Retailtopia - Building the omnichannel supply chain of the future

Transcription

1 Retailtopia - Building the omnichannel supply chain of the future 2013

2 Contents Introduction to Retailtopia... 3 Foreword by the chairman... 4 Clear and present threats 1 / Acknowledge the pace of change / Accept the supremacy of the customer / Prepare for the knowledge explosion / Design an omnichannel supply chain Autonomous customer Priorities for action 1 / Improve leadership and understanding / Design process with customer in mind / Fix reverse logistics / Recognise the potential of big data...20 Summary...21 Afterword

3 Introduction Retailtopia brings together some of the best minds and practitioners from the retail supply chain to consider the future of the industry. The first Retailtopia panel in 2012 looked at how retailers could use technology to improve the customer experience and drive growth. Retailtopia 2013 focuses on how to build the retail supply chain for a customer-driven, omnichannel world. The Retailtopia panel members met in London in February 2013, under the chairmanship of Jim Spittle, FCILT, Chairman of GS1. Their insights and recommendations are set out in this paper. Additional material, including video interviews, is available online at Retailtopia panel members for 2013 are: Jim Spittle, FCILT, Retailtopia Chair and Chairman of GS1 Neil Ashworth, FCILT, Chief Executive of Collect+, former Supply Chain Director at Tesco.com and Woolworths Tom Barry, Managing Partner, H&B Europe Professor Alan Braithwaite, Chief Executive, LCPS Milton Guffogg, Chief Operation Officer, GA Europe Marcus Hickman, Director, Davies Hickman Partners Josh Pert, CEO, BT Expedite & Fresca Chris Poole, Global Customer Service Development Director, Diageo Gary Sharp, Vice President, UK Business Development, Retail Services & Supply Chain, BT Global Services David Wild, non-executive director of Premier Foods and former Chief Executive of Halfords Dean Wyatt, Vice President Business Development for Retail, DHL Supply Chain 3

4 Introduction Retailtopia is the vision created by a series of thought leadership discussion panels around the future of retail in the UK. It looks beyond the significant short-term challenges facing the sector and seeks to create a positive view of the future. This second Retailtopia vision paper was launched in March This vision paper was written by Carol Gourlay, a business writer who attended the Retailtopia panel discussion as an observer. 4

5 Foreword In 2012, 54 retailers ceased trading, one for every week of the year. And at the time of writing, 2013 promises a similar toll. The UK economy continues to be fragile and household budgets remain under pressure. The challenges facing retailers are legion and well-documented elsewhere. For this second Retailtopia panel discussion, our focus is action, not contemplation. Last year, Retailtopia looked at how technology is changing the consumer retail experience. This year, we focus particularly on the supply chain. Widespread contamination of food products with horsemeat has highlighted the vulnerability and complexity of today s supply chains, and the need for robust, reliable data. So how can we make our supply chains fit for an omnichannel future where the all-seeing, all-knowing customer sets the agenda? How do we move from the traditional B2C and B2B models to a more complex C2B2B? While most retailers wholeheartedly support the vision of a customer-focused, internally-aligned multichannel supply chain, it is clear that many are struggling to make this a reality. I am delighted that Retailtopia 2013 has such a diverse and experienced panel, willing to share their experience and thinking. The members have all been (and continue to be) highly influential and instrumental in shaping the retail landscape of the UK today. This document sets out the details of our thinking and recommendations but I would like to underline two key points. The first is that transformation, not transition, is the name of the game. And the second is a sense of urgency felt by us all. The writing is on the wall: the time for action is now. James Spittle, FCILT Retailtopia Chair and Chairman of GS1 5

