With the ongoing economic crisis in Europe, uncertainty in the United States and a relative slowdown in Asia, global retailing is still on uncertain ground. According to the International Monetary Fund, global economic growth is projected to drop from around 4% in 2011 to about 3.5% in 2012. The bright spot is still emerging markets where, led by China, growth is expected to approach 6%.
While this list looks at the ten key dangers impacting global retail supply chains this list can also be flipped into ten opportunities for smart global retailers. This article is a summary of a bigger research project undertaken by Core Solutions to understand the outlook for global retailers.
Not a new issue, but definitely one that is not going away is the reality of rising costs. For most retailers, whether they are focused on hard or soft goods, labour costs in “low-cost” sourcing markets are a top- of-mind concern pushing retailers to look for new sourcing markets as an alternative to the dominance of China and to optimize their supply chains. Commodity and energy price fluctuations are also expected to be the norm and smart retailers will prepare for the impact these fluctuations will have on their supply chains.
Alongside rising costs, the increased complexity of retail global supply chains is another trend that will continue unabated.
The complexity ranges from the growth in retail channels (multichannel) and the need to service consumers effectively across these channels (omni-channel) along with shifts in global sourcing markets, requirements for faster lead times and more demanding consumers. Retailers who will survive and thrive need to manage this complexity by continually adapting to the market and using their supply chains as competitive advantage.
As with costs and complexity, the shift in our global economy that is having a dramatic impact on retail is both a danger
and an opportunity for global retailers. With home markets in the US and the UK facing flat or negative growth, the potential for retail in emerging markets is an easy draw. However few international retailers have found success in China and other developing markets. The other shift that is occurring, especially in China is towards a focus on supply to the domestic market as opposed to the export market. This threat to capacity of retailers dependent on Asia sourcing is not to be ignored.
In the driving seat of a lot of the changes occurring across the global retail landscape and in turn impacting supply chains, are consumers. They are the ones who demand better quality, lower priced, sustainable products that match the latest trends. They tell their friends and create a buzz on social media that can make or break products. They buy smaller baskets of products and treat retail stores like a showroom, buying online where prices are cheaper. In this consumer climate, supply chains need to be fast, flexible and efficient.
Late 2008 was a wake-up call for most retailers which in reality they are still trying to recover from. While retailer revenues have increased steadily since late 2010, profit margins are still around half of what they were pre-crisis. This is a function of a number of variables such as international growth and higher costs. Retailers that are bucking this trend are those that have focused intently on their supply chains. In the US this includes industry leaders such as Walmart, Kroger, Target and Costco who understand the need to respond quickly to consumer trends, maintain lean inventories and improve their business processes.
Multichannel is now an everyday buzzword in retail to refer to the multiple formats that retailers use to sell in different
markets. Retailers can test markets online before setting up physical stores and add catalogues, online stores, social commerce and mobile. From a supply chain point of view, multichannel retailing brings the challenge of integrating the back-end to ensure efficient supply and delivery of products. According to one survey, a third of respondents stated that they identify products differently across channels (i.e. same product but different SKU). In this climate, it is imperative for retailers to develop greater efficiencies across channels.
According to the Retail Sales 2011 Productivity Report, most retailing - 92% in the US - still occurs in bricks and mortar stores. However, while the physical retail channel is growing in the low single digits, electronic retail or e-commerce is growing in the double digits. According to a recent report by Interactive Media in Retail Group (IMRG), the global business to consumer e-commerce market will reach $1.25trn by 2013, and the total number of internet users will reach 3.5bn from 2.2bn in 2011. Retailers need to figure out how this will continue to impact their supply chains.
As social media has risen in popularity, retailers and other consumer oriented companies set up Facebook pages and Twitter feeds as a way to engage and influence consumers. This form of social media continues to evolve and is now an e-commerce channel in itself. In late 2011, Facebook launched 3,500 store specific Facebook pages along with a Facebook app, called My Local Walmart. According to a prediction by consulting firm, Booz & Co, $30bn will be spent via social commerce by 2015, up from $5bn in 2011. While this is just a fraction of the total e-commerce figure, the growth rate is something to keep an eye on and we can expect to see many developments in this channel.
Analytics on consumer behaviour is as important as ever as sophisticated methods gather information about consumers at various touch points from the point-of-sale to mobile devices, social media, online and in-store behaviour. While this consumer information is then used to market to consumers in a more personal way, it is still a challenge to figure out what this information means. According to a recent Accenture survey, more than two thirds of North American business executives said they plan to spend more on analytics. To fully utilise this data, retailers will need to bring in sophisticated software and business consulting and integrate this information into their planning and forecasting process.
Unfortunately sustainability is often near the bottom of the agenda, perhaps because it’s softer and is a good closing off topic. However, it doesn’t mean that it’s any less important. In fact it has been touched on in the above points, where demanding consumers are pushing for everything from greener products to better quality and safety and fair treatment of workers. Aside from consumers, government regulatory bodies and policy makers are also taking sustainability more seriously and are more stringent about enforcement.
By no means is this list comprehensive, but these dangers are indicative of a fast changing and highly competitive global retail climate where former retail giants such as Borders and Best Buy are struggling or in receivership and relative newcomers such as Amazon and Apple are global powers.
Russel Beron is a Director at Core Solutions, a provider of extended product lifecycle management, global sourcing and supplier collaboration software solutions which help retailers and brands increase their profitability. Learn more at www.coresolutions.com