The omni-channel revolution is all too often seen as the death of bricks and mortar – but in reality it is a move towards greater diversity in the retail marketplace. But, warns Johanna Parsons, with diversity comes complexity.
The uninitiated may hold the illusion that retailing simply means bridging the gap between supply and demand. But it is of course a complex proposition, more so than ever in the growing new omni-channel world. If you offer a product for sale, there is a huge burden to make it available everywhere, accessible by any means and at any time, and then of course to deliver it in lightening speed.
There are serious consequences if these channels are not fulfilled smoothly enough to mollify customer expectations which are higher than ever. But the new retail landscape also offers huge potential, with eBay for one eyeballing 20 per cent sales boosts from innovative new fulfilment methods.
Tim Allison, logistics director of Dixons, has overseen the evolution of the electrical retailer’s entire supply chain to focus on offering true multi channel fulfilment over the last four years.
This encompasses its PC World and Currys store fascias across the UK and Ireland, click and collect, reserve and collect, and online orders with home delivery services such as 6am delivery for orders placed by 8pm.
He points out that the real challenge is in balancing the demands of joining up those channels and keeping stock flowing, without bloating the supply chain. “Meeting that demand, without increasing stock.”
To that end, Dixons’ has restructured its distribution network, closing some depots to make way for a single central DC which has allowed it to reduce its overall stock holding.
Its “distribution campus” at Newark covers 1.5 million sq ft and handles just about everything. It has a regional DC, a home fulfilment centre, and a returns processing site. It runs 24/7 and features an automated small box warehouse, an extensive area of racking served by forklifts, and a clamp truck for big box items.
There are also 14 regional customer service centres which have additional cross docking facilities for two man deliveries, but the Newark campus can handle all of the firm’s 12,000 SKUs.
Allison says the nature and range of the products is another challenge. “You’ve got to consider the size of our items. From a memory card to a fridge freezer all count as one unit on a balance sheet.”
And he points out that technological developments also have a real bearing on the handling requirements of their supply chain. “We used to deal with big fat TVs and now they’re super thin. Four years ago tablets didn’t exist, and now they’re a phenomenon.”
Dixons has also been restructuring its network of PC World and Currys stores across the UK and Ireland for some years now, reducing its number of stores as leases expire from 700 in 2008 to some 500 now, and with the final expected sticking point being at about 400 stores.
This of course reflects the growth of online retail, but Allison says the firm sees the emergence of new retail channels as a shift to diversity rather than a phasing in of online and the death of bricks and mortar.
“There used to be a huge gulf between online and in store, but now prices are so keen and services too. Service is a huge advantage over internet retailers.”
Indeed the level of competition over such issues is fuelling hotly contested statistics and claims in the media.
Dixons hit the headlines recently after controversial reports that in a presentation circulated among investors, the firm claims to sell products three per cent cheaper than an online only competitor, and that they had better relationships with suppliers too.
This is of course problematic to clarify and relationships in particular are difficult to quantify. But Allison attests to the importance of stores to the retailer’s model.
The blend of service and delivery offerings is what Allison points to as a differentiator for them, encompassing in-store demonstrations to fitting products into place in the home.
Michael Kliger, eBay Enterprise’s managing director EMEA, agrees that the cohesion of the offering is paramount.
“Retailers who offer flexible and efficient order fulfilment options that deliver both improved customer satisfaction and higher cost savings will gain a significant competitive advantage over the coming years,” he says.
In particular he points to shipping direct from stores, which he says offers big advantages, such as higher stock availability for online orders and delivery continuity in the event of bad weather or busy periods.
And he reckons that many UK retailers are missing out on these benefits. “Our customer analysis shows that the average retailer could increase their sales by 20 per cent by introducing ship-from-store, so this model can have a significant impact on the bottom line.
“The uplift is a result of the benefits that come from having a single view of stock across all sales channels, increasing product availability and helping retailers to shift stock quicker. This can also reduce the need to mark items down – we estimate that ship-from-store could increase margins on items close to markdown by 30 per cent on average.”
