Supply chain automation, multichannel strategies separating retail winners from losers
Another week, another round of mixed-messages for the retail sector, as a string of recent news continues to paint a fuzzy picture for the future of the industry as it reckons with digital transformation.
First up was a report from Best Buy that delivered about as mixed a message as market watchers could imagine. While the brand’s latest earnings report, published at the end of August, indicated that Best Buy missed revenue expectations by 0.2%, the company exceeded targets for per-share earnings, with shares valued at $1.08 versus forecasts of $0.99.
What’s all this mean when you strip out the Wall Street jargon? In a nutshell, even though the company isn’t raking in as much cash today as they’d like, investors are confident in the brand’s survival – if not ability to thrive – in the face of a much-hyped “retail apocalypse.” Much of that confidence can be attributed to Best Buy’s ability to improve supply chain operations and stay on the cutting edge of e-commerce, effectively marrying the tenets of Industry 4.0 with some of the cutting-edge retail tech we’ve discussed recently on the blog.
For starters, Best Buy began overhauling their supply chain back in 2012 by being one of the first big-box retailers to go all-in on automation akin to what you’d find in the factory of the future. While other brands have gotten major flack for the working conditions of their fulfillment centers – where employees could reportedly be expected to walk an average of 7 miles a day to help their corporation meet same-day deliveries – Best Buy’s facilities employ robots instead of workers to pick products from shelves, increasing efficiency and long-term costs.
This fall, the company is opening three “metro e-commerce centers” outside of New York City, Los Angeles and Chicago that give their already innovative fulfillment center model a new spin. These branch locations give Best Buy the ability to service next-day orders in the country’s three largest metros through a combination of proximity, technology and agility: The centers are much smaller than regional distribution hubs, and only stock about 3,000 of the most popular products in each region, all while leveraging next-gen warehouse automation.
That isn’t to say that Best Buy is already enjoying the complete ROI of their digital transformation to date. The brand comes in ninth in a ranking of e-commerce market share, trailing internet-born retail powerhouses like Amazon and eBay, fellow big-box Walmart and landing just behind department store Macy’s, who themselves have leveraged e-commerce to plug hemorrhaging profit loss. That’s because each of these companies has distinct advantages of their own that are playing out in interesting and sometimes unexpected ways as retail evolves.
Rethinking existing assets
Walmart, for instance, is able to use it’s extensive real estate footprint that was established well before Amazon rose to prominence to help the brand remain a leader from one generation of retail to the next. While Amazon had to build and staff a seemingly ever-growing network of distribution centers, the big-box size of each Walmart store’s back-of-house are themselves large enough to support fulfillment of the company’s e-commerce operation. This is a strategy that Best Buy has leveraged successfully as well, which has helped keep the lights on at some locations that may have otherwise shuttered due to a lack of foot traffic and changing consumer tastes.
Macy’s, on the other hand, had the foresight to establish and invest heavily in their e-commerce operation while other department stores, somewhat stubbornly, clung to old operating models, and paid the price.
For instance, it’s well known that consumers today have the upper hand in the buying journey, not the brick-and-mortar: In the past, shoppers options were limited to what was available at a handful of stores they could walk or drive to. Today, shoppers have a litany of channels they can leverage to get the best deal, and will need more than just a flash sale or a gimmick to visit a brick-and-mortar.
Macy’s has become the poster child for multichannel (or omnichannel) outreach, with a sophisticated retail app, an effective web presence and a leaner, but stronger, network of physical stores that put greater emphasis on events and experiences than moving product off the shelf.
As the holiday season ramps up and the headlines regarding the state of retail volley between doom and glory, it’s inevitable that the future of the industry will remain hard to forecast. But when it comes to orchestrating a multichannel retail operation, a large footprint of physical locations – both stores and fulfillment centers – and the introduction of automation into the supply chain, one thing remains clear: Network performance will be critical to ensuring that the retailers of tomorrow succeed.