Contents3 Executivesummary
5 Thesupplychaintoday
6 Brexitbites
10 Forcesshapingthesupplychain
14 Changingseasons
16 Shiftinggeographies
18 Thefulfilmentchallenge
20 Theethicaldimension
22 Strategiesforsuccess
24 Casestudy:JohnLewis
26 Abouttheauthor
ThisreportwascomposedfromtwopiecesofresearchconductedbyConluminoforBarclays.Themajorityofthereportwasproducedfrompre-EUreferendumresearchandapostEUreferendumsurveywasconductedforthe‘Brexitbites’.
Allcontenthasbeenresearched,developedandproducedbyConluminoattherequestofBarclaysforthepurposeofthisreport.Allcharts,dataandstatisticsfeaturedinthisreportaretheproductofthisresearch.
Allrightsreserved.
www.conlumino.com
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Executive summaryEnsuringacost-effectivesupplychainisakeychallengeforretailersinthefaceofchangingconsumerbehaviour.
Thesupplychainisclearlycriticaltobusinessperformanceinacompetitiveretailmarketplace.Soit’snosurprisethatoursurveyofretailersrevealsthatprotectingprofitmarginsistheirtopsupplychainpriority.Thisisfollowedcloselybyensuringstabilityandmaintainingagoodreputationonethicalissues.
Thereiscertainlyroomforimprovementintheirsupplychains,accordingtoourrespondents.Closetotwothirds(63%)saytheirsupplychainsarenotveryornotatallcost-effective,whileamajoritybelievetheycouldbemoreefficientandnimble.
Thescaleoftheimpactretailersexpectthereferendumresulttohaveontheirsupplychainsgivesamixedpicture.Althoughhalf(52%)thinkthattheirbusinessisunpreparedforBrexit,asmallmajority(56%)actuallythinkthatBrexitwillhavenorealimpact(41%)orapositiveimpact(15%)ontheirsupplychain.
Changingshoppingpatterns
Ourresearchshowsthatconsumers‘travel’anaverageof6,281miles*whileshoppingonlineeachyear–andtheyexpectever-fasterdeliveryandawiderrangeofdeliveryoptions.Copingwithdeliveryofonlineordersfromoverseasisamajorsupplychainchallenge.Despitetheprevalenceofonlineshopping,manyofourretailerrespondentssaytheyarestillgettingtogripswiththeimpactofonlineontheiroperations.
Average
Hard-to-predictdemandisanotherkeyforceforchange,drivenbymoreunusualweatherpatterns,theincreasedfrequencyandintensityofseasonalpromotionsandotherchangesinshoppinghabits.Moreerraticweather,inparticular,ismakingitincreasinglydifficultforretailerstomeetcustomerneeds.Inaddition,theuseofmultipletouchpointsandchannelsbyconsumersisincreasingthecomplexityofsupplychains.
distancefromhomepeoplehavetravelledtoshopovertheyearsMilesforeachyear,shopincludesresearching,browsingandbuying
15.6 miles
42.1 miles
49.1 miles
358.1 miles
6,281 miles
1985
1955
1995
2005
2015
*Conluminoresearch.
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Withincreasedcompetitionforashareofconsumerspendingfromotherleisurepursuits,consumersbecomesavvier,expectingasteadyflowofnewretailproductsandexperiencestokeepthemcomingback.Surveyrespondentshighlighttheincreasingimportanceofreactingtotrends,with81%offashionretailers,forexample,sayingthatfashioncycleshavebecomefaster;mostbelievethiswillaccelerateinthefuture.
BuyingBritish
BuyingfashiongoodsmadeinBritainisfairlyimportanttomostoftheconsumersinoursurveyandamajority(53%)ofretailerssayitisnoweasiertomanufactureproductsintheUK.However,mostretailersinoursurveysaythecostofbringingproductionbacktotheUKisprohibitiveandonlyaboutathirdsaythattheyhaveactuallydoneso.
Despitehighercosts,ourpost-referendumsurveyshowsthattheUKisnowexpectedtobenefitfromarenewedfocusasasourcingdestination,withathird(32.4%)ofretailerssurveyedexpectingtoincreasetheirdomesticpurchasingactivity.
Moredeliveryoptions
Retailersareincreasingthenumberofdeliveryandcollectionoptionsfortheircustomersandplantoaddmoreoverthenextfewyears.Whileconsumerssaytheywanttheseextraoptions,thereisconsiderablereluctancetopayforthem,withthemajorityofshoppers(64%)sayingthatdeliverychargesarealreadytoohigh.Oursurveyhighlightslackofflexibilityofdeliverytimesandpoorreliabilityasconsumers’maincriticisms.
Click-and-collectservicesfromretailstores,whichcanprovidealower-costalternativetodelivery,tendtoberatedmorefavourablybyconsumersandareincreasinglyimportanttoshoppersandretailersalike,accordingtorespondents.
