, speed and service at the time of purchase can save costs. For example, last year many retailers reduced their fulfilment promises during 2015 – particularly around Black Friday – without losing shoppers. They understood their customer was more concerned with grabbing a bargain than having the product next day so were able to control costs by fulfilling this key need rather than being everything to all customers.
Managing your data
In preparing for the peak period, retailers must not overlook data and the accuracy of the information they have around their products. Accuracy of information is key to moving product smoothly and quickly throughout the supply chain - any delays in getting a product into stock or out the door and to a customer only add to a retailer’s costs.
In the world of fashion retail data is not sexy but it’s a fundamental area where easily avoidable costs can build up and impact margins. Data errors can be as simple as an incorrect pallet label or a mismatch between supplier and retailer SKU’s. While these errors are fairly basic in the scheme of retailing, if an inbound delivery fails checks it goes into a QC pile until the issue can be resolved. Research from GS1 UK has shown that an average 2 hours per pallet is spent resolving receiving errors. Beyond being an avoidable non-value add task who has time to sort out inbound errors during the peak period?
Leveraging your channels
2015 was declared by many as the click and collect year and this doesn’t appear to be slowing down. Click and collect is a win-win situation; it matches the customer desire for convenience in their shopping experience and is an opportunity for retailers to utilise their bricks and mortar delivery network – driving extra footfall into stores.
The in store click and collect experience can also represent a USP for a retailer. Retailers are focusing on the customer journey for click and collect offering dedicated click and collect service desks and at the more premium end, department stores like Harvey Nichols have fitting rooms dedicated for click and collect customers.
However, with convenience driving sales for click and collect it’s also an area where you can lose a shopper and the opportunity for additional in store sales. Findings from YouGov’s Christmas Customer Pulse survey found key complaints for click and collect services stemmed from not having a dedicated service desk, long queues due to insufficient staff, being given the wrong item and shop assistants not being able to find an order. Beyond resourcing the growth for click and collect with specialised staff, the errors in customer click and collect orders stem back to the importance of data.
Capitalising on uncertainty
One thing we can be certain about with Brexit is that we haven’t left yet. We’ve already seen cross-border order volumes hit a record high in recent months, as overseas shoppers become incentivised to shop in British stores with the fall in the pound. Retailers that can remarket to these customers, could see gains from this area as sterling would appear to be at its lowest point during the peak season in the past five years. Traditionally at Christmas, cross border sales fall as shoppers buy closer to home. The favourable conditions could see this trend shift this year?
Admittedly trading cross-border does bring with it additional fulfilment challenges, with the right partners in place the current conditions could offer a great opportunity to claw back some of their margin achieve scale economies in certain geographic markets. SMEs in particular could maximise on Amazon’s current push to get UK retailers listed on their European marketplace sites – Germany, France, Spain and Italy. For those that are already trading on the marketplace – in line with their mission for world domination listing products onto their European sites can be done relatively easily. Sellers can also opt to have their product fulfilled by Amazon’s taking away the hassle of international fulfilment and opening you up to prime sales.
As retailers push to continually offer more innovative fulfilment methods, the complexity of delivering also increases. GS1 standards can help retailers to improve data quality within their supply chain as well as provide the flexibility and agility they require to manage their cost-to-serve effectively.
For more information about how our standards can help your business visit www.gs1uk.org/apparel