What are the key challenges facing retailers since stores reopened?

Although retail footfall continues to rise, this recent boost to in-store shopping hasn’t, for the most part, come close to compensating for sales that migrated online. It also fails to resolve the unexpected volumes of inventory brands need to clear. Both trends only set to intensify as we approach what may be the worst recession in UK history.

Written by Raffy Kassardijan, CEO of Parker Lane Group

Transition to E-Commerce

The most urgent challenge is the inevitable transition to e-commerce as consumers increasingly switch to online shopping. However, e-commerce comes with its own set of rules, and getting them wrong can be fatal. E-commerce has razor thin margins, including the margin for error.

The challenge here is twofold: first, retailers need to convert their store warehouses into fulfilment capacities for online sales and returns. Second, returns require a strategy. The by- product of a successful transition is an increase in returns. Traditional retailers are not equipped to handle online returns effectively: brick and mortar stores do not generate anywhere near as high volumes of returns as e-commerce does. These are not issues that can be resolved by 3PL (third party logistics) such as delivery companies either. Moving boxes and managing returns are worlds apart: most 3PLs are not equipped to process and salvage value from the piles of returns sitting in brands’ warehouses.

Returns management is a specialised service, requiring designated IT systems, tacit knowledge and access to secondary markets. Brands need to explore their options sagaciously, as the reverse logistics space is full of commercial blind spots that requires specific expertise to navigate.

The most logical approach is to outsource the transition from offline to online to a specialised partner and working alongside them in collaboration. In doing so, brands free up their resources to focus on their core business while cutting down their costs and generating higher returns.

Lack of Expertise Surrounding Excess Inventory Management

The cost of unsold inventory is one of retail’s largest inefficiencies. Unsold inventory is expensive and holding stock erodes profit margins by the day. Given that sales are likely to plummet alongside rising unemployment, stock overflow is a problem likely to remain for the foreseeable future. However, there are solutions that are achievable for retailers at any scale.

A paradigm shift surrounding unsold inventory is required. The first step here will be for brands to place excess inventory management at the core of their business strategies. The lack of proactivity in overhauling their inventory models internally translates into real financial losses. Unfortunately, the average retailer isn’t prepared for this level of supply-chain overhaul and probably isn’t aware of viable options for support.

In order to innovate, brands must shift their focus from in-house to collaborative: by investing in the right partnerships, brands can achieve scalable and flexible solutions required to monetise excess inventory effectively. In turn, this generates value that can be enjoyed by the brand.

While external stock management solutions are fairly new, they are the only way forward. Antiquated in-house approaches (such as selling to jobbers or destroying excess stock) provide no basis for innovation. They also fail to align with retailers’ changing needs and growing scale in an on-demand economy.

Conclusion

By its very nature, fashion was made to change – the business of fashion is no different. Yet, while the fashion world continues to rapidly innovate, solutions to inventory management remain in stasis. Excess inventory and ‘waste’ will always exist, and retailers need to recognise their importance. If handled the right way, cost can become an opportunity.

Solutions from the past cannot solve problems of the present or future. Radical re-thinking and a comprehensive overhaul of the ‘old world’ is required to have the best chance of surviving the new world’s challenges.

Although COVID-19 has proven the value of a genuinely circular economy, brands need to consult with experts who can help them navigate out of the issues COVID-19 has magnified to remain competitive in a post-pandemic world.