A couple of recent brushes with the retail business have got me thinking about some of the challenges it faces. We hear a lot about the problems of high-street retailers – the pressures on their cost base, the threat from internet shopping and so on – but sometimes it’s specifics that illuminate issues more than any number of consultants’ reports.
So, problem number one. A couple of weeks ago I set out to buy a pair of brown shoes. I visited three branches of the same well known chain, saw exactly the shoe I wanted in each, but not in my size. I’ve mentioned the out-of-stock problem in this column before. I think it’s one of retails’ greatest hidden profit destroyers because nobody keeps track of how many shoppers come and go because an item was out of stock.
Now, we all know that retail is detail. We also know that no retailer can stock everything and that there will inevitably be cases where a particular item is unavailable. The best retailers try to get round this problem by offering 24-hour ordering services.
Yet in an age of internet shopping, consumers only need a few fruitless trips in search of shoes or whatever to convince themselves they”d be better off ordering over the internet and having the goods delivered to their door.
So what”s to be done? As it happens, the day after my abortive shoe expedition, I was talking to Tony Johnson, IT director at Virgin Retail. He was telling me how he’d worked over the past couple of years to upgrade the firm’s IT systems so that managers can view real-time information on stock and trading from every store.
Managers can now see what”s happening in detail in each store from figures updated every 15 minutes. Previously, getting the same view was an overnight operation. The bottom line is that managers can now see what”s hot and selling fast and what”s hanging around on the shelves – vital in a business where a favourable mention on a TV show for an album can have shoppers flocking in the following morning.
Of course, there”s a world of difference between having lots of detailed information about stock and sales and using that information effectively to make sure that shoppers can buy what they want. But without both, stock managers and merchandisers are floundering.
Problem number two. I bought a new electric toaster from a well know DIY chain on a retail park. When I got it home, I found that two of the electric elements didn’t work and one of the feet was broken off. Of course, no retailer survives without a decent returns policy these days. It is a key marketing tool. Yet it is also a key cost. Indeed, the more comprehensive the returns policy, the greater the cost.
So a growing management challenge in retail supply chains is how to manage cost out of the reverse supply chain without damaging the marketing attraction of returns policies.
I’d like to suggest a couple of ways retailers might approach this issue. The first comes back to the old retail is detail principle – the more you know about why goods are being returned, the more it”s possible to take corrective actions.
In the case of the toaster, I suspect the damage was caused because the product had been The more you know about why goods are returned, the more it’s possible to take corrective actionsroughly handled at some stage. So if this proves to be a significant issue in returns, it points to specific actions in product handling.
A second source of returns for some retailers is that buyers have bought the wrong product, particularly true with anything technical. I know of one online seller that won”t despatch computer printer ribbons unless the buyer is able to name the make and model of their printer.
Look to the future and it”s difficult to see a world in which cost pressures on the supply chain lessen. In fact, most indicators point the other way, the demand for basic commodities from emerging economies, continuing high energy costs, a general rise in labour costs as developing economies mature being just three.
So getting a grip on that cost detail has never been more important.
Peter Bartram is a business writer and journalist, a regular columnist for SCS and the author of twenty books