Co-founder at LEAFIO AI Retail Solutions, a supply chain optimization and automation expert for retail, distribution, and CPG manufacturing.
In today's rapidly changing retail landscape, staying competitive isn't a choice. It's a necessity. The reallocation of spending to services accompanied by tension in the financial markets and rising prices has increased pressure on the retail industry.
Nevertheless, global retail sales are expected to reach $29 trillion in 2023 and grow further to $32.8 trillion by 2026 according to Statista researchers. All indications suggest that existing competitive pressures will only continue to intensify. The issue of competitiveness is becoming more and more relevant as the new "black swans" of modernity emerge. The battle ahead is certainly going to be tough, so what resources can retailers unlock to succeed?
Collaboration and data sharing are the key
Today’s retailers find themselves in a unique position. Unlike suppliers that have no direct contact with customers, retailers interact with them on a daily basis. This allows them to learn real-time customer preferences and requirements and share them with suppliers. This is very beneficial for suppliers, as commissioning research from specialized agencies is expensive and time-consuming. Given the speed of change, data can become outdated as early as in the report or action plan stage, let alone in production. Such sharing is also good for retailers because, in addition to being able to sell such research, which, incidentally, many cutting-edge companies do, they can also negotiate more favorable terms for suppliers.
In just one example, in the late 1980s, Walmart and Procter & Gamble (P&G) established an innovative partnership in which P&G managed its Walmart inventory using real-time information on sales and inventory levels. This collaboration allowed both parties to optimize their operations, benefit from efficient supply chain management and increase sales. The key to this collaboration was realizing that while each party had different interests, sales and profits were the common goal.
A retailer will often order more merchandise to avoid lost sales but end up overstocked. Other times, they can't react in time to a surge in demand or prepare for the season and order more, resulting in a shortage of goods. Meanwhile, the supplier knows its capabilities and can adjust the production plan if necessary. By having access to the retailer's current inventory balances, the supplier can balance inventory more effectively because they have a vested interest in making sales. In other words, if the retailer changes its mindset and opens itself to closer cooperation with suppliers, it can gain a significant resource for growth and competitiveness.
The product is still on top
Because customers still primarily come to the store for products, the main focus to improve competitiveness should be on its assortment, availability, visual presentation on the shelf and prices. Having established relations with suppliers on favorable terms allows you to set attractive prices. But picking the right assortment can be a major challenge, especially if space is limited.
Achieving the maximum margin per square meter of shelf space requires proper assortment planning, timely rotation, localization and effective management. If you have a single store, it's fairly easy to pick a range that your customers will love. However, if you have a network of stores in different parts of the city or regions of the country, having the same assortment in all of them could be a fatal mistake. Most often, retailers divide stores into groups based on certain characteristics (e.g., customer types, traffic and location). This is a good strategy, but each store is still unique. Therefore, a customized approach based on data and analytics is an integral part of building a competitive assortment.
The same applies to product availability. It would seem simple: Provide your customers with 100% availability and that's it. Unfortunately, this approach can lead to quickly gaining overstock and losing profits due to write-offs, discounts and reduced turnover.
The answer lies in more accurate demand forecasting, taking into account the many factors that affect the market, such as the day of the week, seasonality, trends, promotions and national events. Taking averages from your sales history and increasing the quantities of products for security purposes is no longer enough. Accurate forecasting and restocking require complex mathematical models and significant automation to eliminate human errors.
As for product displays, each product should be located in the sales area and on the right shelf so that it's easy for the customer to find it and bring maximum profit.
Technology isn't a fad—it's a must
Of course, assortment management, inventory control, merchandising and supplier relations all seem trivial. Many retailers tackle these issues with simple tools or even manually. But when it comes to a fast-changing competitive market and high volumes, human resources and expertise become insufficient. Today’s situation is one that requires artificial intelligence (AI) and machine learning (ML) algorithms, deep analytics and full automation of most business processes.
Some might argue that these are basic processes that have all been automated long ago and, instead, competitiveness should be sought through computer vision, the Internet of Things, contactless shopping, personalized offers and so on. On the one hand, it's true. Global giants like Amazon and Walmart have already been actively pursuing this path. On the other hand, it's striking that many medium and small retailers in the U.S. don't have accurate information about their current stock levels. That's the real problem because inventory-holding costs often represent at least 20% of a company's total inventory value. If your funds are just sitting there, frozen in inventory, you're missing out on a tremendous resource for development and increased competitiveness.
To sum up, if you want your business to remain competitive, look for ways to collaborate, automate everything that can be automated and use deep analytics to make decisions based on data rather than emotion or trends. The potential for improvement often lies locked in the simple and obvious things. All you need to do is to look at them from a new angle.