Saturday, July 15, 2017

Five Real Reasons Retailers are Failing

The Retail Collapse is Really Just Suicide

While the business pundits and politicians blame the Internet and foreign competition. American retailers just keep loading the gun, spinning the cylinder and pulling the trigger. Sure, online sales are increasing, but they are only about 10% of consumer transactions.  The real problem is retailers and brands have crawled in a corner and shot themselves in the wallet.  Here are five of the bullets that are aimed at the retail and brand market.  They must stop spinning the cylinder and playing the bad odds or a major segment of the economy will collapse.

 Dependence on Malls for Store Traffic

Bullet one impacting store closings is dependence on common mall locations from anchors like Sears, J.C. Penney and Macy’s and specialty stores like; The Limited, Wet Seal, Bebe, BCBG, Guess, Crocs and many more. For years, malls brought shoppers together for a social experience. They were more than commerce centers they were social hubs for seeing friends, planning weekends and sharing experiences.  All interactions that now are more efficient and personal on social media.  Losing this segment of social traffic and the attached peer pressure to purchase left many retailers and brand outlets without the store traffic they depended on to support impulse purchases.  Most malls were not financially prepared to counter this loss of traffic so as the ecosystem collapsed the dependent stores became memories.

It is important to remember that all malls have not suffered this fate some are huge successes and support retailers that have adapted to this new environment.  These sustaining commerce centers fall into two categories.  The entertainment based mall is the most spectacular and although most of the largest are outside the U.S. there are still some impressive examples in the states.  These malls draw with live shows, amusements, rides, giant multi screen cinema complexes and restaurant level food venues.

Another successful model is outdoor shopping centers usually anchored by a superstore like Wal-Mart or chain box store like Home Depot or Lowes.  Non-competing specialty stores or food or service outlets, like fast food franchises and personal services, surround these anchors.
Anchor store based mall

 Nickelodeon Universe at entertainment based
Mall of America

Stocking by Season Not by Product Movement

One of the technical differences between superstores and traditional department and specialty stores is their buying decision structure.  Most super stores have enough buying leverage to create flexible purchase contracts, which allow them to stock and display product based on consumer purchases derived from their POS data.  Simply put, in superstores consumers drive the product availability.  Many of the retailers currently in trouble still use seasons to drive product stocking.  This is especially true of the apparel sector where stores buy in bulk thinking that lower volume pricing will insure profits. Six to twelve months before every season they spin the cylinder and pull the trigger based on the best possible forecast.  Every retailer believes that they will spin up a winner but there are too many risks loaded and sooner or later the inevitable happens. This outdated forecasting system sourcing leaves retailers with fashion losers, odd sizes and excess merchandise when the next seasonal shipment is on the way.  Discount and clearance sales blow away all the planned profits leaving limited cash to operate the store leading to self inflicted bankruptcy.

Modern POS stocking is an exercise in constant product resetting based on the velocity of consumer product purchase.  Restocking and repositioning are mapped by computer and tied to simple formulas like, “Gross Profit X Inventory turns” product indexes (GPxT=PI).  This index competes with other products in the same category for on-hand inventory, product display position and replenishment orders. This is why many of us have experienced going back to Costco and finding that the product we bought three weeks ago is no longer on the floor. This process creates much less risk of product “backfire” since actual sales drive the inventory not dangerous forecast roulette that blow away profits.

Many of the current and pending retail and brand closures have been caused by self inflicted clearance discounts caused by out dated stocking, antiquated POS systems and seasonal based buying.  Coordinating sales and manufacturing in real time is the path to saving jobs in both manufacturing and retailing.

Discounting Retail’s Omni-Channel Advantages

Omni-channel retailers have a huge selling advantage with consumers.  They can address the customer at every level of value gratification.  With some merchandising restructuring retailers can satisfy instant, delayed and deferred gratification much better than online only stores.
A Touch Screen endless aisle of touch it, feel it, try it choices for the consumer and a virtual inventory with no risk for the retailer and brand.  The consumer can choose fabric, color and print from thousands of virtual SKU's and pick-up in store or ship to home in three days.