Ourpost-referendumsurveyresultssuggestthat,broadlyspeaking,retailersappearmorelikelytotakeahitonmarginsorabsorbhighercostsbystreamliningthesupplychainormakingsavingselsewherethantopassonhighercoststocustomers.
Ethicalpriorities
Oursurveyshowsthatminimisingenvironmentalimpactsandmeetingcorporatesocialresponsibilitytargetsarekeyissuesinfluencingretailersandthisislikelytocontinueinthefuture.
Consumersandretailersgenerallyagreeontheethicalconcernstheycaremostabout:childlabour,theimpactonlocalcommunitiesandworkingconditionsarethetopissuesforbothretailersandconsumers,followedbyfactorslikepollutionandclimatechange.Youngerconsumerstendtobemoreconcernedaboutethicalissuesthanolderagegroupsandalsomorescepticalaboutretailers’ethicalpolicies.
Despitethis,consumersadmitthattheirshoppingbehaviourisnotalwaysdrivenbytheseethicalconcerns.Forexample,nearlytwothirds(61%)saythattheytendtoforgetaboutethicaltreatmentofworkerswhenbuyingproducts.Whileourretailersurveyshowsthatrespondentsgenerallyacknowledgethelimitedimpactofethicalconcernsonactualbuyingpatterns,theyhaveneverthelessalmostalltaken,orplantotake,someformofethicalactionovertheirsupplychains.However,manyadmitthatthelengthofthesupplychaincanlimittheircontrolovertheseissues.
IanGilmartinHeadofRetailandWholesaleCorporateBankingBarclays
Prepared As prepared
as we can be13.2%
35.3%Unprepared
51.5%
How preparedisyourbusinessforBrexitregardingsupplychain?
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The supply chain todayRetailers highlight the need for more cost-effective supply chains to help protect profit margins.
Protecting profit margins is the number one priority for 64% of retailers, according to our survey, underlining the perennial challenge of maintaining cost-effectiveness.
While the views of our respondents on the supply chain are mixed, it’s clear that retailers are far from giving themselves a clean bill of health. Nearly two thirds of respondents say their supply chains are not very or not at all cost-effective, while a majority also say they could be more efficient and nimble.
Looking ahead
Besides maintaining margins, our pre-referendum survey research shows that top priorities for the year ahead include ensuring stability (60%), closely followed by protecting ethical reputation (57%). Also mentioned as goals for 2016 are quality control (41%), speed of supply (38%) and foreign exchange rates (32%).
However, the post-referendum survey suggests slight shifts in these priorities, with FX rates becoming the top concern ahead of labour costs, streamlining supply chain and import costs.
Forecasting and predicting erratic demand is a factor that impacts on all retailers. Our research shows this is particularly true of food and drink retailers, who rate it as the second most important issue after protecting profit levels. Food sector respondents also identify the importance of transparency and traceability in the supply chain and minimising wastage and loss as key issues.
CompletelyVery
Not veryNot at all
Somewhat
ROBUST NIMBLECOST-
EFFECTIVE EFFICIENTTIME-
SENSITIVE
8%
10%
61%
16%
5%
11%
39%
41%
25%
38%
22%
6%
14%
44%
31%
12%
19%
28%
32%
9%
10%
1%3%
6% 9%
Taking action
Given the various supply chain challenges identified in this report, it is not surprising that the vast majority of retailers say they are taking some form of action. Most commonly this involves working more closely with suppliers to find cost savings and efficiency gains – 60% of our retailer respondents say this will be an area of future focus. Collaboration with suppliers to identify efficiencies will clearly be a key challenge for the sector going forward.
How would
One recent trend has seen retailers adjusting trading terms to take control of goods closer to the point of manufacture. This allows them to better control freight costs, which has been particularly advantageous with falling oil prices.
Some retailers are also investing in fulfilment centres in the UK and overseas to lower distribution costs. This investment in the supply chain creates efficiencies that can be passed on to increasingly demanding consumers.
you describe your supply chain?
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Brexit bitesConcernsoverthepost-referendumeconomycouldtransformretailers’approachtosupplychainmanagement.
OursurveyconductedfollowingtherecentEUreferendumresultsuggeststhatBrexithasnotfoundfavourwithretailers.
Anunexpectedresult
Theresultofthereferendumappearstohavecomeasasurprisetolotsofpeopleandretailersarenoexception.Eventhoughoverathirdofthosesurveyedafterthereferendum(35.3%)saytheirsupplychainprocessesareaspreparedastheycanbeatthepresenttime,overhalfoftherespondents(51.5%)feeltheirsupplychainsareunpreparedforBrexit.Onlyasmallminority(13.2%)believetheyarefullyreadyforseparationfromtheEuropeanUnion(EU),suggestingthatthesector,aswithmostotherbusinessesinthedomesticmarkets,iswaitingforclarityastothelong-termconsequencesoftheresult.
Theoverallattitudeisoneofcaution.Lessthanafifth(14.7%)expectBrexittobepositivefortheirsupplychain–while,incomparison,almosthalf(44.1%)anticipateanegativeimpact.
