The future of retail management is shaped by technology, providing customers with a personalized, multi-touchpoint shopping experience while accelerating the innovation cycle. However, estimating the pace of change, identifying fads from trends, and making the right technology investments are difficult tasks. With supply chain disruption and inflation impacting customer budgets, retailers must focus on merchandising and sourcing to maintain their competitive edge. Technology can help mitigate the risks of economic and geopolitical factors, as well as the growth of discounters and rising labor and energy costs.
Five critical priority areas of focus for technology in merchandising and sourcing
Priority 1: Further automate the merchandising levers
Retailers are striving to reduce their reliance on manual processes and spreadsheets by incorporating automation and advanced analytics into their systems. Tech companies that have entered the retail space have successfully implemented highly automated processes that are supervised by humans, which has resulted in lower costs, faster operations, and fewer errors. Retailers must close the automation gap to stay competitive. Automated promotion management, for instance, could include predictive analytics that generate promotions automatically and individualized digital leaflets that combine mass and individualized promotions. Automation can also optimize businesses by integrating insights from price, promotions, assortment, and supplier management. This could reduce personnel requirements and increase efficiency in merchandising and sourcing departments by up to 60%.
Priority 2: Bring an End to End cost view to opTimise the business
In the highly automated world of tomorrow's merchandising and sourcing, strategic goals and daily actions will be closely intertwined, much like an autonomous vehicle, where destination input leads to efficient navigation. To achieve this, specific instructions are essential. Understanding cause and effect is crucial to make informed decisions, including how merchandising and sourcing affect cash flow and the bottom line. Currently, such insights are limited to gross margins or derivatives. Decision-makers need profit and loss (P&L) insights at the product and customer level, accounting for all costs, including cost of goods sold (COGS), supply chain, store labor, waste, marketing, and home delivery. This comprehensive view of the business will allow better decision-making in areas such as macro and micro assortment optimization, supplier negotiations, and customer acquisition and retention.
Priority 3: Look at your business through a customer lens
A true customer perspective becomes increasingly important and personalized promotions and customer segmentation are no longer enough. To achieve true customer centricity, retailers must prioritize the acquisition, development, and retention (ADR) of customers and determine the personalized “best action” for each customer to move them through the ADR cycle. Retailers can use customer insights to improve their business by integrating ADR insights into core merchandising decisions, developing a "personalized next action" capability, and creating customers-for-life through new services like personalized apps for budget management, health, cooking, and sustainability. By focusing on ADR, retailers can build long-lasting loyalty and add meaningful value to their customers' lives.
Priority 4: Build a high-tech innovation function
Retailers have an advantage over fast-moving consumer goods (FMCG) companies in building successful direct-to-consumer models. To gain deeper insights into consumers' behavior and unmet needs, retailers should blend human imagination with advanced technology. Behavior data analysis can help identify gaps in customer decision trees and discover latent needs. AI technology can scan external data for untapped trends, while human creativity can enhance insights. Retailers can turn these insights into action by investing in robust product management processes and collaborating with strategic suppliers for research and development (R&D) support. Innovative products can help retailers stand out from discounters, win the battle for customers, and provide offerings that are not found elsewhere.
Priority 5: Leverage sourcing scale, and get more for less
Branded and own-label sourcing require different approaches. Branded sourcing involves obtaining accurate comparisons and standardizing terms to leverage international scale, while advanced technologies like fuzzy matching and interpolation can expand comparisons and counteract price differentiation. Collaborative sourcing involves working with a select group of major suppliers to reduce costs and accelerate new product development. Own-label sourcing requires strategic and collaborative work with suppliers through multi-year agreements, open book arrangements, and value engineering to optimize specifications. Advanced retailers will increasingly utilize cost models based on commodity prices, labor costs, and freight to challenge supplier quotes. The automotive industry offers insight into future retail sourcing with sophisticated cost models and should-cost analyses.
Retailers can use technology to improve merchandising and sourcing decision-making, gain granular P&L insights, and offer highly personalized customer experiences. Full-service retailers should leverage technology to support innovation, improve sourcing processes, and transition to more collaborative models. However, to succeed in the digital age, retailers need to recruit and retain a new mix of talent. Retailers should be realistic about what technology to deploy, improve their technology and data foundations, and develop new functionality while improving legacy tech in parallel. Retailers who make technology a core part of their strategy and make the right choices on technology deployment will be the winners in the future tech-driven world.