Five core elements of the retail operating model
With the foundation of consumer data¹ in place, how do you now organize the operating model around the experience? If you don’t get the lowercase “e” right in these areas, you won’t get the chance to deliver that uppercase “E” value-added experience. Here are five core elements that should be addressed in this effort:
1. Supply chain
Can your consumer journey succeed if the last mile of the supply chain doesn’t? The global supply chain of today is struggling to keep up with consumer expectations. Long lead times, a lack of flexibility, agility and challenges in omnichannel integration out of and back into the supply chain are just some of the pressures on retailers. Top retailers with the ability to digitize supply chain processes have optimized demand sensing and inventory planning through advanced AI-based solutions and product delivery through highly automated distribution centers, where robotics help process orders and get them out the door with tremendous efficiency. These companies have made a big investment and it’s paying off. But it’s also raising the bar for the retail industry as a whole, putting pressure on smaller retailers to deliver the same level of performance to their consumers.
The challenge for companies that have not started the standardization and digitization journey is steep. Adapting on the fly, during a time when logistics providers are being pushed to their limits, is a risky proposition.
Supply chain visibility is essential to delivering the experience that consumers expect. When you have a system in place that enables you to track inventory in real time and run scenarios to optimize decision making, you can improve operating resilience. The ability to seamlessly move products from one location to another when necessary to fulfill on-time purchases builds consumer trust. Companies in the retail space are reimagining their entire supply chain strategy and operation, including how and where they fulfill customer orders. They are considering which, among the traditional store, a buy online pick up in store (BOPIS) process, ship-from-store (SFS), micro-fulfillment centers (MFCs), or a traditional distribution center, is the best way to deliver a better consumer experience.
Resiliency, agility, traceability, flexibility, and reliability. These are the key attributes of an effective supply chain in today’s world. Localized production, automation, digital insight and simulations, and autonomous delivery are fast becoming a reality and common practice, so it’s important to at least begin planning how these capabilities fit into your future business model. In this post-COVID economy, supply chain will be the most critical element of your business in building trust and delivering exceptional customer experience and satisfaction.
Optimizing merchandise replenishment to have the right product in the right place at the right time for every customer interaction, while still optimizing margin, is critical. Inventory management needs to be a fluid process that can quickly adapt to market shifts in consumer demand throughout the year. Listening to and understanding your customer is critical in presenting the assortment of products that will best fulfill their needs.
Pivoting assortments quickly to meet personalized customer needs can provide an opportunity for retailers to gain market share and accelerate conversion². It’s an opportunity to give your consumers the feeling that you understand and can anticipate their needs on a deeper level.
Key questions to consider from a merchandising perspective:
- Do you have the ability to dynamically assort on the fly if it’s through one of your digital channels?
- Do you have the ability to dynamically showcase or spotlight products in your stores to assist customers in finding exactly what they want?
- How do you take consumer signals into account in dynamically adjusting your assortment?
- What does the consumer have an appetite for, and how do you use that information to influence supply?
The planning function in a retail operating model is essential. Companies are using predictive algorithms to figure out what is going to sell and how much they can get for that sale, but they are basing it on historical data. Retailers must use customer data, synthetic data and AI capabilities to curate a product assortment that will meet every customer’s personalized needs and at the specific point in time when the customer needs them.
3. Store operations
The new role of physical stores in today’s retail environment fits perfectly with the experience-led consumer journey. In the October 2021 EY Future Consumer Index (the Index), Experience First jumped 10 points to become the second largest future segment, overtaking Health for the first time since the inception of the Index.