Indeed eBay has put its money where its mouth is, with its investment last year in Shutl, the e-retail courier service that delivers orders within as little as 90 minutes, from stores.
The retailer plans to expand its eBay Now service to 25 markets by the end of 2014, including major metropolitan areas in North America, starting in Chicago and Dallas later this year, and select international markets, including London in early 2014.
Other online only retailers are also experimenting with ever cleverer delivery options, such as ASOS’s latest offering with DPD, an “early warning” email and text notification service.
“Making sure customers receive their goods promptly and safely is every bit as important as being able to find what they want on the site in the first place,” says Matt Rogers, director of delivery solutions for ASOS.
“Things can change, so to be able to offer five different real-time delivery options right up until 15 minutes before the driver arrives at your door is a fantastic advantage too.”
UPS has joined those offering drop off and collection at its Access Points, having found in its Pulse of the Online Shopper survey that 33 per cent of online shoppers in the UK value the freedom to select a delivery location that is convenient to them in the checkout process.
And the growth of convenience retailing is crossing over and helping provide locations for such delivery points. Gunnar Adalberth, director of business development, UPS Access Points says that such a strong infrastructure is critical.
“One that addresses the international, cross-border nature of future online trading models and one that addresses the consumers’ need for convenience and choice when it comes to delivery,” he says.
In yet another recent survey of fashion retailers, the consultancy Kurt Salmon rated Topshop, John Lewis and Marks & Spencer as having the top mobile offer, House of Fraser as the best executioner of cross channel order fulfilment as well as topping its “social” category leader board. Topshop was overall best fashion retailer, and shared best “in store” operator with Harvey Nichols. Not surprisingly, ASOS is the leading exponent in online.
But this is not to say that retailers have cracked the problem, there are still significant issues to overcome. Siobhan Gehin, Kurt Salmon partner, says that not one retailer in the survey demonstrated best practice across all customer touch points. In particular, when it comes to order fulfilment and operating across multiple channels, execution is poor.
“Retailers just do not have the ‘glue’ they need to link all the channels together, so they are disappointing customers and losing sales,” explains Gehin.
And she says many are still not confident in their stock file accuracies, which is leading to significant lost business, with just five out of the 25 retailers surveyed having a store stock checker and only one offering reserve and collect.
Click and collect is often the first step into e-commerce for established retailers, and it’s still delivering real value. As part of its work with order management system provider eCommera, ASDA found that each click & collect customer spends on average an additional £9 in store.
eBay’s Kliger agrees that a more refined approach to click and collect could have even more potential, for example in the burgeoning convenience sector.
“Another way retailers can get ahead is by realising the full potential of click-and-collect convenience. By making in-store inventory available for click and collect, they could fulfil orders not just same day but within a two hour window.
“Although the UK is a world leader for click-and-collect, few brands are currently servicing it in this way despite its benefits in terms of customer experience and brand loyalty,” says Kliger.
And such sophisticated weapons of competitive advantage are becoming more widely used as the battleground to win and keep customers develops, with retailers putting aside the blunter instruments of price slashes and loss-leader-delivery.
Nick McLean, eCommera’s director of products, says: “We can all drive short term profits by flooring the price, offering free delivery and all be out of business in three months. We’ve got to think about business in the round for the long term profit.”
In this sense, even failure or more specifically how retailers respond to it, can be used as a learning tool. From stock-outs to problematic storage systems or unreliable carriers, the many reasons for unfulfilled orders and unhappy customers can all be monitored to prevent recurrences.
McLean advocates a focus on the impact of marketing on fulfilment to maintain optimum cohesion and flexibility of operations. “The essence is being able to respond to changes in inventory and changes to customer demand to drive an idealised customer experience.”
Seth Pacha, global inventory management solutions manager for Neovia Logistics agrees that responsiveness is a key weapon, and points to one of the biggest retail challenges as the best target for using it.
“By processing returns, inventory is returned to the global pool of resources and is allowed to move throughout the supply chain to the appropriate area still requiring that demand.