6 Clear and present threats 2013 The Retailtopia panel identified four major threats to retailers. They are: 1. Acknowledge the pace of change 2. Accept the supremacy of the customer 3. Prepare for the knowledge explosion 4. Design an omnichannel supply chain 1. Acknowledge the pace of change The attrition rate in UK retailing is ferocious. Fifty four retailers failed in 2012, the worst year since 2008, affecting 48,000 employees and almost 4,000 stores 1. So far, 2013 does not look much better. Six weeks into the year the high street has already lost Blockbuster, Jessops and fashion retailer Republic, plus many smaller local operators. At the same time, online retail sales exceeded expectations for 2012, with the IMRG Capgemini e-retail Sales Index recording 17.5 per cent year-onyear growth 2. Retailers who already sell through multiple channels expect their online and mobile sales to equate to 45 per cent of their total revenue by 2014, while store sales will drop to below 40 per cent 3. Even though total retail spending will reach 377 billion by 2022, up 26 per cent on current levels, overall store numbers are predicted to decline by 10 per cent by As PricewaterhouseCoopers says: Consumers are leading and shaping the move to online, with retailers lagging behind. 5 The tough question is: do all boards really understand how fundamentally retailing is changing? Arguably, some boards are comprised of members who have only ever run a bricks and mortar retail business. The economy and depressed consumer spending are clearly factors in business failures, but while early online sales were restricted to CDs, DVDs and books, now every category of sector is open to online competition. In spite of retailers claiming to put customers at the heart of the business, nearly half of consumers regularly find that the product they want is not in store a figure that has not improved in six years 6. Two thirds of consumers say online shopping provides better value for money and a similar number say they get a faster service 7. 6

7 Clear and present threats 2013 Online purchases accounted for a quarter of Christmas 2012 sales at John Lewis 8. Despite a successful Christmas, in February 2013 the company announced a consultation on plans to streamline management structures in some of our established shops by cutting 325 store manager jobs 9. High street fashion retailers now compete with pure online players such as ASOS, whose magazine-style content and straightforward proposition (free delivery worldwide with no minimum spend) give it five million customers and make it the most visited fashion website on the planet (daily) 10. This is as dramatic as the shift from silent films to talking pictures. Like the hero of The Artist who mocks the talkies and finds himself marginalised, retailers must learn to dance. - David Wild, non-executive director at Premier Foods and former CEO of Halfords Traditional models and metrics no longer work. Big especially as expressed by a large number of stores is no longer beautiful. Too many retailers have too many stores. As the developer Hammerson says: Some [retailers] will need fewer physical stores than they used to and others may need to rationalise their product offer. Others will need larger stores in the right location. Retailers that do not review and change their business propositions will be the ones that lose out. 11 Or, in the words of the Financial Times: The collapse of retailers such as Jessops, Comet and HMV, which all struggled to adapt to the lower-cost online world, implies that the war on zombies has begun. 12 Retailers need to understand this is a fundamental structural change you can t simply market your way out of this one. - Tom Barry, Managing Partner, H&B Europe 1 Centre for Retail Research November The Reshaping of Retail Hammerson, February Autonomous Customer, Avaya & BT January Autonomous Customer, Avaya & BT January February The Reshaping of Retail Hammerson, February January

8 Clear and present threats Accept the supremacy of the customer Reflecting a collapse of trust in authority generally, consumers are turning their backs on big brands. Less than a quarter trust the brand website 13. Increasingly, people prefer to get their information from each other, not the brand or retailer, using social media and peer reviews to make a decision. More than half of consumers (58 per cent) say they have got better help from other consumers than call centre agents 14. And self service is popular because no-one tries to sell me anything 15. There may be a role for an independent broker, sitting between the retailer and customer to aggregate and present information in a way that is both accessible and perceived as trustworthy by consumers. - Marcus Hickman, Director, Davies Hickman Partners Loyalty is history. Eighty five per cent always shop around to get the best price. Customers rate online brands higher for service than the high street. Whatever metrics you choose, digital brands and the experience delivered by high performing online retailers have transformed customer expectations at every level not just price but also information, stock availability, delivery, returns and post sales service. Mobile technology means customers often have at their fingertips more up to date pricing information than retailers, and can rapidly compare competitive offerings. But too much information in store is incomplete or incorrect. In consumer research by GS1 UK and Cranfield School of Management, 91 per cent of mobile barcode scans returned incorrect product descriptions and 75 per cent returned no data at all 16. Nearly 40 per cent of shoppers say they would not buy a product if they could not trust the accuracy of the digital information 17. 8

