80% of retailers are unprepared for the supply chain changes required to meet customers’ demands to shop any way they want, a study finds.
Retailers have rolled out the “shop anywhere, anytime” strategies that customers want, but they are grappling with how to handle the resulting inventory and financial challenges, a survey shows.
Though retailers say they are working to improve fulfillment capabilities, 80% of those surveyed say their top challenges are inventory visibility and accurate assortment planning between e-commerce and their stores, according to a study by retail consulting firm HRC Advisory. The challenges stem from such shopping options as letting shoppers see real-time inventory, order online and pick up in store, and order in-store and get the product delivered to a customer’s home.
Retailers with e-commerce and store operations find it difficult to compete with online-only retailers in dealing with the challenges, HRC Advisory says. The survey comprises interviews with 20 supply chain executives at retailers throughout North America. The retailers sell food, electronics, accessories, apparel, and health and beauty supplies online and in stores.
“Competing with pure-play e-commerce retailers and accommodating the multitude of new fulfillment options requires a significant increase in supply chain flexibility and better integration between the physical store and e-commerce network,” says HRC Advisory President Farla Efros.
The survey reveals these top challenges:
- Online returns are expensive: 95% of retailers say their biggest issue in transforming the supply chain is dealing with online returns, which are high (7%-30%) and can be costly. 85% of retailers note the high cost of online returns to a store, particularly when the item is not in stock in that store. And when returning to a fulfillment center or supplier, retailers incur incremental freight costs, the possibility of shipping-related product damage and a lost opportunity for a replacement sale in-store.
- Cannibalization of in-store sales: 75% of the retailers say some of their e-commerce sales are cannibalizing sales that would have otherwise been in stores. Although e-commerce sales growth rates are often 10%-15% greater than physical store growth rates, 70% of retailers struggle to develop a profitable economic business model for e-commerce while maintaining acceptable profitability for stores.
- Systems and infrastructure are outdated: 100% of retailers surveyed say fully integrating inventory and fulfillment between the online and store channels would achieve the most effective customer outcome and the lowest margin risk. But more than half (52%) admit they do not have systems to show sales staff and customers inventory on hand in each store. Further, retailers lack the processes to compete with their e-commerce-only counterparts, as only 35% had such online capabilities as vendor drop ship, or order in-store and deliver to the customer. However, 60% of retailers say they plan to invest further in their e-commerce-related systems.
Brendan Witcher, principal analyst for e-business and channel strategy at Forrester, says it’s not all retailers’ fault.
Retailers have had to scramble to provide shopping options because that’s what customers demand, so they started at the front end and are working to improve the back end, he says.
“In the past, you had inventory teams ordering products for the store channel and then the online channel separately,” he says. “Today, customers are saying, ‘I’m going to buy online and pick up in store; or buy in store and have it shipped to my home.’ It has completely turned inventory models on their ear.”
This feature originally appeared in Internet Retailer.