Retail success should be judged in terms of sales, shouldn’t it? Yes, with a 'but'. Growth in sales doesn't always have the positive impact you'd expect, certainly over a short period. For example, if it's not accompanied by a rise in profitability or customer satisfaction, is it really positive?

Profitability and customer satisfaction are both crucial to build long-term success. So how is it that these areas can be overlooked, even when sales are on the rise?

Let's be clear before answering that question. Every retailer should aim to increase sales. We're not suggesting anything different. What we are saying is that there is a way to make those sales profitable.

There are five areas in which retailers can be guilty of oversight, or even clear mistakes:

  1. The Customer Disconnect: That exists between shoppers' expectations and retailers' capabilities to deliver
  2. Single View of Inventory: Having true real-time visibility of stock allows retailers to make great decisions about profitable customer order fulfilment
  3. Profitability Gap: Often arising from costly fulfilment options that are eroding the products' gross margins
  4. Legacy Systems: Reluctance to 'bite the bullet' and replace legacy systems can often hold back the rest of the organisation
  5. Customer Service: It can suffer if new fulfilment services can't be reliably provided

The Customer Disconnect

Recent Manhattan Associates research showed that there is a gap between what customers want and what retailers can provide. The speed with which customers get their items in-hand is even more important now than it was just a year ago. More customers are looking at services like click & collect (57%) or same day delivery (48%) as a way to make the process quicker.

However, eight in ten retailers struggle to provide these services. And this situation will get more severe as fulfilment becomes the primary battleground for customer loyalty. The research backs this up: 83% of shoppers are more loyal to retailers that reliably fulfil orders. Customers know what they want, and they're always right!

Single View of Inventory

Services like same day delivery take a lot of effort from a lot of different people. However, they are virtually impossible to execute without an accurate view of inventory.

If an order's taken from a customer in Southampton, but due to be shipped from a DC in Northampton, you may not bat an eyelid. But what if the Southampton store has that item in stock – or even surplus? That completely changes the relative cost of fulfilment options and the business should think about offering immediate click & collect or ship from store. The price point and margin on the product would need to be taken into account as well as the cost of fulfilment options.

Inventory visibility helps with better decision making around fulfilment. But having a single stock pool is the first step, next is implementing intelligent sourcing of customer orders. Currently only 20% of companies have accurate visibility of all stock all the time. These are likely to be the ones that can reliably offer immediate click & collect and same day delivery.

The Profitability Gap

Retailers who lack real time visibility but feel forced to meet customer demands often fall into the profitability gap. This is when sales are stable, or even rising, but the bottom line shrinks.

It's not huge cause for concern if only 5% of orders come via click & collect. But when that becomes 15%, or the 48% of customers who want same day delivery swells to 80%, change is needed. Multichannel shopping already accounts for 70% of retail spend.

The retail industry changes quickly. Closing this gap means fixing earlier mistakes around stock visibility or inventory pooling and applying them to service delivery.

When this is done in the right way, the profitability swing goes the other way and bottom lines grow.

Legacy Systems

Every retailer has at least one legacy system. In some cases, they're business critical systems that cannot be replaced easily. In others, they're just remnants that happen to be there.

These systems don't necessarily need to be pulled out; but they definitely need to be integrated so they play the appropriate role in an end-to-end seamless customer order management and order fulfilment process.

If it's a business-critical system, but isn't a central part of the rest of the business, what does that tell you? Legacy systems with that much value need to play their role in decision making alongside the most modern order management systems.

When the supply chain and order lifecycle management system use a platform approach, all of these systems come together, talk to each other and help make good decisions.

Customer Service

The whole reason for offering click & collect or same-day delivery is to make customers happier. In a perfect cost world, it's cheaper for everything to go from DC to store in bulk. But customers don't necessarily want that.

The process of implementing some new fulfilment services can lead retailers to forget why they're doing it. If you're doing it for the customer, make sure that the quality and reliability of service is good enough so that the customer actually wants to use it... and comes back again.

If they use click & collect, but have a 45-minute wait in-store because the store assistant can't find the product, or staffing hasn't been done in line with the volume of expected orders, they won't use the service again. Then all the investment counts for nothing.

Navigating the new landscape

Recognising that retail has changed is the first step then developing a long-term roadmap is vital to establishing a strategy for success. Focusing on short-term initiatives to get through the next peak season was fine as multichannel retail was small and evolving. Now these changes are here to stay and competition is getting fierce.

Leading retailers have shown the way forward by gaining real-time control of all inventory, introducing intelligent order sourcing and routing, and integrating store stock fulfilment capability. This is becoming a well-trodden path that is not just the preserve of global multi-billion turnover retailers.

Manhattan will be exhibiting at RBTE 2015. Visitors to the event, which will take place at London's Olympia between 10-11 March, can meet with Manhattan at Stand 512.

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Manhattan Associates