“Significant savings in inventory and purchasing exist by allowing recognition of this supply stream,” reckons Pacha.
But this is no mean aim. “Not all returns are the same and retailers have to deal with the complexity of aftermarket services; the process needs to be customised based on factors such as the product, its condition and even its demand,” adds Gotthard Haug, chief executive of Teleplan, a high tech aftermarket service provider.
He points out that aftermarket services can quickly become quite complex when you consider the activities involved such as classification of product, screening and testing, grading, managing the returns to the OEMs to even selling on to secondary markets.
But retail is a massive term, and there are different areas developing in different ways. Richard Slater of Fowler Welch believes that for the FMCG sector that means convenience retailing, particularly convenience multiples – for example, Tesco Express, Sainsbury’s Local and Morrison’s M Local.
In the 12 months to April 2013, convenience sales grew by 4.9 per cent year on year to £35.6bn, at the same time convenience multiples alone saw an increase of 9.6 per cent in store numbers, according to IMRG, he says. “So there is still a race for space, except the space everyone wants is the smaller convenience store format.
“Convenience is having a significant influence as it is all about margin per square foot of shelf space. It is absolutely vital to have the right 2,000 or so products in-store, at the right time to meet local demands,” says Slater.
This of course means more deliveries, and in particular smaller deliveries more often. Which puts road transport in the spotlight. During the 2012 London Olympics, night time deliveries were trialled in London as part of the Quiet Deliveries Demonstration Scheme which was dubbed by London Mayor Boris Johnson “a stonking success”.
But the DfT has revealed that no further trials of out of hours deliveries are planned outside London.
“It is a strange scenario which has been created by the DfT considering the success that regional trials had ahead of London 2012, which were proven to reduce congestion, cut carbon emissions and improve fuel efficiency, without generating any residents’ complaints,” says Mike Danby, chief executive of Advanced Supply Chain.
“It’s surprising that the best practice for these provincial schemes isn’t being developed in locations with lower ambient noise levels, as they are better suited for rolling out nationwide due to potential residential concerns being raised.”
However it’s handled, the rise of convenience formats is real, and it will unavoidably have an impact to the remaining channels, Fowler Welch’s Slater maintains. “Convenience is only one part of the larger retailers’ portfolios so the impact of convenience on their overall logistics practices depends on their total requirements.”
“With regards to larger store formats I believe competition between retailers will start to revolve around in-store theatre,” says Slater.
“As more share of spend goes online and to convenience, retailers will need to make their stores more of a destination. This may take the form of in-store cookery or beauty demonstrations or an improved food offer. Tesco’s purchase of the Giraffe restaurant chain may be an indication of things to come.”
The touted death of the high street has given flight to the idea of shops being a rarity in the future. “It may be more of a kiosk-like retail store with no real inventory, where a consumer interacts with a system (and a product specialist) to build their product and have it shipped directly to their home or business. 3D visualisation may play a key role in this kiosk-type environment where a customer may be able to touch and feel certain aspects, but also see virtually once settling on all options,” says Pacha.
But, he concedes this may be a long way off. “Personally, in certain industries there will always be a place for brick and mortar retail. Some individuals, like me, will always want to touch and feel certain types of products.”
And Allison is staunch in his opposition to the idea, for Dixons at least. When asked if the future or stores are as showrooms for the core business happening online, he is adamant “No.”
“A lot of our customers want to ‘hug a fridge’ – touch and feel expensive products, and get advice,” but he says this is integral to the purchase process, which now usually involves several types of interaction.
He says that even if the main purchase is made in store, people will often do some degree of research online, and perhaps opt to buy online while in store, to take up delivery services. “We have a lot of footfall, and a lot of growth from stores. 82 per cent of all our customers have been in store and online.”
The fact is that retail in all its shapes and flavours is changing. Huge swathes of land are being developed into warehouses whose use is yet to be defined. No-one can afford to stand back and watch, but the winning formulas are yet to be defined. As McClean says “We can all laugh at the Amazon “drone delivery” idea, but who knows?”