How willthefollowingaspectsofyoursupplychainbeimpactedbyBrexit?
7.4%
4.4%
2.9%
30.9%
13.2%
2.9%
11.8%
27.9%
17.6%
NEGATIVEPOSITIVE NEUTRAL
64.7%
55.9%
69.1%
20.6%
27.9%
80.9%
16.2%
45.6%
42.6%
27.9%
39.7%
27.9%
48.5%
58.8%
16.2%
72.1%
26.5%
39.7%
Finding enough labour for supply chain operations
Finding the right quality of staff for supply chain operations
Cost of importing goods
Cost of exporting goods
Complexity of imports and exports
Managing foreign exchange rates
Speed of the supply chain
Dealing with administration and red tape
Selling products overseas
However,noteveryoneissopessimisticandmanyhaveaneutralattitudetowardsBrexit.Asignificantproportion(41.2%)expectBrexittohavenorealeffect,whilealmostathird(29.4%)believeitwillhaveonlyaslightlynegativeimpact.
Thehighproportionofneutralresponsessuggeststhatatleastsomeretailershavemitigationplansalreadyinplace,withuncertaintythebiggestcurrentconcern.
OverhalfofthosesurveyedafterthereferendumsaytheirsupplychainsareunpreparedforBrexit.
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70.6Hedging currency
11.8Setting up separate UK and European supply chains
17.6Reassessing product mixes and product ranges
1.5Closing down existing selling operations in Europe
76.5Streamlining and cutting supply chain costs
10.3Opening new selling operations in Europe
14.7None of these
30.9Changing suppliers
16.2Relocating parts of your supply chain operation
Moving manufacturing capacity to different geographies
13.2
27.9Sourcing from different countries
ForeignExchange(FX)effect
Accordingtoourpost-Brexitsurvey,themostimmediateconcernsarefocusedaroundcurrency,with81%ofretailersexpressingnegativesentimentovermanagementofFXrates.Whiledepreciationofsterlinghasbeenoneofthemoreimmediateeffectsofthereferendumresult,thiscouldalsohavealonger-termimpact.Manyretailersarelikelytobereasonablywell-hedgedgoingintonextyear,meaningthattherealconsequencescouldbeseenfrommid-2017onwards.Hedgingcurrencyisthereforeunsurprisinglythetoppriorityforourrespondentspost-referendum,with71%highlightingitasanactionforimmediatereview.
Whatwillyou bereviewingoractingoninlightofthevotetoleavetheEuropeanUnion(%)?
However,whileacheapersterlingwillinevitablyhaveamajoreffectonmanyretailers,particularlyagainsttheUSdollarandtheeuro,itmaynotbealldoomandgloomforthesector.
Currencyvolatilitywillhaveaverydifferentimpactoneachretailer,dependingontheircircumstances.Thosethatareheavilyreliantonimportswillnodoubtbelookingtoexploitopportunitiestomarkettheirproductsmorewidelyinnewmarkets,whilemajorexporterswithalargelydomesticsupplychaincouldbenefitfromcurrencymovementsintheshorterterm.
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Costconsequences
RetailersmightbeworriedaboutpotentialsupplychaincostincreasesinthewakeofaUKdeparturefromtheEUbut,accordingtothelatestsurvey,theresultsmaybelessseverethanexpected.Themajorityofretailerssurveyed(58.8%)expectthatthecostsofsupplychainmanagementwillremainthesameorincreaseslightly,whilenearly15%seeapositiveimpactfromBrexitinbringingtheirsupplychaincostsdown.
Incomparison,however,overtwothirds(69.1%)ofretailersbelievethatBrexitcouldhaveanegativeimpactontheirimportcosts.Asimilarproportion(64.7%)areworriedaboutfindingadequatelabourofsuitablequalityfortheirsupplychainoperations,possiblyresultinginhigherrecruitmentandhumanresourcescosts.
OvertwothirdsofretailersbelievethatBrexitcouldhaveanegativeimpactontheirimportcosts.
Eventhough42%ofrespondentsthinkthatsellingproductsoverseasmaybecomemoreofachallenge,possiblyduetotheuncertaintyaroundfreetradewiththeEU,athirdofrespondents(30.9%)expectexportcoststofall,bringingopportunitiesforhighermarginsfromoverseasmarkets.
Howwillyourespondtothecostchanges?
Streamline the supply chain to
mitigate cost increases
69.1%
Renegotiate terms with suppliers to reduce
fees/costs
38.2%Absorb the
cost increases internally and take a hit on margins
52.9% Make savings elsewhere to offsetthe cost increases
64.7%
Increase the price of products for customers
30.9%Outsource some
aspects of the supplychain to save money
19.21%Increase delivery and fulfilment costs
to customers
35.3%
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Spreadingtheimpact
Inthecurrentclimateofuncertainty,mostretailersappearkeentoabsorbthecostimpact,ratherthanpassingitontotheirconsumers.Asignificantmajority(76.5%)plantostreamlinetheirsupplychains,andoverhalf(52.9%)ofretailerssurveyedexpecttotakeahitonmarginsbyabsorbingcostincreasesthemselves.
