The retail sector is in middle of a revolution. The rapid growth of online shopping and digital services has left some of the sector’s best-known brands in chaos. Poundworld, Bench, Maplin and Toys ‘R’ Us are just a few examples of traditional retailers who have shut down in the UK this year. Online sales of non-food products have soared in the past five years, from 11.6% of the total market in December 2012 to 24.1% in December 2017, according to the British Retail Consortium.
However, it is not just a case of moving your business online. According to a survey conducted by ParcelHero, 200 ecommerce retailers expect to collapse in 2018, thanks to a continued growth in returns rates. Retailers have said they feel obliged to pay the full cost of returns to avoid poor customer reviews. While large companies such as Amazon can absorb these costs, smaller retailers need to develop a more sustainable business model.
The devil is in the detail
For most retailers uncertainty is unwelcome. Volatile market conditions can put incredible cost pressure on suppliers, which in turn means there is little space for negotiation. Retailers who push suppliers regardless, put themselves and their customers at risk of purchasing low-quality or even illegal products – remember Horsegate?
Thinner margins call for better planning. We have all heard the phrase “retail is detail,” but I have seen many businesses who do little more than pay lip service to this mantra. Leaving aside opportunities linked to consumer data, I am always surprised by how few retailers actually have an in-depth overview of the entirety of their operations.
Take indirect spend. While seldom the preferred area for procurement to look for savings, it frequently represents a large percentage of the overall costs facing retailers. This area should be viewed as a significant opportunity to deliver gains to the bottom line, especially as suppliers face increased costs and uncertainty linked to Brexit.
Combining data with experience
At 4C Associates, we are currently working with a number of leading tech firms to develop and improve AI based solutions in procurement and supply chain. These combine the in-depth procurement expertise of our consultants with machine learning solutions. As a result we are able to rapidly analyse spend data, highlight opportunities and take the actions needed to deliver savings.
One of the tools we have designed for retailers provides a breakdown of spend across multiple categories of spend, highlights and quantifies the margin gaps compared to their competition and the category averages, while overlaying it with external market information. Other tools focus on understanding promotion effectiveness, pricing strategies, SKU rationalisation and supplier substitution modelling. All of this combined with the product knowledge and experience of a well trained category manager, builds a significant position of ‘informed’ power when seated at the negotiation table.
These solutions have already proved effective in terms of rapidly sourcing alternative suppliers, increasing supply reliability, minimising supply chain risks and achieving goals related to sustainability and ethical sourcing. The technology is designed to continue evolving alongside the needs of businesses, but also react instantly to market changes, identifying risks and opportunities. I am looking forward to sharing more on these solutions in the near future.
Planning and flexibility
The retail sector is well aware of the speed at which markets can change and evolve. In the past, opening new shops might have proved an effective growth strategy, however, these days increased competition, discount stores, e-commerce and changing consumer tastes have added multiple layers of complexity. Retailers need to fully understand these layers, both in terms of the detail and how they impact each other.
The key, as always, is adapting to changing conditions and the best way to achieve this is to understand the detail behind the big picture. New technology has made it easy and cost-efficient for businesses to understand the inner workings of the market and better predict upcoming risks and opportunities. Retailers that understand and react the quickest, will continue to be the most successful.