Omni channel retailing is a concept that is evolving apace and the progress being made in so many directions makes it an exciting time.
Case Study: Creating flexibility for Tesco
Fowler Welch has seen a significant rise in work from the convenience sector and has developed flexible supply chain infrastructure to ensure fast deliveries for this growing market sector.
It built two trans-shipment facilities, one in Washington, Tyne and Wear and another in Newton Abbott, Devon. Both are located in areas that have traditionally posed access problems for logistics operators. The two sites which are retailer neutral have been developed, specifically with convenience retail in mind.
Devon in particular experiences significant seasonal peaks and troughs in stock volumes, driven by the huge influx of tourists, during the summer months increasing demand and clogging roads.
Following discussions with Tesco about these challenges, Fowler Welch committed to create a shared-use site to enable Tesco and other retailers to overcome the logistics challenges of the region. From a standing start Fowler Welch was able to create a 15,000 sq ft cross-dock distribution site in just 12 weeks.
The Newton Abbott operation is supplied with chilled products from Tesco’s DC in Avonmouth and ambient goods from its Magor site. Stock is reloaded on to smaller urban vehicles for onward delivery to local stores. A reverse logistics arrangement returns all cardboard and plastic to Tesco.
Fowler Welch has developed a flexible and responsive delivery service based on the changing retail patterns of each Tesco store. Locations which experience a lunchtime rush get morning replenishment and stores with a morning peak in demand receive an afternoon replenishment.
During the peak summer months additional stock volumes also have to be delivered, often leading to two delivery cycles per day. This delivery pattern has the advantage of maximising stock as well as the efficiency of the fleet.
This flexible approach is built on a facility that operates 24/7 for 364 days a year, an essential requirement for convenience retailers who need regular replenishment.
Case Study: Cath Kidston increases visibility
Cath Kidston, The UK homeware and design company has expanded steadily online and abroad. The need to serve its retail and online clients in Asian markets drove Cath Kidston to approach SEKO for a faster-to-market solution.
Cath Kidston deployed SEKO’s web-based Warehouse Management System and Purchase Order Management portal. This new solution allowed Cath Kidston to manage stock that had been manufactured throughout the Asian region at a dedicated warehousing facility in Hong Kong.
Production was held at the Hong Kong ‘hub’ then consolidated with other hot stock items, to be shipped quickly, seamlessly and far more cost effectively than serving retailers in Asia, with stock shipped from the UK.
With a faster speed to market and greater online visibility of inventory held overseas, sales in Asia increased considerably. Cath Kidston was quickly and effectively able to open new stores in Asia, backed by a smooth supply chain.
“We had to get the stock out to stores for this weekend’s trading, and SEKO’s fast turnaround made it possible,” said Helena Dawson, Cath Kidston’s head of supply chain.
“It’s been great for our business as I can now see more of my supply chain and manage it more efficiently.”
Case Study: Order management ‘backbone’
ASDA has enlisted eCommera to establish an online business model that helped the retailer to generate more turnover and profit, reinforce the relationship with existing customers and attract new ones.
Customers were demanding the ability to shop online and collect in store. So eCommera implemented click and collect capability for Asda and today, on average 60 per cent of online orders are collected in store. This is higher for clothing and rises to 70 per cent in the fourth quarter of the year when customers often make their buying decision primarily on convenience of access to purchases.
Stephen Langford, e-commerce trading director, Asda said: “Speed to market was the absolute priority in all the developments we planned. We believed that within a rapidly changing market we did not have the capability or appetite to do everything ourselves. The flexibility and speed to market that eCommera provided us was critical to the success of going online as we didn’t have a huge amount of knowledge or skillset.”
In store software ensures store staff have access to all the necessary information to enable these new processes such as order online with collect and return to store; while the warehouse is provided with all the information to aid the picking and provide the shipping details. These capabilities make an order management system the backbone of the omni-channel strategy.