Reinventing Retail: What Investment Is Required?
By Gene Tyndall
I read an interesting quote recently, “The truth is you cannot reinvent a retailer on the cheap,” Neil Saunders, GlobalData Retail. It led me to think more about what is really required by all types of retailers to compete in the changing world of The New Retail, which started in China and is now impacting all retail in North America.
There is little need here to cite the latest data on store closings, bankruptcies, or downward trends in sales per store. These facts are well known. The question really is, why retail reinvention cannot be done on the cheap?
First, let’s consider that retail reinvention is still just getting started. Competition is tougher than ever (including from foreign-based new entries) and innovative new businesses models along with start-ups can compete in niche markets that were only recently impossible. Retail is a diverse and revolving industry that continues to grow, but changing in different ways, with varied sales channels and many new technologies.
Second, it is important to understand that over 90% of retailers have 20 or less employees. There are over one million retail businesses in the U.S. New stores continue to open as thousands close. Then, there are the internet retailers as well as the new retailers of bricks and clicks.
With these two trends in mind, let’s focus on the two primary areas of investment needed to succeed in The New Retail:
A - Store design formats and merchandising innovations (the stores) must be upgraded to offer consumers the experiential “high” of shopping in stores.
B - Omnichannel fulfillment (the orders) to offer consumers the convenience they desire.
A - The Stores. In order to attract consumers to stores and convert them to buyers, retailers must give them the best possible in-store experiences. Rising consumer demands must be met to achieve both higher foot traffic and positive buyer behavior. Over 50% of all retailers are either investing in new technologies or are in the later stages of evaluating certain ones for installation. Consumers are increasingly “tech savvy” and want to shop, compare, and try out products prior to purchasing. They like being aided in these steps by technologies, including in the store itself. Kiosk-based tools for viewing products, simulating their use, and easy ordering are popular. Virtual reality tools can be used to make meaningful connections with consumers. Best Buy, for example, has reinvented its in-store technologies with good success for promotion, viewing, and even trying what they sell.
Along with new technologies, merchandising design must maintain visual standards and navigational ease, providing new and interesting experiences. New and improved brand identity is a key part of the new strategy. Knowing what your customers want is imperative to strengthen the link between them and your brand. Your customers’ frame of reference has changed. They want greater personalization and customization to their preferences, meeting this is essential.
All these in-store innovations are capital intensive. Some more than others, but nonetheless important. Consumers will not buy in store without experiencing some changes in format, merchandising, graphic design, and other attractions. Reinventing the store is not cheap.
B - The Orders. Yes, improving in-store sales requires capital investment. There is no alternative for retailers if they want to attract, retain, and convert consumers to their physical places of business. Buying and fulfillment are the other primary areas where capital is required and operating expenses can be high.
Walmart and Target, for example, have been investing in their online businesses to compete with Amazon, which will increase their share of total U.S. eCommerce sales in 2018 to 48% or $252B. Recent earnings announcements by Target, for example, stated that 3rdQ digital sales climbed 49%, but with heightened expenses in supply chain costs. Walmart also expanded its eCommerce sales in the 3rdQ gaining 43%, which enabled it to overtake Apple as third in online sales. It will capture 4% of all online sales in 2019 or $21B. Further, The Home Depot has committed over $1B to reinvent its product distribution network, even after transforming it just five years ago.
For each of these larger retailers, as well as for the thousands of mid-size businesses, rising expenses for fulfillment will continue to impact margins significantly.
Is retail reinvention for buying and fulfillment, also not cheap? The answer can be yes or no. MonarchFx started as a highly effective fulfillment solution that requires little or no capital and reasonable operating costs. While the largest top ten retailers mostly have the availability of capital to reinvent, or the borrowing base to acquire it, the thousands of others struggle with enough to re-design their stores, and thus are highly concerned with achieving efficiencies in online buying and order fulfillment.
MonarchFx provides the effectiveness of best-in-class logistics service providers and technologies, combined with the amazing efficiency of unique robotics for unit and parcel sortation. Moreover, it provides the best technologies available for operations including order management, warehouse management, distributed orders, and the connected fulfillment center, as well as a smart platform and intelligent inventory allocation and replenishment for distributed inventories.
Retailers can obtain the benefits of smart capital investment without expenditures. Its multi-client fulfillment centers permit unit processing costs to be lower. Further, the MonarchFx distributed logistics model enables retailers to position their inventories closer to their online customers and at optimized stocking levels. This operations strategy is being proven to boost sales by increasing the speed of final deliveries without the added costs.
Retail reinvention is not cheap. The online costs can be minimized and managed to still obtain the benefits of effectiveness and efficiency. The OmniChannel/UniChannel
fulfillment solution provided by MonarchFx enables retailers to achieve success in The New Retail without large capital investment. This innovation will provide for retail reinvention in order fulfillment without the large capital outlays.
- Video: Get to Know MonarchFx
- Video: Tompkins Robotics
- White Paper: Achieving Revenue Gains from Distributed Logistics