21st Century Retailing Challenges

The retail industry is changing on a seemingly daily basis, and at the core of this change is the customer. Customers are increasingly comfortable with technology, which is driving their demand for more digital interaction with their favorite brands — a factor that is making the retail landscape increasingly digital. Besides giving consumers more control of their shopping experience, this omni-present retail landscape enables shoppers to “channel-hop” throughout their shopping journeys as they browse, purchase and fulfill orders using the combination of channels that best suits their needs.

A pre-requisite for 21st century retailing, omni-channel has become a mission-critical strategy for any company that is preparing for their longevity. As a result, omni-channel has become the highest technology investment priority, according to RIS News’ “The 12th Annual Store Systems Study: Retail Technology Spend Trends” report.

The evolving digital experience — and consumers’ expectations — is making the retail model more unpredictable than ever before. This shifting business model requires that brands can merchandise assortments and maximize product inventory across physical and digital channels so merchandise is available when and where shoppers are ready to make a purchase.

However, an array of challenges continue to impact the move to this next-generation retailing model. Among the top issues are:

Legacy Systems

Even as we approach the second decade of the new millennium, there are still retailers relying on technology, including planning systems, which were developed and installed in the late 1990s to address what was expected to be a catastrophic Y2K issue, as described in the “2015 Merchandise Planning Survey” from Boston Retail Partners. However, fast-forward almost two decades, and retailers are still trying to conform these antiquated legacy systems to support evolving multi-channel strategies — efforts that often fail. More specifically, 72.5% of companies say their systems are still underdeveloped, or worse, absent in the quest for connecting the end-to-end shopping experience across channels, according to “A New Era for Retail: Cloud Computing Changes the Game”, a report from Accenture.

Siloed Operations

The traditional planning process is conceptually straightforward: identify what to sell, who to sell it to, at what price to sell it and then ensure the product is where it needs to be on time. This is simple when applied to individual selling channels. However, with customers expecting a seamless experience across a retailer’s selling channels, it has become very complex to deliver customers the experience they expect while maintaining a healthy bottom-line.

As retailers have added channels, they often set up silos of planning and inventory for each channel. In fact, 49% of retailers still operate separate inventories across channels, according to Boston Retail Partners’ “2015 Merchandise Planning Survey”. Operating siloed processes and disparate systems only increases operating complexities, and can lead to out-of-stocks or overstocks, both of which negatively impact margins. Specifically, these disparate systems can contribute to up to 10% sales losses enterprise-wide, according to “The First Annual Customer Engagement Tech Trends Study: The Personalization Imperative”, a report from RIS News and Edgell Knowledge Network.

This siloed approach might have worked when most consumers shopped within specific channels. However, today’s consumer moves seamlessly between channels when shopping and also expects flexible fulfillment options, like buy on-line and pick-up in store. Retailers must plan and manage inventory across all their channels in order to satisfy customer demand while meeting their financial objectives.

Social Networking

As consumers are demanding that their shopping experiences become more digital and interactive, it is not surprising that social media is gaining traction in the retail journey. From an internal perspective, retail marketers rely on social networks to bolster their reach, using the medium to share content, deliver channel-specific promotions, and most importantly, directly interact with their loyal shoppers. According to Nielsen, 77% of shoppers say ‘social exposure’ and validation of a product is the most persuasive source of information, and does indeed drive them to make more purchases.

However, it can make or break brand image if not managed correctly. Retailers often forget that consumers use the medium to interact with their peers, and waste no time in sharing their experiences — the good, bad and ugly. Rather than respond to negative comments — many which tend to revolve around mismanaged inventory and poor customer service — that chip away at retailers’ reputations, many often try to resolve the issues by increasing inventory levels in hopes of satisfying customer expectations. While this approach may help the customer experience, it more often leads to increased operating costs, a move that negatively impacts margins.