The US retail industry is in the midst of change which
will surely have lasting effects on the supply chain. Although the recession is
over, high unemployment and persistent problems in the housing market continue
to keep consumers spending in check.
Retailers have responded by closing stores, expanding into
new and different markets and launching multi-channel initiatives. Still,
rising costs persist and consumer spending remains sluggish. Q4 2011 earnings
for such retailers as JC Penney, The Gap and Sears were dismal. The earnings declines have prompted each
retailer to undertake corrective measures. For example, JC Penney is
introducing a new pricing strategy and changing its in-store shopping experience
by developing mini-shops. The Gap is
closing more than a fifth of its stores in the North America while expanding
abroad and Sears is spinning off parts of its business and selling 11 stores.
While Brick and Mortar stores attempt to revive store sales,
e-commerce sales are on the increase. According to the US Department of
Commerce, 2011 e-commerce sales totaled $194.3bn, a 16.1% increase over 2010.
Thanks to the popularity of smartphones and other technological advances over
the past couple of years, a new renaissance in online shopping is occurring. As
such, retailers are incorporating ecommerce into their overall growth strategy.
TJX, parent company of TJ Maxx, Home Goods and Marshall’s, plans to re-enter
online retailing after it shut down its US e-commerce business in 2005 due to
$15m in operating losses. Dillard’s, a regional department store, invested $4m
in Acumen Brands, an e-commerce company that operates 12 specialty shops
online. The investment will allow the department store to enhance its web
presence. Finally, Nordstrom Inc. plans to invest almost $1bn over the next 5
years to support its e-commerce infrastructure.
All these changes are transforming the retail supply chain.
The shift towards e-commerce favors more frequent small parcels which will
surely benefit FedEx and UPS. E-commerce is also causing changes within the
warehousing and distribution market as many retailers opt to build
e-fulfillment centers close to their customer-base. Changes in merchandising
mix will also result in the need for inventory and vendor management solutions.
To avoid brick and mortar stores from turning into showrooms
in which consumers utilize and then buy an item online at a more attractive
price, retailers such as Target are requesting suppliers to provide special,
differentiated products for only their particular stores. This strategy will
impact sourcing, supplier and inventory networks. Retailers will need to be
able to manage these networks carefully or it could backfire on them.
As the retail supply chain changes, logistics and
transportation providers are also taking note and are investing in the changes
that are occurring within the industry. UPS recently acquired specialized
delivery company Kiala to expand its presence in the European e-commerce
delivery space. FedEx’s SmartPost service has noted increases in volume due to online
sales. The US railroads appear to have benefited as well due to more small
parcels and containers being shipped via this mode.