9 Clear and present threats 2013 Some brands are using technology to connect directly with consumers, bypassing the retailer altogether. Examples include Diageo s malt whisky website and Mars M&M s World stores. Such virtualisation will further erode the traditional consumer-retailer relationship. Similarly, both Mars and Diageo have introduced personalisation of mass market products. In the US, shoppers can personalise and buy a bottle of Johnnie Walker Blue Label online for Father s Day. Once consumers get used to personalised products online, they will inevitably expect them elsewhere. Consumers are asking themselves how am I special to that retailer? and companies are increasingly expected to respond to them as individuals, much as in the old days of the corner shop. - Josh Pert, CEO, BT Expedite & Fresca 13 Autonomous Customer, Avaya & BT January Autonomous Customer, Avaya & BT January Autonomous Customer, Avaya & BT January Mobile-savvy shopper report, GS1 UK and Cranfield School of Management, January Beyond the Label: Providing Digital Information Consumers Can Trust, GS1 and Capgemini

10 Clear and present threats Prepare for the knowledge explosion No wonder they call it Big Data. In every minute of every day Google receives more than 2,000,000 search queries, Facebook users share 684, 478 pieces of content, Twitter users send over 100,000 tweets, brands and organisations receive 34,722 likes on Facebook and consumers spend $272,070 on web shopping 18. According to McKinsey, the world s data is doubling every two years 19. Businesses are largely underprepared for this expanding volume, velocity and variety of data 20 and it is unlikely that no one company will be able to manage the deluge alone. Collaboration would enable brands and retailers to share the costs and value of exploiting big data. And with the power requirements of a new data centre now approaching those of a medium sized town, sharing resources is a more environmentally responsible model. Standardisation must underpin such collaborative data sharing. The next big thing in retail technology is not another smartphone but the enormous amount of customer dialogue online. Companies who are able to aggregate that and use it in supply chain planning will have enormous power. - Gary Sharp, Vice President, UK Business Development, Retail Services & Supply Chain, BT Global Services Retailers face a barrage of comment and contact via social media. Thirty nine per cent of customers will actively comment on their retail experience on Facebook and Twitter while shopping. According the BT & Avaya Autonomous Customer research, fifty five per cent of consumers use social media to interact with organisations. A large proportion of this is simply to get special offers and vouchers, but almost 20 per cent make direct contact through Twitter and Facebook. Clearly, organisations need strategies for dealing with potentially thousands of direct messages from social media as well as monitoring for wider issues. Milk Tray and Twinings are just two of many brands to have been lashed by consumers via social media as a result of a recipe change. 10

11 Clear and present threats 2013 Retailers are much better now at getting a single view of the customer. If they could add what they know to information extracted from more unstructured online content, then there is the potential to predict what, where and when someone might buy. And then connect that information with location-based services to attract consumers with vouchers and special offers Big data:the next frontier for innovation, competition, and productivity McKinsey Global Institute From Stretched to Strengthened, Insights from the Global Chief Marketing Officer Study IBM

12 Clear and present threats Design an omnichannel supply chain A real obstacle to redesigning the supply chain for omnichannel sales is internal collaboration or the lack of it. The supply chain is not always at the table where big decisions are taken. Planning is key: there is not enough emphasis on planning, too much reliance on history and how can I sell you what I have now! - Dean Wyatt, VP for Business Development for Retail, DHL Supply Chain According to the Retailtopia panel, buying and merchandising are often seen as the premier league while supply chain is the championship. Buying and merchandising teams should understand they are a core part of the process and their decisions impact underlying profitability. Retailers need to understand that buying and merchandising are core supply chain functions and bring them into a more transparent, cross-functional process, develop a more federated capability. For some, this may require a significant change in culture, such as measuring the performance of individual departments at every step of the supply chain. The biggest challenge around collaboration is internal. Much greater collaboration, with information transparency and cross-channel connectivity across the business, is a pre-requisite to building an effective omnichannel supply chain. - Jim Spittle, FCILT, Retailtopia Chair and Chairman of GS1 Collaboration is the principle behind much supply chain good practice. But how far to collaborate? High street retailers could make real savings by collaborating on mainstream delivery and replenishment. One lorry rather than several cuts delivery costs all round, as well as reducing CO 2 emissions. The customer does not care whose vehicle delivers what and where. But while it might be desirable to collaborate in this way, if the current battle of the brands for customer mindshare prevails and the supply chain is a competitive advantage for the retailer, then extensive collaboration is unlikely. Stores will be showrooms. People will buy online - Milton Guffogg, COO, GA Europe 12

