What challenges do retailers face?
Retailers that were established in the online environment, the so-called “pure players”, now compete with directly with traditional retailers. While very different in terms of business models and the revenue structures, all retailers are ultimately chasing the bounty presented by the end consumer. The problem however, is that the lines between pure online retailers and traditional bricks ‘n’ mortar retailers are becoming increasing more blurred.
Without shelf space to contend with, online retailers often offer huge assortments. Consequently, inventory optimisation must go beyond simply determining the optimal levels of inventory. For these retailers, determining which items they themselves should or should not stock is an important question. In order to make such decisions, effective product life cycle management is essential here.
On the other hand, for retailers with physical stores, the challenge is less about assortment management and more about managing the distribution process between warehouses and retail locations. After all, demand patterns for a store in the centre of a major city will be very different to another store located in the countryside.
Given that pure players generally invest in a much broader range of items in much smaller quantities in comparison to traditional retailers, margins tend to be lower. Furthermore, with a high level of price transparency, online retailers are under constant pressure to keep prices competitive. With the additional requirement for effective SEO and paid click campaigns, marketing costs can also be much higher.
Fulfilment costs for online retailers are driven up by the fact that the end consumers order goods in individual units. However, personnel and location costs are but a fraction of the costs faced by a traditional retailer. After all, an online store has no real need for presentation stock!
Although, out of stocks have a big impact on the processes of traditional retailers, it can be very difficult to measure. For example, regardless of whether a customer’s purchase decision is influenced by a store assistant or not, in a physical store environment, the chance of product substitution is high. For online stores however, the internet has brought about much greater transparency. Within a matter of seconds, a customer can now easily find five different webshops, each offering the same product with the right price, delivery time and, of course, availability. Consequently, no stock means ‘no sale’.