Just what is retail?
I have had an intimate relationship with retailing for many years, and I am not sure that I really know the answer myself.
I suppose that one might say at its most fundamental level, retailing is the process of establishing a connection with a consumer or end-user in order to facilitate a commercial transaction for goods and / or services.
You won’t find that definition in Webster’s – I just made it up.
There are so many goods and services to be offered, they cannot possibly be counted. Technology, demographics, and economics change hourly. Retailers are constantly challenged to keep up with the latest fashions, the hottest trends, the newest methods of communication, and the constant pressure that is exerted from financial and regulatory stakeholders to effect transactions in a profitable yet ethical manner.
And this is the beauty and the excitement of retail; it thrives in a world of constant change offering new opportunity. And it is becoming increasingly difficult to define.
For those who find no credibility outside a textbook citation, here is an ancient definition of the marketing and retailing milieu that I drew from a set of scrolls that sit at my bedside:
“Marketing is the process in a society by which the demand structure for economic goods and services is anticipated or enlarged and satisfied through the conception, promotion, exchange and physical distribution of such goods and services.
When so viewed as a composite process, marketing is clearly a subject of much broader scope than the group of functions or managed activities commonly identified as marketing responsibilities in individual companies. It includes the continuous interaction of original producers, middlemen, facilitating agencies, and governments, and, indeed, also the marketing activities engaged in by individual consumers.
Retailing is the final part of the marketing process in which the various functions of the seller, usually a store or a service establishment, and the buyer, an individual consumer, are primarily oriented to accomplishing the exchange of economic goods and services, for purposes of personal, family, or household use.”
[William R. Davidson, Alton F. Doody, (Ohio State University), Retailing Management, The Ronald Press, New York, NY, 1966, p.6]
Impressed? I knew you would be.
There are many key concepts worth pondering in this short passage, but two points of focus the the purpose of this article are the notions of “physical distribution”, and “continuous interaction.”
The line between what is “retailing” and what is “distribution” has always been blurred. In a Venn Diagram, the areas of overlap between the two concepts would be substantial. Almost by definition, it is difficult to impossible to understand where one ends, and the other begins.
Most retailers have known for decades that e-commerce was going to have a huge impact on business, but few – if any – knew what form the tsunami would actually take, and when it would hit “critical mass.”
It’s here now, and it demands that retailers either respond, or die.
In 1993, I was recruited out of a senior management position with Canada’s largest retailer to work with the Liquor Control Board of Ontario (the LCBO). The LCBO is the world’s largest single purchaser of beverage alcohol, distributing the product through a network of over 600 retail stores across the province. This is, and was, big business. My own portfolio of products – spirits – generated over $1 billion worth of sales annually (back when a billion dollars was worth something!).
In the years before the 1990′s, the LCBO stores were notoriously bland and unfriendly. All of the product was stored behind a huge service desk, inaccessible by consumers. Product displays were strictly utilitarian: “here is what the bottle looks like…take it or leave it.” To purchase a bottle, customers were obliged to fill in a slip of paper, with the product code and price, and give it to the attendant behind the desk. With all of the flair of a customs agent at a border crossing, the attendant would proceed to locate your product in the stock room, wrap it up in a brown paper back, and take your money.
Ladies in particular felt a special kind of shame going into what my mother used to call the “In and Out Store” in those days.
It was like operating 600 mini-warehouses with secured stock rooms that only the infamous “slip of paper” would unlock.
The LCBO found “religion” (or maybe it would be more accurate to say that they “lost” religion to the lure of the ‘demon drink’) in the late 1980′s, and converted most of their stores from the old, “conventional” approach to a new, fresh “store of the future” look. Friendly, inviting, and attractive, the stores promoted a new shopping experience. By shopping in an LCBO store today, one could never imagine the contrast with the conventional look. It was like night versus day, and it was a smashing success. I am proud to have worked with the architects of that change.