Only30.9%saytheyplantoincreaseproductprices,whileasimilarnumber(35.3%)saytheymightconsiderincreasingdeliveryandfulfilmentcostsforcustomers.Anotablemajority(64.7%)insteadhopetospreadthecostimpactandmakesavingselsewheretooffsethighercosts.
Thekeyhereisriskmanagementandmitigation,andcompaniesshouldbecarefullyconsideringtheirnextmove.
Location,location,location
AsretailersseektomitigatetheimpactofBrexit,anewevaluationofsupplierlocationandpurchasingactivityislikely.Aroundathirdofretailers(30.9%)saytheyarethinkingofchangingtheirsuppliers.
Beforethereferendum,EasternEuropewasakeyregionofinterestforpurchasers,with48%ofretailersconsideringapotentialincreaseinsourcinginthisregion.Inourpost-Brexitsurvey,however,thissentimenthas,unsurprisingly,swungtheotherway,withasharpdropininterest–almosthalfofrespondents(42.6%)expecttoseeanoveralldeclineinEuropeanpurchasingactivity.
Indiaisnowlookinglikethemostpopulardestination,withover51%ofretailersexpectingtheirpurchasingactivityintheregiontoincrease(comparedto42%beforethereferendum).InterestinChinaandSoutheastAsiaassourcingdestinationsforUKretailershasalsorecentlyincreased.
FortheUK,oursurveysuggeststhatBrexitmayalsoreinforceatrendtowards‘buyingBritish’.WhileproductionintheUKmightbemoreexpensive,athird(32.4%)ofretailersnowplantoincreasetheirdomesticsourcingactivitypost-Brexit.
Lookingahead
Inthelongerterm,thereareofcourseawiderangeofBrexitconsequencesthatretailbusinesseswillneedtoconsiderintheirforwardplanning,notleastthepossibilityofreducedoverallconsumerpurchasingpowerintheeventofawidereconomicdownturn.
Thesechallengeswillbecompoundedbyuncertaintyoverdomesticandforeigninvestmentandthelikelyintroductionofnewtariffsandlegislation.ThelikelyrestrictionsonfreemovementoflabourandthepossibilityofresultingwageinflationwillnodoubtremainamajorconcerntoUKretailersuntilaclearerpictureemerges.
However,thepossibleremovalofsomebarrierstotradewiththerestoftheworldprovidesopportunitiesforgreaterexpansionintonewmarketsandhigherpenetrationofexistingones.Withnewplansforreassessingproductoperationsandstreamliningcostsinthewakeofthereferendumresult,thechangescouldevenactasapositivecatalystforincreasedefficiencywithinthesupplychain.
ThelikelyrestrictionsonfreemovementoflabourandthepossibilityofresultingwageinflationwillnodoubtremainamajorconcerntoUKretailers.
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78
72
62
62
59
58
57
56
52
47
45
39
33
32
29
28
19
19
16
Mostimportant
%
CURRENT IMPACTS
All%
Mostimportant
%
FUTURE IMPACTS
All%
12
13
17
6
5
8
9
4
1
6
2
5
1
1
2
6
2
0
0
84
89
72
66
61
62
59
54
36
37
48
34
36
14
38
37
28
22
17
9
17
10
2
6
7
5
2
1
7
2
4
2
1
12
5
6
0
1
Continued rise of online shopping
Unpredictability of demand
Managing the returns created by online shopping
Dealing with spikes caused by seasonal events, e.g. Black Friday
Erratic and unpredictable weather
Demands from consumers to improve delivery speed
Need to minimse ‘out of stocks’ in store
Minimising environmental impact
Increase in number of foreign shoppers requiring overseas delivery
Demands from consumers for more delivery options
Increase in the number of store types or formats to service
Lack of integration of store and online stock systems
Managing CSR targets
Rise of services like click and collect
Need to be more reactive to trends
Minimising waste and loss
Coping with increased need for personalisation of products
Changing costs
Government regulation
Forces shaping the supply chainOnlineshoppingandhard-to-predictconsumerdemandarehavingthebiggestimpact.
Whenretailersareaskedaboutthemostimportantfactorsimpactingtheirsupplychains,bothnowandinthefuture,twoissuesstandout:theunrelentingriseofonlineshoppingandmoreerraticdemand.
Onlineshopping
Aswellashavingadirectimpactonhowsupplychainsaremanagedandconfigured,thecontinuingriseinonlineshoppingisalsocreatingknock-onissuesaroundhandlingreturnsandmanagingoverseasdeliveries.
Despitethefactthatonlineshoppinghasnowbeenwithusformanyyears,itisclearthatlargenumbersofretailersarestillfacingchallengesinmanagingitsimpactonthebackendoftheiroperations.Inparticular,consumersaredemandingfasterdeliveryandmoredeliveryoptions.
