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Retail’s New Imperative: Building a Responsive Operating Model

Tue, Sep 2, 2014

Building a responsive operating model
Disruption is the new normal in retail 

Over the last decade, the traditional retail model has been increasingly challenged by an unprecedented wave of change. These changes were so rapid and recurrent that it exposed its weak points, namely its inability to adapt to new market conditions such as omnichannel retail, faster fashion and vertically-integrated business channels.   

omnichannel retail statistics

Today, the velocity of this disruption is coming at an accelerated speed, and it’s bound to get faster as consumer expectations rise. These technological advances driven by empowered consumers will continue to shake the foundation of the retail model, leaving some retailers to play catch-up, while more forward-thinking businesses will be at a unique position to lead this new wave of change.

These shifts in the market are forcing retailers to question the long term viability of the traditional retail model, as it is proving to be more and more ineffective when it comes to tackling emerging shifts in consumer behavior. To keep from falling behind, retailers must re-evaluate their entire enterprise and the technologies that support them and dramatically alter their business model to compete in the new marketplace.

Omnichannel Is Not The Future. It Is Already Here.

We are currently living in the Age of the Informed Customer, where mobility, social media and e-commerce tools have empowered customers to easily browse, compare prices and shop – whenever and where they want.

One of the main reasons for this change is the demise of channelization in the shopping journey.  As mobile commerce comes of age and the line between online and physical space increasingly blurs, consumers are no longer shopping sporadically. Instead, they are always shopping. This metamorphosis in retail is not a linear path— pulling away from brick-and-mortar and moving toward online retail —but rather a combination of the two. This has led to the global trend of Omnichannel, which has become perhaps the most strategic hallmark of the new customer-driven retail industry. 

Yet, the reality is omnichannel is no longer a concept or an emerging trend that retailers should look forward to - it is already taking control of the industry. For proof of the enormity and widespread adoption of this trend, you only have to look at brands such as Burberry, Gucci and Oasis, all of which are changing their business models to compete better.

For instance, Burberry has undergone a complete transformation, starting from their technology, all the way down to the interactive video projections used in stores.  The brand is re-defining the in-store experience by arming sales associates with customer information made accessible via iPads. It is also one of the few luxury brands that offers in-store pickup on online purchases by converging multiple channels – an indication of omnichannel done right.

Nevertheless, majority of retailers seem to be underestimating the impact of this new “omnichannel” environment. In fact, in a recent survey by Forbes, only 34% of the CEOs surveyed considered the rise of omnichannel shopping to be an external threat, while only 22% said it would impact their organization.

This survey brings to light an alarming reality – the lack of understanding in how omnichannel can impact a business and the absence of strategic planning for a foregone trend, especially since the growth of omnichannel retail is one of the most fundamental shifts that has occurred in recent times. This means that a startling number of retailers are in danger of missing the mark when it comes to adapting to this market reality and priorities related to the new customer-driven retail model, such as optimizing supply chain responsiveness and accelerating time to market will comparatively wind up less important.

How Prepared Are Retailers for this Change?

The reality is that there are a number of reasons why fashion businesses are not up to the challenge, but the biggest contributor is the use of multiple systems. Vertically-integrated retailers have been, and continue to be, riddled with outmoded, disparate systems that weaken their ability to adapt. These siloed systems have built barriers across cross-channel operations (from sourcing and procurement to merchandising), as well as among its channels (e-commerce, stores, distribution centers), resulting in deteriorated brand experiences. 

Retailers who manage their e-commerce and in-store inventories separately are now plagued with an overwhelming volume of data, which becomes more challenging considering the variables of data; as each system stores data in a different format. Combining the data often takes too long to be made useful, hampering a retailer’s ability to respond to conditions and trends that impact their business.

Integration: The Key to a Responsive Operating Model

To prepare for the new future of retail, it is incumbent on retailers to leverage the right technology and practice ‘real-time retail’ that aligns the supply chain with consumer demand. This means that retailers must look to integrate their operations across their fashion value chain – starting from their wholesale business to their retail stores - to establish a proactive, agile and responsive operating model. This helps to deliver a synchronous experience that is intuitive, contextual and personalized. 

Integration will break down any silos between functions such as sourcing, merchandising and logistics, enhancing collaboration across the supply chain to meet faster fashion demands. SAP, along with attune have already released a solution to address this need, with the launch of their Fashion Management Solution.

Enabling this change requires a considerable shift in a retailer’s business priorities, along with a clear understanding that a consumer-aligned supply chain is imperative to survive and grow in the industry. By synchronizing across the value chain, tomorrow’s world will be dominated by fashion businesses that best align their entire demand and supply chain to consumer expectations, while simultaneously establishing an omnichannel connection with shoppers and empowering their associates to be better. It is precisely this effective orchestration of the value chain that will be the differentiator between competing businesses in the coming decade.

 How Fashion Business Can Win the Race for Omnichannel Excellence and Operational Agility