Retailers: Reinvent Your Supply Chain or Go Bankrupt
Amazon is a $200 billion juggernaut. They offer the best online shopping experience, competitive pricing, and a supply chain designed for the fastest delivery possible. At times you have to wonder if anyone in their path can survive the onslaught. As they’ve grown, rolled out Prime, and expanded categories, they’ve handed a death sentence to Borders, Radio Shack, Circuit City, and many other retailers. Of those that are left, which retailers have a chance, and what do they need to do to survive? Let’s take a look.
While they were slow at first to match Amazon’s online shopping experience, retailers have made huge strides over the past few years. Customer reviews, one-click checkout, “smart” searching, and a broad product mix are more prevalent than they were even three years ago. Similarly, many retailers have closed the gap on pricing. Recognizing ecommerce as a critical part of their future channel mix, they brought to bear knowledgeable resources, experienced in pricing and promotion, to level that playing field.
Which leaves supply chain as the weak link for retailers who cannot or are unwilling to match Amazon’s last-mile logistics. Staples offers a great shopping experience and matches Amazon’s prices, but how loyal will their customers be when they know they can get same-day delivery from Amazon, versus waiting three days for Staples to deliver, or driving twenty minutes to the nearest store?
Most retailers’ supply chains are all about getting pallets of goods to their stores. Distribution centers, inventory management, transportation providers, and delivery models are all geared toward making sure the stores are never out of stock. As ecommerce emerged, retailers struggled with how to start shipping individual items direct to the customer. Many initially adapted by opening a centralized national warehouse dedicated to shipping ecommerce orders. That model left their pallet-based store replenishment supply chain in place, while enabling them to send individually packaged items to online buyers.
This model made sure they were not totally eclipsed by Amazon—until recently. Amazon is relentlessly speeding up their supply chain. They’ve opened dozens of new warehouses and rolled out same-day delivery in more than 35 markets, with an eye toward providing free same-day delivery to Prime users in every major market. Brick-and-mortar retailers now need to totally reinvent their supply chains to leverage local inventory to match Amazon’s supply chain. Centralized ecommerce warehouses are almost obsolete.
For retailers, using local inventory requires a lot of rethinking, but there is reason for hope. Target, for instance, recently announced that 55% of its ecommerce orders are now fulfilled from local stores. And most retailers now have some experience experimenting with storefront delivery options.
But this is modest progress. Until retailers commit to a scalable, locally oriented supply chain that offers low-cost same-day delivery, they run the risk of losing buyers to Amazon’s supply chain advantage, bit by bit—even if their stores are bursting with merchandise.
So at the end of the day, matching Amazon’s online experience and price will not be enough for retailers to survive. Without supply chain re-invention as well, retailers face a slide into inevitable bankruptcy as store volumes dwindle and online buyers move towards Amazon. I’d expect Wall Street and others to increasingly predict the winners and losers in retail largely based on supply chain strategy and their investments in the last mile.