13 Clear and present threats 2013 If delivery options and costs are not clear at the beginning of the buying process, many consumers will go no further. Retailers need to be able to offer a whole mix of ordering and delivery choices. Click and collect overcomes the problems associated with home delivery, when people are not always in. John Lewis lets customers order online and collect from their local Waitrose stores; Amazon offers collection (and returns) via Collect+ and its own secure lockers; Argos check and reserve online service now accounts for almost a third of its sales and is the company s fastest growing channel 21. However, less than half of the UK s top sellers currently offer a click-and-collect service 22. Smart retailers use the footfall generated by click and collect as an opportunity to connect with the customer. Halfords lets customers order a new bike online and then collect it, ready assembled, from a local store. This approach guarantees a face-to-face encounter with the customer, both an opportunity to check that the customer is happy with the purchase (and so reduce the rate of returns) and to sell additional equipment or accessories. The majority (87 per cent) of Halfords online orders are collected in store. There is a lot of strong collaboration but to be effective we need a change in mindset so we can deliver excellence at the point of purchase. In other words, what changes can we make so that we ensure this product is fit for purpose at every point of the supply chain? Chris Poole, Global Customer Service Development Director, Diageo plc Returns is a classic supply chain process that touches all parts of the business. During the boom years, retailers did not have to worry so much about reverse logistics. Now, Cranfield research suggests that the value of retail returns in the UK is currently running at 6 billion annually 23. No longer is the returns process an afterthought but a key component of the retailer s proposition and an influential factor in the consumer s decision-making. Online retailers can expect return levels as high as 30 per cent 24, especially in fashion, because shoppers buy several sizes to try on at home and keep only what fits. The cost of returning unwanted clothing to UK fashion retailers was 91 million in 2011, 61.5 million of which was borne by retailer 25. And post Christmas, returns for goods bought online can be up to 40 per cent for clothing and between five and ten per cent for electrical goods 26. How well the organisation manages this high volume of returns is a commercial imperative that requires cross-functional review, measurement and management. 13

14 Clear and present threats 2013 Three quarters of consumers want to choose where and how to return products 27. Digital channels have given consumers much more choice about how to take delivery of a product and now they want the same choice for returns, including BORIS (Buy Online Return In Store), a brother to click and collect (and a better alternative than post and pray ). A good omnichannel supply chain treats returns as another supplier. In a multichannel world, the customer is no longer the end point of the supply chain but another link that needs to seamlessly fit into the bigger picture. The cost of handling a return can be two or three times the cost of executing the outbound process, but a well executed returns strategy can put two per cent on the margin. Fixing returns also has a big part to play in addressing sustainability and environmental issues around transport, packaging, waste and recycling. A sound process for handling returns will help retailers and manufacturers comply with the WEEE (Waste Electrical and Electronic Equipment) directive and other statutory requirements designed to minimise waste. Some retailers burn more in waste than the entire operational cost of their supply chain. - Professor Alan Braithwaite, CEO, LCPS 21 press release Autonomous Customer, Avaya & BT January

15 Autonomous Customer The Autonomous Customer highlights of research findings In 2013, BT and Avaya sponsored an independent research study to examine the degree to which customers were becoming autonomous in their shopping behaviour. Some highlights of this research were shared with the Retailtopia panel and you will find them referenced at various points in this paper. The research revealed that online brands have transformed consumers expectations of value and service. Online shopping has always offered low prices, and now 66 per cent of consumers say online provides a faster service as well. Internet shopping has other advantages over the high street. For example, 47 per cent of consumers often find products out of stock in shops a figure that has remained constant since What s more, shoppers find too much selling in bricks and mortar stores; 63 per cent prefer shopping online because no one tries to sell them anything. Other findings include: 97 per cent would like to be able to order in store out of stock items for home delivery. 85 per cent say they always shop around to get the best prices and one in three says convenience is more important than price. 52 per cent download online vouchers. Only 17 per cent say organisations make it easy to switch between different channels. 74 per cent want to choose where/how to return products. Three out of four people are suspicious about the data companies collect from website visits. 60 per cent say the more information they give, the better customer service they expect in return. The Autonomous Customer study was completed in the UK and US in January 2013 and used a representative sample of online consumers in the two countries. 15