Theneedforfoodanddrinkretailers,forexample,todealwithindividualproductsaswellasbulkloadsisincreasinglytrueofotherretailsectors.Whiledistributioncentrescanstillbegeareduptosupplystoresinbulk,theyaremoreflexibleinbreakinguppacksizessothatstoresgetoptimaldeliveries.Inaddition,storesareoftennowmini-warehousesforonlineorders.
Impactsonthesupplychain:allmeasures
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17.7
8.1
68.3
40.6
ONE TWO
4.1
8.49.9
39.1
0.03.8
THREE FOUR FIVE+
Patterns of demand
The second key factor impacting the supply chain is the more erratic nature of demand. This is driven by more unpredictable weather, the increased frequency and intensity of seasonal promotions and the more changeable way in which consumers shop.
In the food sector, an example of changing shopping habits is how the ‘big weekly shop’ appears to be falling out of favour among consumers. According to the grocery industry federation, IDG, more than a third of people say they want to shop more frequently, buying little and often at local stores and this presents a major challenge for superstores designed around the traditional weekly shop.
Looking to the future, unpredictability of demand is the top issue identified by respondents, suggesting that this is unlikely to ease off over the next few years.
The ability of retailers to react to trends and peaks in demand will become an increasingly important supply chain issue, according to our respondents, underlining the importance of effective use of social media, customer feedback and analysis of big data.
Percentage of the number of different channels and touchpoints used while shopping for clothing
Food retailers are particularly vulnerable to demand fluctuations and disruptions to supply caused by weather. They are also increasingly using hedging and forward ordering to counter sudden commodity price changes.
Ethical factors
Our survey shows that minimising environmental impacts and meeting corporate social responsibility targets are also key issues influencing the decisions retailers make, both now and in the future.
Consumers have become more conscious of ethical issues in the supply chain and demand more information about the products they buy. Partly in response to concerns about ingredients, food retailers are making their supply chains more traceable in terms of knowing how products move through the chain.
However, the weight attached to these factors by respondents perhaps suggests that retailers feel more in control of these issues and can plan, measure and assess them in a way that they can’t with, for example, fluctuations in consumer demand.
2005
2015
11 of 26
Morewaystoshop
Anotherforceshapingthesupplychainisthatconsumersarenowspoiledforchoiceintermsofhowtheycanshop.Manynowusemultipletouchpointsandchannelswhenbuyingproductslikeclothing.
Evenfoodretailersreportconsumersusingmorenon-traditionalchannelslikeAmazon.Whilethishasincreasedflexibilityforconsumers,ithasalsoincreasedthecomplexityofretailers’supplychains.
Retailersmustnowbepreparedtofulfilproducts,manageinventoryanddealwithreturnsacrossanumberofdifferentchannels.Thisfragmentationhasalsoarguablymadeunderstandingthepatternofdemandfarmoredifficult.
Customerscravingnewness
Oneconsequenceoftheincreasedfrequencyofshoppingandtherelativeeasewithwhichconsumerscanbuythingsonlineisboredom.Inoursurveyofconsumers,55%agreethattheyoftengetboredofusingthesamestoresandbrands.
Oursurveysuggeststhattoday’sconsumersaresomewhatjadedwiththeireverydayretailexperiencesandlookfornewproducts,brandsorexperiencestokeepthemsatisfiedandengaged.Inoursurvey,twothirds(66%)saytheyagreeitfeelsgreattodiscoveranewbrandorproductthattheylike.
Thismeansretailershavetoworkhardtokeepoffersandrangeslookingfreshandnew.Inturn,thisplacesmorepressureonthesupplychaintobequickerandmoreflexible–aparticularchallengeforlargerretailers,comparedtosmaller,independentcompetitors.
However,inthefoodsector,busyconsumersappeartobeputtinglessvalueontherangeofproductchoiceinfavourofanarrowerselectionofmorecarefullychosenproducts.Inresponse,retailersarereducingthenumberofproducts–creatingclarityfortheircustomers,butalsoimprovingefficienciesandeconomiesofscale.
“Customerswantmoreandmore,and thatputspressureonthewholesupplychain.”
Globalretailoptions
Onlineshoppinghasopenedupaworldofchoicetoconsumersthatincludesretailersthousandsofmilesawayandbrandstowhichtheyhaven’tpreviouslyhadaccess.Afifth(20%)ofconsumersinoursurveysaytheypurchasedsomethingonlinefromanoverseasretailerinthelastyear.
Translatedintophysicaldistance,theaverageconsumer‘travelled’anaverageofmorethan6,000mileswhileshoppinglastyear.
Thiscompareswithafigureofjust15.6milesin1955and358.1milesin2005.Forretailers,thismeansthatsupplychainshavetocopewithdeliveringproductsovermuchlongerdistances,includingfromoverseas.
