Although three quarters of UK retailers (77%) believe the most successful businesses focus on delighting the customer first to drive profitability, only around half this number (39%) are talking to customers to understand their needs.
These findings are published today in a new LCP Consulting report – Integrating the retail supply chain. The report says that this lack of knowledge about customer needs and expectations is even more concerning given that customer expectations are higher than ever before.
Stuart Higgins, retail partner at LCP Consulting, said: “How can retailers hope to truly understand their customer needs and expectations, and respond with appropriate service models, if they are developing their entire customer understanding without looking outside the business’ existing knowledge base? There is a major risk in defining a customer offering based on an internal perspective of the customer, as it then becomes a self-fulfilling prophecy.”
The LCP report, the fourth in a series from the leading retail supply chain consultancy, interviewed over 100 leading retailers in the UK and US, in addition to a number of senior retail executives including: Gavin Mullaley (eCommerce Fulfilment Director, Aldi), Simon Ratcliffe (Infrastructure Director, FatFace) and Phil Clarke (COO, The White Company).
Simon Ratcliffe, infrastructure director, FatFace, added: “Customer expectations have been evolving at a rapid pace and you must keep up with these changes. It is important for retailers to genuinely understand their customer expectations, or the customers they are trying to capture. At FatFace, we are just as interested in the 85% who don’t buy from us.”
On a more positive note, the LCP report found that there is a marked decrease in the number of retailers focusing their service offer on matching that of the competitors, and those retailers defined by LCP as being an Omni-channel Pioneer are twice as likely to undertake in-depth analysis of customer data (76%) compared to those retailers defined as Omni-channel Followers (32%).
The LCP report also found that winning retailers are going one step further to delight their customer, by integrating and shaping their supply chain to service customers’ needs profitably. This focus has now extended to a much deeper understanding of costs in four areas:
- Optimising stock availability
- Minimising inventory holding
- Reducing overall fulfilment costs
- Effective returns management
The report says that Inventory Deployment is the new maxim: getting the right stock in the right place at the right time to deliver stock availability and sales – while at the same time minimising fulfilment costs and the overall risk on markdown and clearance at the end of the season. This approach can often achieve a 3-5% improvement in net margin, increase sales potential, and reduce working capital.
Twice the number of retailers from the previous year (34% compared to 16% in 2015), cited reduced fulfilment costs as one of the top three advantages to an integrated business model. The report says that a prime example of changing operating models to reduce costs is the increasing trend towards fulfilment of Click and Collect orders from store stock.
Stuart Higgins, retail partner at LCP Consulting, added: “Of course, fulfilling from store stock requires a greater accuracy of the store stock file and real-time visibility of this stock. But, once achieved, it is far cheaper and more reliable to replenish Click and Collect orders from store, than to route them through a central Fulfilment Centre for onwards shipment to store.
Supplier direct delivery – where suppliers deliver to the customer directly on the retailers’ behalf – can also generate a higher overall net margin and lead to significantly less operational risk for the retailer, especially for slower moving products. However, use of this channel needs careful consideration to ensure service standards and brand values are maintained consistently.”
The LCP report concludes by saying that for retailers to be successful, they will need to be acutely aware of the following five key areas:
- Customer expectations: the goalposts keep moving – Retailers need to respond and innovate in an increasingly tough environment, as multiple technology, demographic, economic, and social factors change customer interactions.
- The emerging focus on service – Even stronger than price emerges a new focus on Customer Service along with a consistent brand offering, across channels as keys to driving customers to purchase.
- The customer-driven supply-chain concept – This is increasingly being developed by retailers, who recognise that integration is key to putting customer needs right at the heart of their proposition.
- The benefits of a customer driven supply chain – Those retailers putting customers at the heart of their supply chain and have taken the time to understand them, are reaping the benefits – in sales and profitability.
- Implementation challenges – The benefits of implementing a customer-driven supply chain are clear, but challenges include technology and systems implementation, cost investments, and the complexity of effective cross-functional execution.