First, retailers need to recognize today’s customer is no longer an impulse shopper manipulated by advertising or sales.  According to Forrester Research, over 83% of retail purchases are influenced by information gained online.  This data defines today’s customer not as a traditional shopper but a dedicated searcher.  Retailers without an informative presence on the inter-net cannot compete to satisfy modern consumers.  Web presence only gets retailers the opportunity to compete the real advantage is the physical customer interface.  Touch it, feel it, try it, gives the retail experience depth and value.  The instant gratification of immediate possession only happens at retail.  The delayed gratification of customization and later pickup or home delivery is the most profit making change available to retailers today.  It can be as simple as the custom paint counter at the home center or a custom printed holiday card or even custom dyed, printed and fitted clothing sent to your home or picked up at the store.  Deferred gratification is satisfied, by allowing the customer to create the perfect fit by creating their body avatar at the store and then building a wardrobe around their “digital body” at home.  This technology available today is seen every day on HGTV by custom home decorators to visualize different coverings on furniture in the customer’s home.  For the retailer, selling from a virtual inventory with no stocking cost or risk, retail price and purchase driven production insures a profit in every sale.

Ignoring New Production Coloring Technologies

Removing this bullet is both the most critical to profits and the most difficult to install.  For hundreds if not thousands of years color has been applied to fabric by essentially the same process. First you mix the color of choice, then you apply it to the fabric and then fix the color through heat, steam or drying.  Next, operators prepare for the next job by must carefully cleaning the equipment and then mixing a batch of the next color.  If your printing each color must be separated, mixed to match, burned to a screen, registered to each other and after printing carefully cleaned for the next run.  All of these actions cost the dye and print house time and lost income.  In the end that cost is passed on in the form of sir-charges and minimums preventing the brand or retailer from quick replenishment or custom orders based on actual sales.  This process of individual premixed colors is the single greatest obsolete manufacturing technology causing product risk and excess labor costs.  Separating, printing and/or sewing in dyed or printed colors cost labor time and over production and eventually extended delivery time and inventory risk.
Current screen printing requires each color to be separated, mixed to match, burned to a screen, registered to each other and after printing carefully cleaned for the next run.  Screen print is currently over 90% of all printed textile and apparel production.  This mass production technology cripples profits in the garment and textile markets.
The irony is that all this time the technology that solves this manufacturing dilemma has been sitting on the desk at your office.  Ever wonder how that desktop printer produces all those colorful charts, slides and pictures, instantly without mixing inks, making screens and time consuming cleanup between each print?  This coloring technology is call “process color” and it has been producing the brilliant colored point-of-purchase and fabric based display art at shows, conferences and stores for years.  The technology and equipment is available today to create the same “change-on-the-fly” pollution free colors and prints on apparel and textiles.  The industry continues to resist while they hope that better data, design and PLM software will save them from over production and the inevitable clearance sale bullet.
Digital process color printing changes on the fly with little or no downtime and produces to match sales without dangerous pollution or separation and screen costs.

Obsolete Merchandising and Sales Methods

 Today many stores operate on a “buyer knows best” merchandising strategy where the brand/store buyer determines what product will be offered to the customer.  This strategy assumes the stores or brands customers all have similar taste and style.  This provider centric strategy is demanded by factors like mass production, long transportation and distribution lead times and dedicated floor space that must be filled.
Making the fundamental change to a customer centric merchandising strategy has baffled most of the retail chains because it requires changing manufacturing, sourcing, real time POS, customer interface and online design.  The customer centric store operates with at least these key customer participation features:
  •   Purchase Activated Manufacturing either while-you-wait in the store (Direct-to-Garment) or at touch screen kiosk for unlimited color choice and at home delivery.
  •   Optional personal take home avatar for individual fitting at home.
  •   Endless aisle touchscreen access to virtual inventory.
  •   Sales associate guided product customization.
  •  Access to personal closet of previous purchases and product virtual lay-away.
  • Automatic POS linked production replenishing actual sales.
All these technologies are available today but retailers shun their use for a myriad of reasons from “wait and see” to “there’s no hope” while continued inaction just spins the cylinder and…

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