Percentage ofUKconsumersbuyingfromforeignretailwebsiteswhoshoppedineachcountryin2015
Percentageforeachyear
Country %
UnitedStates 61.7
Ireland 47.5
Canada 30.9
France 27.5
Nordics 20.2
Germany 19.5
Italy 19.5
Japan 13.0
Spain 12.8
China 11.8
India 10.4
SouthAfrica 9.4
Russia 5.0
Onlineshoppinghasopenedupaworldofchoicetoconsumersthatincludesretailersthousandsofmilesaway.
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OurresearchshowsthatoftheforeignretailwebsitesusedbyUKconsumers,most(62%)arefromtheUS,followedbyIrelandandCanada.Languagemaybethekeyfactorbehindtheseresults,giventhat,asEnglish-speakingcountries,thesewebsitesaretypicallymostaccessibletoUKconsumers.InthecaseofIreland,proximitytotheUKmayalsoplayarole.UsageofUSandCanadianretailwebsitesisalsoprobablyboostedbythefactthattherearemoreretailersinthosecountriesthatarenotphysicallypresentintheUK.
Distractedconsumers
Non-retailactivitiesareincreasinglycompetingwithretailforconsumers’disposableincome,asevidencedbythefactthatgrowthinspendingonservicesisoutstrippingthatonretailgoods.Retailislosingouttoaraftofleisureactivities:peopleareeatingoutmoreoftenandspendingmoreonentertainmentlikecinema,musicaleventsandartexhibitions.
Similarly,consumersaretravellingmoreoften,mixingshortbreakswithlongerholidays,meaningthatretailspendingisbeingdivertedtowardsthetravelsectorandoverseasretailers.
SpendingonsubscriptionservicessuchasNetflix,AppleMusic,Spotifyandothersgrew6.8%lastyear,whileretail’sshareofconsumerspendinghasslippedfrom39%to31%overthepast10years.*
*Conluminoresearch.
Consumerpriceexpectations
Thereis,ofcourse,constantconsumerpressureforlowerprices.Retailersrespondtothisinpartbytryingtocuttheirsupplychaincosts.Inthefoodsector,ourresearchrevealsthatmostconsumersdonotbelievelowpriceshavemadefoodlesssafe.Aslimmajoritybelievethatithasreducedthequalityoffood.Alargermajoritybelieveithasputpressurefurtherdownthesupplychainonfoodproducers(83%)and,toalesserextent,suppliers(72%).
Peopleareeatingoutmoreoftenandspendingmoreonentertainmentlikecinema,musicaleventsandartexhibitions.
believepricecutsputpressureonfoodproducers believe pricecuts
putpressureonfoodsuppliers
83% 72%
Labourcosts
Ourresearchshowsthatrisinglabourcostsareanincreasinglyimportantfactorinthefoodsector.Thishitsfoodretailersparticularlyhardbecauseoftheircomplex,time-sensitiveandintricatedeliveryandlogisticsnetworks.
Tocounterthis,retailersarefocusingonlabourefficiencies,tryingtoensureitisallocatedwhereitismosteffectiveinthesupplychain,aidedbyimprovedforecasting.
Brexitwillpotentiallyputmorepressureonlabourcosts,giventhatretailershaveconcernsoverthesupplyoflabouraswellasthequalityandsuitability.
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Changing seasonsTraditionalseasonalpatternsarebeingovertakenbyacontinualsearchbyconsumersforsomethingnew.
Moreerraticweatherismakingitincreasinglydifficultforretailerstomeetconsumerneeds,accordingtooursurvey.Morethan60%ofconsumersagreethatretailersstockproductsthatareunsuitedtotheprevailingweatherconditions.ThisislargelytheresultofmoreerraticweatherpatternsintheUKandispresentingasignificantchallengetoretailers’abilitytoshiftstock,particularlyinthefashionsector.
Ourconsumersurveyrevealsthatconstantchangeandnewtrendsandproductsarenowimportantfactorsindrivingshoppersintostoresorontowebsitesandconvertingthemintobuyers.Simplyhavingawidechoiceofproductsisnolongerenoughtokeepconsumerssatisfied.Closeto80%saythatwhatmatterstothemisthatstoresstockproductsthatareinspiringandinteresting.
Nearlytwothirds(63%)ofourconsumersurveyrespondentshighlighttheimportanceofseeingsomethingnewinstockwhentheyvisitastore.Consumersalsosayitisimportanttheydon’tseeeveryoneelsewiththesamegoods,whichmayencourageshorterproductionruns.
Retailersincreasingly
seem to stockproducts whichare unsuitable
for the weather
I update my wardrobeeach season
The high street does not reflect
the changes in fashion
fast enough
It is very difficult to
find holidayclothes during
the wintermonths
It is hardto find the
latest trendsand designson the high
street
20.5% 18.3% 19.7% 22.9% 13.0%
62.6% 38.7% 51.0% 53.2% 47.4%
16.9% 43.0% 29.3% 23.9% 39.6%
Agree
Neutral
Disagree
Havingawidechoiceofproductsisnolongerenoughtokeepconsumerssatisfied.
