The latest clothing retailer for file for bankruptcy in the US is Forever 21. It follows other retailers, such as, Sears, ToysrUs, Charlotte Russe, and Charming Charlie. The demise of these brands are attributed to brand positioning and slow irrelevance, leveraged buy-out debt, undifferentiated, overstocked and unsold inventory, large mall presence, and the often cited “prime” driver, millennial and GenZ purchase decisions based on preferences of quality over quantity, not wanting to visit brick-and-mortar stores, experiences over consumption, and environment concerns of over-purchase leading to throwaway to landfills. While these are valid reasons, there is a much deeper construct behind effective brand positioning and relevance with product/merchandise design, replenishment, sale, and service in the digital and physical world. The purpose of this post is to present a simple method of segmenting customer self-serve choices and price for omni-channel to better manage their life-cycle – design through retirement and develop a flexible and responsive supply chain.
First, viewed from a customer perspective, there is a distinct difference between omni-channel presence and delivery in both retail and consumer segments and it depends on the product type. For example, if one knows exactly what to buy then an on-line order and purchase is the most frictionless. We do it everyday with Amazon and other products. Here, purchases are mostly for lower priced products. With retail fashion products, the argument is the same: if the customer likes a particular apparel on-line they can have a frictionless purchase experience. That said, what happens within on-line only retailing organizations is quite different. There are on-line companies, selling curated clothes ensembles “matched” to customer tastes. However, there are plenty of workers behind the scenes manually scouring through hundreds of pieces of inventory and trying to match, what they think are relevant to a customer’s on-line taste profile. Now, is this same model valid for expensive products? We often hear about customers price-shopping at electronics stores and making a purchase decision, on-line or at-store, depending on what they find. So, the notion of a frictionless purchase starts to dissipate as the price point increases. Now, let’s consider the purchase of $5000 diamond ring, a Hermes bag, or an expensive suit. How many customers would just view and order the item on-line without having seen, touched, worn, or felt the physical product? Not many, I would think. We are all very attracted and attached to our wallets and as the price increases we tend to be more demanding of our sensory needs of the product. Large physical products are another category and the purchase rational are the same. We would not just order on-line a refrigerator, a car, a rail car, or an airplane, would we? Thus, depending on the product type, the omni-channel presence and experience is completely different and the negotiation, order, replenishment, purchase, and service of a product progresses from frictionless to contact full. For large industrial products the life-cycle is replete with human interactions all along the way with digital being a key enabler. That is very different from buying a dress on-line. While, we are focusing here on the consumer retail, this is an important distinction to make, nonetheless.
Now let’s examine a simple approach to understand Price dependency on Friction. We can use a surrogate self-serve attribute to represent Friction. High self-serve would represent low friction for customers. A high self-serve need will be likely for low priced items; a low self-serve need will be for high priced items, with examples provide above. The cases of high self-serve, high price (NA), and low self-serve and low price (NA) would not be relevant. This is illustrated below.
|
Price |
High | YY | NA |
| Low | NA | YY | |
| Low | High | ||
| Self-serve | |||
For consumer retailers with both on-line and physical stores, this would mean the synchronization of pricing and inventory at both digital and physical locations. The availability of the product and a seamless transaction experience is critical for on-line customer satisfaction. For low self-serve, the appropriate design of human interactions, product and service information, availability, and experience is critical. During the sale of statement jewelry items or luxury automobiles a potential customer will be served in a concierge environment with skilled professionals, elegant ambience, including food, drinks, and other luxury amenities.
What does this mean for product design, replenishment, and the supply chain? This certainly depends on the target demographics. For Millennial and GenZ’s with fewer buying tendencies of cheaper clothes, the requirement would be of carefully designed and rationalized and appealing products produced with a JIT type of model. Note that, this means producing smaller amounts of products with a relatively faster cycle; this will address the conflict of a purchase-apprehensive customer with the need to produce less, being environmental friendly as well . The objective is reduce the unsold and waste footprint. This model has enormous implications on the supply chain, including flexible and nimble capabilities, as well as, location. Once incubated, proven, and scaled, this paradigm will be applicable to all product families to enable tremendous business flexibility, operational effectiveness, and superior customer experience. For organizations with a variety of product portfolios, for example, high priced jewelry or clothing as well as fast fashion items, the design, manufacture, and supply chain are even more complex globally. However, if the above matrix is used for the initial product segmentation, the identification of specific products and a responsive supply chain can be re-designed appropriately.
What would need to be done to realize this approach? First, a well thought-out product and market segmentation strategy. The above grid can be a good start. The enterprise business architecture should be developed from this point. For each segmentation the process and supply chain design and operation has to be figured out with commonality in mind. That is, what common processes, systems, technology, automation, shared services, and skills can be used to drive each segment without re-inventing the wheel. Once this is done, proper market driven demand planning, sourcing, and replenishment can be achieved and lead to better competitiveness, margins, and return customers for omni-channel delivery.