But the distribution techniques that were employed remained those which were geared to a supply-orientation, rather than a consumer demand-responsive approach. It was my job to transition the distribution side of the business to a more forward-thinking methodology, using modern forecasting, inventory management and distribution techniques.
Again, we were wildly successful – inventory turns and GPROI skyrocketed, obsolete inventory was practically non-existent, in stock and fulfillment service levels were absurdly high, and we were able to support terrific new promotional initiatives such as limited time offers on pricing which had never been pursued before. Suddenly, the beverage alcohol industry in Ontario was fun!
And now, thanks to Al Gore’s invention called “the internet,” [insert sarcastic font here] retailers have a fantastic new tool. A “virtual storefront” can be created, and product assortment and visual merchandising can be whatever image you want to portray. The retailer can now be invited to position his store right in the center of the consumer’s home – right in front of her on the screen of her laptop.
Now, more entrepreneurs than ever can focus attention on the “back shop” functions while portraying a “pretty face” to the public.
My colleague Michael Koploy has written a very intriguing article which discusses the merits of using best warehousing practices to enhance the efficiency of retail operations. He investigates a new strategic objective at Macy’s, whereby the retail giant is attempting to retrofit some of their stores to enhance capabilities of fulfilling on-line demand.
This is where the idea of “continuous interaction” comes into play in the context of physical distribution. We are all aware of the roaring successes of the Amazons of this world who lever the 24/7/365 connectivity of consumer to retailer, fulfilling demand with lightning speed and efficiency. Retailers need to understand this channel and tap it, or risk obsolescence from inaction.
Koploy writes about a change in focus that superficially at least runs in the opposite direction of that which was our experience at the LCBO back in the 1990′s. But it can be equally effective, because the retail landscape has taken on dramatic new dimensions. If you have the time, check out the links that he provides as well:
According to projections by JDA, e-commerce channels will encompass nine percent of total U.S. retail sales by 2015–up from six percent this year. In an attempt to better service its online customers, a number of multi-channel merchants have begun to fulfill orders from in-store inventory. Macy’s, for example is working to outfit approximately one-third of its retail outlets with the ability to fulfill online orders.
Macy’s has two goals. First, to cut shipping costs and increase the speed of delivery by moving distribution points closer to buyers. Second, to avoid the need to mark down slow-moving store products when they are still in demand at full price online.
The problem, as Dana Mattoli points out in the Wall Street Journal, is that retail associates working in a store are far less efficient at fulfilling orders than the highly automated, efficient environment of a typical distribution center.
This article outlines what retailers will need to do to enable their stores to be efficient distribution points–in short, to make their stores more like warehouses. This requires investments in both technology and people.
RFID Technologies to Improve Item-Level Tracking
A key challenge with in-store fulfillment is the surprisingly difficult task of accurate inventory tracking. Without this, software systems at the retailer’s headquarters can’t determine from where items should be fulfilled, nor can store associates always locate the item in the store. The answer is radio-frequency identification (RFID).
- RFID tags: Macy’s will deploy RFID tags in its stores by the end of 2012. It will ask suppliers of its replenishment items (items that require frequent restocking, often done manually) to affix RFID tags to them. By doing so, suppliers will have better insight into when to replenish inventory. RFID tags will also help store associates locate items–which isn’t always easy in large store, especially when, as the WSJ article points out, a tote bag might come in the cryptic color “Journey.”
- Mobile RFID readers and scanners: Readers are needed to keep tabs on inventory within the store, and scanners help employees find items, scan them and print packing slips. Many high-end RFID scanners, such as this one from Motorola, operate on the Windows Mobile platform and can integrate with the store’s fulfillment alert system. This allows associates to go about their floor-level duties in addition to fulfilling online orders.
So, as astute retailers, we move constantly along the scale that balances the consumer-facing storefront with the “back room” activities of distribution, planning and fulfillment, in order to optimize our impact on our clients.
In a changing world, this is a constant and rewarding challenge.
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