It was not so long ago that the phenomenon of Internet retailers was expected to wash away traditional retail outlets. Instead, most retailers survived the initial onslaught and became “bricks and clicks,” multichannel organizations. Yet many retailers continue to struggle to be profitable, global competition continues to grow and the complexity of outsourced products and supply chains marches on. Enter the social networks, product review sites and increasingly empowered consumers, and retailers know that they must change still more if they are to survive and thrive. Retailers are going to have to:

  • Become more effective and efficient on the supply side,
  • Become more customer-centric on the demand side,
  • Earn and keep the loyalty of ever more fickle consumers, and
  • Increase their rate of change to new levels.

This means that they are going to have to improve the precision, consistency and agility of their operational decisions. They must order more accurately and target customers more tightly. They must act consistently across channels and between their supply and demand sides. They must be able to change their targeting, their store layouts and their offers more rapidly. How might such a retailer look, and where might they go for inspiration?
On the supply side, retailers have to make decisions like when and how much to reorder for a product and from whom to order commodity products. These decisions involve both rules - only approved suppliers might be allowed for certain products, maximum allowed prices might constrain the minimum quantity for an order - and analytics - predicting the reliability of a particular supplier in terms of on-time delivery, for instance. Smart enough retailers would link these supply-side decisions to the demand side with predictions of future demand, rules about seasonality or particular events and so on. The classic example of supply-side efficiency and effectiveness is Wal-Mart. Using sophisticated systems, Wal-Mart consistently orders what it needs, gets it where it can be sold and does so without carrying large inventories. This is the benchmark for a smart enough retailer.

Retailers are realizing that they must become more customer-centric if they are to grow in an environment where competition is a click away. Becoming customer-centric is a big project for any retailer, involving breaking down line-of-business and product boundaries, collecting and organizing data, etc. In particular, using analytics to segment or micro-segment your customers, doing the testing and analytic work to understand how segments shop and react to offers and applying the right rules to interactions are critical. All the work involved in becoming customer-centric will be wasted, however, if the front-line decisions that impact your customers are not changed to reflect this new perspective. When customers phone your call center, will they be treated based on a holistic view of their value to you? When they come to the Web site, will they get targeted offers? What about your mailings to them and their monthly statements - how will they be targeted to a specific customer? When a customer asks to return something without a receipt, will your store staff make the decision based on how he or she looks or his or her real value to you? A retailer will not seem customer-centric unless its customers see a change in the day-to-day treatment they get, and delivering such a change means taking control of the day-to-day decisions that systems and front-line staff make about how to interact with a customer. The whole customer-centric approach is about delivering a “corner store” experience where every interaction feels like it is with a local retailer who knows you well, not a big, faceless multinational. Companies are beginning to deliver on this promise with everything from marketing campaigns to store layouts being changed to reflect the customer’s point of view.

Talking about being customer-centric naturally brings us to discussions of loyalty programs. Many retailers have started loyalty programs and have come to realize that the real value of these programs is in the data they provide about customers’ behavior. Giving your customers incentives to use a loyalty program might make them fractionally more loyal. Using this information to extend the right kinds of offers and to target them with the right kinds of new products and services will go much further.

Finally, retailers have to drop the idea that changing their layouts once a season or running standard promotions is going to keep them growing and successful. The rate of change in retail is accelerating. Stores in Japanese commuter locations, for instance, change their window layouts every day, and banks in Europe run different promotions at different times of day to attract commuters or shoppers. Promotions triggered by the day’s news or by local happenings are growing, too. In the future, retailers will have to think about much faster turnaround times for promotions, store layouts and staffing. These decisions will need to be automated too, but without removing the ability of local managers to add their own rules and exceptions. Far more analytical decisions will be made about store layouts and how those layouts reflect promotions, customer behavior, supply constraints and pricing. Department stores in the U.S. are already using rules and optimization technology to handle the fine details of store layouts, and it will not be long before this becomes a near real-time process.

To be smart enough to survive, the retailer of the future is more data-driven, more connected, more customer-centric and more agile.

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