A New Retail Instrument For A Faster Supply Chain

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In Brief

As conventional retailers adjust to digital 4.0, efficient supply chain becomes instrumental in boosting competitiveness and growth. Thanks to innovative flow centers, reduced inventory costs and transportation time are made do with smaller shops and stores tailor designed for e-Commerce!
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Given the rapid growth of e-Commerce today, more and more conventional retail shops/stores have either closed down or are trying to downsize their business by closing down under-performing branches.  Meanwhile, some giant retailers have come up with a new – even reverse – concept of setting up more retail in strategic locations.  Why?

In 2017, Target – the second largest retailer in the U.S.A. after Walmart – came up with new types for retail stores by changing more than 1,834 of Target branches into discount stores, Hypermarket and the ones to enable consumers’ flexibility such as CityTarget and TargetExpress while aiming to attract younger customers with the concept of focusing on “the needs of its youngers, image-conscious shoppers”.  This prompted its major rival Walmart to heavily rely on the Always Low Prices strategy. Target, on its part, is determined to gain access to its customer groups regardless of location, despite the fact that such a place has no space for storage that a large-sized store generally should have provided it is where the need to buy consumer goods exists.  The locations where smaller-sized Target stores are found include cities near universities and in densely populated suburbs where space is limited, among others.

Target declared last April that it was opening three smaller-sized stores in New York City, one in east Manhattan, one in Queens and the third in Staten Island with a plan to expand to Logan Square in Chicago in 2020.  With many Target stores already opened in New York City, the company plans to open altogether 130 new stores nationwide within this year.  They will be a part of Target’s urban business expansion plan despite its online business via Target.com, America’s fourth largest.  According to its CEO, Brian Cornell, Target needs to “re-image its entire store network so as to become commercial and community hub if it wants to survive.”

The new Target stores are going to occupy a space of merely 20,000 – 40,000 ft2 (approx. 1,850 – 3,700 m2) in comparison with a conventional large-sized store occupying a space of 145,000 ft2 (approx. 13,470 m2 in general).  Through these stores, Target will be able to access the market as well as respond to local customer’s needs.  Past customer data analysis has enabled Target to choose the types of products that reflect the customer’s lifestyle in each locality, which means an increase of 200% income for the stores in comparison with the normal Target stores.  Besides, they can support Target online business through Target.com as they simultaneously serve as online customer pick-up point.  Products carried by these new stores include, for example, women’s, men’s and children’s apparels, cosmetics, home interior, grocery, electronics and toys while large furniture is not offered. Target stores around the campus, on the other hand, only offers products for students, such as stationery and learning materials along with necessary consumer goods like toothpaste and comfort foods and desserts etc.

Target’s targeting strategy is a good example of effective supply chain management through enhanced inventory circulation that enables minimal storage requirement and round-the-clock maximum shelf capacity for retailing. Today, Target’s warehouse management in Perth Amboy, New Jersey, is done through Flow Centers that distribute products more frequently in small quantities to clients in New York to reduce order-shipping time lapse. The secret to increased capacity is a pruning technique that stamps out unnecessary products that spike costs for stocking it too long. If the concept goes well, Target will be able to scale its own Fulfillment version to hubs across the nation.

With comparatively limited storage space, though, in order to get these hubs up and operating, Target has had to embrace flexibility as the key success factor. A paradox to many, minimum storage capacity warehouses will determine success of the Flow Center concept, as opposed to legacy inventory theorems that promote vast keeping capacities for a wide range of consumer goods from toothpicks to submarines; clothing, toilet equipment, books, electronics and other goods that may be consumed one day down the road. As it turns out, customers like the security of unconditional availability but prefer access to a narrower range the things that they really want. They like the ability to shop on demand and if that means going with unfamiliar retailers with high ratings, so be it. All they want to know is that the order can be shipped and delivered in a timely manner. In other words, Target is trying to manage its supply chain and inventory by reducing restock time to a few hours instead of several days. This allows it to speed up online shipping by fulfilling customer orders with products from hubs closest to the customer’s location. It has proved to reduce transportation time and cost in significant ways. As retail stores are able to restock the shelves quickly, storage capacity and out of stock becomes a non-factor.

Like Target, Kohl’s, a US retail chain, has shifted to less number of downsized stores instead of opening up more branches. By reducing the size from 87,000 square feet (about 8,080 square meters) to 60,000 square feet (about 5,570 square feet) and letting a German Supermarket Chain like Aldi rent the remaining space, not only increases traffic by attracting grocery customers to look at Kohl’s products, it also maximizes space utilization as well.

Kohl’s has also experimented with a 35,000 square foot model that allows customers better access to their locations. Although Kohl’s hasn’t focused much on metro areas, the new store is only 60% the size of a regular store which gives it much better access. Just like Target, Kohl’s uses analytics to attract local customers for new stores in Blue Ash; Ohio, East Windsor; New Jersey, Montebello; California, and North Smithfield; Rhode Island. The strategic move is also coincided with a partnership with Amazon, where Kohl’s will be selling Echo smart-home devices. Sales targets therefore have been adjusted to higher marks for good times to come in the not-so distant future.

Given even more channels by the IoT to rake in orders,  conventional retailers no longer start the race from behind, ie., having too much capital tied up in bricks and mortar. Delivery capacities, for one, completes the package for their online sales and garners far less storage requirements in the same token. Online sellers can also sell a broader range of related products in addition to what they are capable of offering on the physical shelf. The IoT seems to have completely revamped classic logistics and warehouse strategies to stamp out distribution limitations for good.

When customers shop online, they already know that there will be transportation costs involved. Some stores offer free shipping for specified amounts and/or promotional products. Retailers can enhance customer experience with games, prizes and point redemption or golden shopping minutes, to name a few. A great example is Medly Pharmacy that sells prescription medications online via Prescription Management Application and ships orders to clients’ home, to much of their satisfaction. Walmart’s online store, unsurprisingly, looks very much like Amazon.com. Each product can be identified for the closest in-stock Walmart location for customers that prefer to walk-in, along with automated delivery options, including “to your doorstep, free of charge”, to select from should having the orders shipped be more convenient. These are just a few examples of factor that conventional retailer are dealing with and need to adapt to benefit from the new digital stream. It takes preparation and steps that are not too difficult to implement but not too easy, either.

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References and photos forbes.com, twincities.com, bustle.com, businessinsider.com, pexels.com,wsj.com

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