Whenitcomestodecidingwheretoshopforclothing,whatisimportanttoyou?
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Howstronglydoyou agreeordisagreewiththefollowingstatementsaboutseasons?(retailers)
Retailerresponse
Retailers’feedbackseemstochimewithconsumers’.Forexample,inthefashionsectorthereisgrowingrecognitionthattraditionalseasonsarelessrelevant–81%ofretailersnotethatfashioncycleshavebecomefaster,and87%believetheywillspeedupstillfurtheroverthenextfiveyears.
Themajorityoffashionretailersagreetheyneedtobemoreflexibleinthetypeofproductstheyoffer,andthatconstantchangeofproductsontheshopfloorisnowdemandedbyconsumers.Morethanhalfsaythatcostsinfashionsupplychainsareincreasing.
Inaddition,retailersneedtomaintainstrongrelationshipswithadiversegroupofsupplierstobeabletoadapttotrendsandpeaksindemand.
“It’snotimagination:theweatherisweirdnowandit’sgettingworse.Makesithardtoknowwhatstocktocommitto.”
The costs in fashion supply
chains areincreasing
13% 2% 9%14% 18%
42% 93% 73%47% 54%Agree
Neutral
45% 5% 18%39% 28%Disagree
Seasons are increasingly
irrelevantin fashion
now
Consumers now demand
constant change in
the product on the
shop floor
We are producing a lot
more collections each year than
we used to
Seasons are relevant but
we have to be more flexible
in terms of the type of product
we offer
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Shifting geographiesBuyingBritishislikelytobecomemorepopularpost-Brexit.
OursurveyrevealsthatamajorityofconsumerssaythathavingfashionandclothingproductsmadeinBritainisfairlyimportanttothem.Justunderhalfofconsumerssaythey’dbewillingtopaymoreforclothingmadeinBritain;butofthosethatarewilling,themajoritywouldonlypaya‘bitmore’.
ViewsonbuyingBritishfoodarelesssupportive–just30%saytheywouldbewillingtopaymoreforfoodthatisgrown,raisedorproducedinBritain.Withconsumersbeingmuchmorepricesensitivewhenpurchasingfoodthanfashion,somewilltendtooptforthelowestpriceregardlessofthefood’sorigin,althoughthiswillobviouslyvarybetweenfoodcategories.
SourcingintheUK
Theretailersinoursurveyacknowledgethepotentialadvantagesoftappingintothisconsumersentiment,butonlyifthe‘on-shoring’ofproductionbacktotheUKcanbeachievedcost-effectively.
ManufacturingintheUKisidentifiedby39%oftheretailersinoursurveyasoneoftheactionstheyarecurrentlytakingtoimprovetheefficiencyofthesupplychain.Amajorityofretailers(53%)alsoagreeitisnoweasiertomanufactureproductsintheUK,but65%saythatthecostsofdoingthisareprohibitive.
While60%ofretailersagreethatbringingproductionclosertohomewouldallowthemtobemorenimbleinrespondingtochangesindemand,just38%saythattheyhaveactuallydonethis.
However,withaUKdeparturefromtheEUexpectedtonegativelyimpactpurchasingactivityacrossEurope,retailersareanticipatinganinevitableincreaseindomesticactivity.
Furtherafield
Lookingfurtherafield,retailersareaimingtoextendthereachoftheirproductsmorewidelyacrosstheglobe,accordingtooursurvey.
WhileinitialresultssuggestedthatEasternEuropewasakeygrowthregion,ourpost-referendumsurveyunsurprisinglyindicatesthatIndia,ChinaandSoutheastAsiaarenowlikelytofeaturemorestronglyinsupplychains.
AmajorityofconsumerssaythathavingfashionandclothingproductsmadeinBritainisfairlyimportanttothem.
WouldyoubewillingtopaymoreforclothingthatismadeinBritain?
Wouldyoubewillingtopaymoreforfoodthatisgrown,raisedorproducedinBritain?
NOT SURE NO
YES,A BIT MORE
49.3%4.2%
YES,A LOT MORE
6.7% 39.8%
NOT SURE NO
YES,A BIT MORE
60.4%9.2%
YES,A LOT MORE
5.9% 24.5%
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Financialframework
Itisimportanttoensurethatasuitablefinancialframeworkisinplacewhenconsideringmovingsupplierbasetoanewdestination.Thereareanumberofsupplychainfinancesolutionsthatretailerscanusetoimproveworkingcapitalandreducetheadditionalrisksassociatedwithcross-bordertrade.Thesesolutionscanincludelookingtoincreasepaymenttermswhileatthesametimetryingtoeasetheburdenthatslowingpaymentshaveonsuppliers.Keyconsiderationsalsoincludereducingtheriskofstockdeliverydelaysorevencompletedeliveryfailureandguardingagainstadversecurrencymovements.