16 Priorities for action The Retailtopis panel identified four priorities for action by retailers. They are: 1. Improve leadership and understanding 2. Design process with customer in mind 3. Fix reverse logistics 4. Recognise the potential of big data - action for the longer term 1. Improve leadership and understanding Get a board that understands the reality of omnichannel consumer demands - and provides leadership. Failing retailers are those who behave like rabbits caught in the headlights. They know what is coming but are unable to respond and move direction before being flattened by the digital juggernaut. Analyse forensically your cost to serve. Understand your whole supply chain costs. According to PricewaterhouseCoopers, companies that focus on improving their supply chain performance consistently outperform their peers financially 28. Develop more internal collaboration between buying or merchandising and supply chain functions. Put them in the same room to talk. Agree new metrics for new models. Find new measures such as returns by stock keeping unit (SKU). The established industry metric is that 90 per cent of incoming customer telephone calls should be answered in 20 seconds. Online needs new metrics, but customers can tell you what they should be. For example, 72 per cent want their s answered in three hours and 34 per cent expect a response within 15 minutes to a tweet or Facebook posting. The board needs to take a quantum leap, small steps are not enough. Be radical, be creative. Understand your customer. Embrace technology. Do it now. - Milton Guffogg, COO, GA Europe We are moving from a high capitalisation, high margin environment to a low capitalisation, low margin environment, yet boards are still clinging on to the old KPIs, such as sales per square foot. - Neil Ashworth, FCILT, Chief Executive of Collect+ and former Supply Chain Director at Tesco.com and Woolworths 28 Next-generation supply chains: Efficient, fast and tailored PWC,

17 Priorities for action 2. Design the whole supply chain with the customer in mind Manufacture, ship, sell, deliver and service a product that is fit for every point in supply chain and the end point of use. Find a new model that works and then value engineer the cost down. John Lewis s distribution centre in Milton Keynes fulfils both store and online orders. Work out how and where personalisation fits into your business. Keep up with new technologies. The arrival of 3D printing will transform manufacturing. Why keep a stock of washers when you can manufacture them to demand? Think again about collaboration with a like-minded retailer. The greatest benefits come when similar businesses share resources. As long as your data is secure, it doesn t matter which trucks and warehouses process your goods. Make your customers part of your supply chain. Give them the best value and most convenient experience before, during and after sale. Make sure information customers give you in one place (via the website or in store) is also available in another (the call centre or mobile app). Introduce videoconferencing and webchat. Make your inventory available for sale wherever it is located. This can reduce markdown, increase full value sales and increase customer satisfaction. Retailers have got to be more cost-effective. They could learn from the mail order companies who have been doing it for years and whose unit cost would shame most retailers. - Professor Alan Braithwaite, CEO, LCPS We need customer experience solutions, not more ways to move boxes around - Josh Pert, CEO, BT Expedite & Fresca 17

18 Priorities for action What are consumers looking for from their customer contact experience? CALL CENTRES SMARTPHONES 84% 80% 78% 55% Phone number is free Told how long they will need to wait in call queue Call answered in 20 seconds Call centre agent knows what internet page I m on 48% 38% 32% Text are replied to within one hour No more than 3 push notifications from an App each month Can contact an org directly through smartphone App INTERNET SELF SERVICE SOCIAL MEDIA 59% Web chat support is near instant 34% Receive a response within 15 minutes through 37% One-way video chat is available to contact social media sites (i.e. Facebook/Twitter) organisations 72% s are replied to within 3 hours ONLINE COMMUNITY SCHEME SHOPS 47% Easily join an online community 63% No more than 3 people in a shop queue to buy something Source: Autonomous Customer 2013 (see p 15). 18

