This is the key concept to understand: (So allow me to repeat it)
...with about 2,000 stores. "We're already close to the customers," he says. Sears just needed a delivery strategy.
What retailers need is a strategy to allow stores to become fulfillment centers. This means that a store must not only carry enough inventory to satisfy forecasted demand, but also additional stock to satisfy any online or mobile orders that will be fulfilled through their location. At the same time, simply dumping more inventory into your stores and DC's will only cost you more when you end up marking your slow selling inventory at the end of the season. Many retailers are already set up to reach their customers - what they need is a smart fulfillment strategy that will have the inventory in place in advance to avoid unnecessary transfers and markdowns. The only way to achieve this feat is to accomplish all of this proactively.
How do you build a smart fulfillment strategy?
Recently Amazon has caught a lot of attention claiming that they could now ship products before the customer even orders it. While the claim is a bit misleading, what Amazon is really doing is determining the chances that a group of customers from the same geographical area will buy a product (based on past data they collect on these consumers) and shipping the packages to the nearest hub or distribution center.2 Essentially, their strategy is to anticipate orders to create better fulfillment. In order to stay ahead of the consumer, and to make sure that your products are fulfilled in the most cost efficient manner, retailers need predictive analytics technology. In fact the most successful retailer organizations have already realized this. A quick look at Google Trends reveals that there has been an over 300% spike in worldwide searches for predictive analytics since 2010. Moreover, Gartner's Emerging Technologies Hype Cycle shows predictive analytics as the most proven emerging technology in 2012. Sears and Amazon are not the only ones that have begun to wake up to this reality. Macy's has also noticed this trend:
"We're finding that customers don't really care from where we pull the goods, as long as we fill the order accurately and the delivery is timely," said Karen Hoguet, Macy's CFO, in February on her firm's fourth-quarter conference call. "We've built algorithms to help us determine from where to pull the inventory, and we are learning more each day about how we need to refine these formulas."3
How can I get started?
Retailers don't need to develop their own algorithms. I've been working in a firm that has developed predictive analytics technology for retailers for over 10 years, including smart fulfillment tools, price optimization, inventory management and more. Retailers need to get in touch with predictive analytics vendors and ask for an analytic assessment. This will allow you to see exactly what kind of benefits you can expect from a retail predictive analytics solution. Retailers that are currently using smart fulfillment tools running on predictive analytics technology are seeing significant benefits such as 40% in inventory cost reduction as well as a boost of 20% in sales in the same category.
You can either stay behind, react to your consumers, and changing technological trends while putting out fires, or you can use predictive analytics technology to stay ahead of your customers, and your competition. It looks like the most successful and influential retailers have already started to make the change. Will you?
Yan Krupnik graduated from Ryerson University in Toronto, Canada, and is currently the Business Development Manager at Retalon, the world's leading provider of predictive analytics for retail. Since 2002 Retalon has optimized pricing, inventory management, merchandising, planning, and marketing operations for retail organizations in a variety of industries. Retalon products range from task-oriented solutions to a common analytic platform, resulting in tangible optimization of the supply chain and significant measurable benefits for the entire organization. For more information check out www.retalon.com.