19 Priorities for action 3. Fix reverse logistics Apply the same principles to reverse logistics as forward logistics. Just in time at the least cost. Treat returns like a supplier, not a logistics process. Design the right returns strategy for your business. This should be a collaborative effort, not left to the marketing department. A returns policy should be appropriate, fair and consistent. Understand what it costs. Give customers all the information they and you need to process the return quickly. Recognise that every time they return the goods to the store is a conversion opportunity. Let customers have their money back quickly. Cycling and tri-sports retailer Wiggle has a 365 day returns policy and customers can return products free of charge via Collect+. But what works for one business may be over-generous in another. Measure returns by SKU. If you apply customer review scorecards to returns you will get a good indicator of why goods are being returned. And then do something about it. Write down returns aggressively. That means as much as 25 per cent at the point of receipt. Accountants tend to overvalue returns. Think of it as cash. Remember that returns are not necessarily waste. Up to 85 per cent of all returned products can be refurbished and remarketed rather than sent to landfill 29. No-one ever talks about reverse logistics with the same eloquence as forward logistics. - Tom Barry, Managing Partner, H&B Europe 29 etaildata=true&specificpagetype=3 19

20 Priorities for action 4. Recognise the potential of big data Understand the value of information in online customer dialogue. Noone at the moment has the capacity to drink from the fire hose but it is important to appreciate what the big data era means for retailing. Widespread deployment of GDS and RFID will make the Internet of Things a reality, opening up the possibility for brands and retailers to monitor how consumers use products and use that information for product improvement or service enhancements. Consider what it would mean to make plans based on what people are saying and doing now, and not rely on historic data. Customers start researching seasonal purchases online a couple of months before they buy. So that means aligning marketing with digital channels separately from in store. Acknowledge that hardly anyone has the resources to manipulate vast amounts of unstructured data but that it might be an opportunity to collaborate. Open standards and event capture technology enables all partners to securely collect, share and interpret high volume granular information (SKU level) about the movement and status of goods and assets as they move through the supply chain. Support data standards. The more standardised data is across the supply chain, the easier it will be for all partners to share and understand. According to Forrester Research, the process of data exchange today is so error-prone that, on average, 30 per cent of product data is incorrect across the supply chain 30. Supply chain planning has typically used historic data as an indicator of the future - planning by hindsight. We are now entering a stage where we can look at what is happening now to create insight and allow us to create the future based on foresight. - Neil Ashworth, Chief Executive of Collect+ and former Supply Chain Director at Tesco.com and Woolworths 30 Use New Supply Chain Visibility Technologies To Improve Customer Service And Return On Assets Forrester Research

21 Summary Clear and present threats 1. Acknowledge the pace of change In creating the omnicomchannel world, consumers have already made their choice about how they want to shop. 2. Accept the supremacy of the customer Consumers trust each other more than the retailer or brand. And they often have better information as well. 3. Prepare for the knowledge explosion We are creating new data at an astonishing rate. The ubiquity of mobile devices and the emerging Internet of Things will further add to the deluge. 4. Design an omnichannel supply chain There is no omnichannel supply chain without omnichannel, omni-collaboration inside your organisation. 21

22 Summary Priorities for action 1 Improve leadership and understanding Every board must understand and accept the scale of change underway. Deliver the transformation required to remain competitive. 2 Design process with customer in mind Manufacture, ship, sell, deliver and service a product that is fit for every point in supply chain and the end point of use. Measure what matters to customers. 3 Fix reverse logistics Apply to returns the same standards of good practice, investment and discipline as are applied to forward logistics. 4 Recognise the potential of big data - action for the longer term Keep abreast of new ideas and thinking about how to manage big data. Support open standards and sharing data with supply chain partners. 22

23 Afterword No-one has yet created a truly omnichannel supply chain. However, there are plenty of examples of enlightened, imaginative and joined-up thinking from some well established high street names; innovation is not restricted to online brands. Worryingly, too many retailers still underestimate the need for a radical rethink of traditional supply chain practices and models. Boardroom complacency and lethargy are dangers as significant as any of the other threats we have discussed in this paper. We would urge all retailers to put the future of their supply chain at the top of the boardroom agenda. This is not a time for piecemeal changes but, as one of my colleagues says elsewhere in this document, time for a quantum leap. In expressing their desire for the benefits of an omnichannel world, consumers have made it abundantly clear what they expect of retail. It is time now for all of us involved in retailing to make sure we can meet their demands and shape our industry for success in the 21st century. Jim Spittle FCILT, Retailtopia Chair and Chairman of GS1 To find out more about Retailtopia, visit: 23

24 Created in March