Tradefinancehasbeenanimportantcross-borderinstrumentforretailerslookingtoimplementasupplychainsolution.Agrowingnumberoffirmsarealsoconsidering‘payable-centric’bankproducts,suchastradeloans,supplierfinanceprogrammes,documentarytradefinance
andasset-basedlendingsolutions.However,forsuchaframeworktobesuccessful,allpartiesneedtoworktogethertosetitupandmanagethechange–fromtreasuryandprocurementtosuppliersanddistributors.
Digitisationoftheseproductsvianewtechnologies,suchassupplierfinanceplatforms,SWIFTanddocumentarytradeplatforms,ismakingbusinesseasierforretailers,enablingthemtonegotiatebetterpaymentterms,mitigategoodsdeliveryrisksandreducecosts.
FXrisksandlocalcurrencyinvoicing
UKretailerswithinternationalsupplychainscanbeexposedtoforeignexchangerisk.Companiesneedtobeawareoftherisksandidentifytheirunderlyingcurrencyexposuresandbusinessvulnerabilities.Evenbeforeacontracthasbeensigned,businessesshouldconsidercurrencyexposureandplantomitigateit.
Sometimesthisexposuremaynotbeimmediatelyapparentassuppliersmaynotinvoicedirectlyintheirlocalcurrency.Forexample,manyretailerspaysuppliersbasedinChinainUSdollars,andsuppliersinEasternEuropeinsterling.Payingsuppliersinnon-domesticcurrencycanattractapremium.SuppliersmayallocateabufferintheirpricestoprotectmarginsagainstFXrisk.Someretailershavemanagedtonegotiatediscountswiththeirsuppliersbyagreeingtopayinlocalcurrency.
Localcurrencyinvoicingincreasespricetransparencyinthesupplychain.ExplicitFXriskiseasiertomanageandbuildintooverallhedgingpolicythanimplicitFXrisk,whereimportersmayfindthatsterlingorUSdollarpricesincreaseduetosuppliersnotmanagingtheirFXriskseffectively,orsimplylackingtheknowledgeandmarketaccessofalargerfirm.BuyersshouldbeawareofthisimplicitaswellasexplicitFXrisk,andrequestdualpricing,whereapplicable,togainvisibilityovertheFXratesbeingapplied.
Itisimportanttonote,however,thatsomesuppliersareexperiencedexportersandhavedevelopedexpertiseforinternationaltrade.TheymayprefertomanagetheirFXrisksratherthanpassthemon.
Anotherconsiderationisthattheymaywantforeigncurrencyreceiptstooffsetcosts,forexampleaChinesesuppliermayhavesignificantUSdollar-denominatedrawmaterialcosts.Ineithercase,betterunderstandingoftheembeddedFXrisksthatfirmsareexposedtocanreduceoreliminatethepremiumbuiltintopricesquotedbysuppliers.
BetterunderstandingoftheembeddedFXrisksthatfirmsareexposedtocanreduceoreliminatethepremiumbuiltintopricesquotedbysuppliers.
InlightofBrexit,inwhichregionsareyouconsideringincreasing/decreasingpurchasingactivity?
NumbersstatedasNetpercentageincrement.
-5Other
-36.8Europe
36.8Africa
11.8North America
20.6Latin/South
America
20.6United Kingdom
35.3China
27.9South East Asia
(Vietnam/Thailand/Indonesia)
50.0South Asia
(India)
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5.3 7.2 10.1
The fulfilment challengeServiceimprovementsand‘clickandcollect’mayhelptoimprovecustomersatisfactionandmanage‘lastmile’costs.
Retailersaresteadilyincreasingthenumberofdeliveryandcollectionoptionsavailabletoconsumersinordertocompetesuccessfully.Ourresearchshowsthat,thisyear,largeretailerswillofferanaverageofsevendifferentdeliveryoptions–andtheyplantoaddmoreoptionsoverthenextfewyears,reachinganaverageof10deliveryoptionsby2019.
Meanwhileconsumers,particularlyyoungerones,saytheywantthisgreaterchoiceindeliveryoptions,butthinkthatchargesarealreadytoohigh.
Deliveryissues
Responsestooursurveyrevealthatthemostcommondeliverytimescaleoptionsofferedbyretailersarethreedaysormore(99%),twotothreedays(94%)andspecificornamed-day(87%).Next-daydeliveryandtwo-to-three-daydeliverytimescalesarethefastest-growingservices.
However,consumersandretailershavedifferentopinionsaboutthepricethatshouldbepaidfortheseoptions.Whileagreeingthatretailersshouldoffermoreoptions,themajorityofconsumers(64%)saythatdeliverychargesarealreadytoohigh.Costisalsoamajorconsideration(71.4%)forconsumerswhenitcomestoselectingwhichdeliveryoptiontouse.Thenextmostimportantissueisspeedofdelivery(59.8%).
Avop
erage numberofdeliveryandcollectiontionsofferedbyretailersbyyear
2013 2016 2019
Themajorityofconsumersinoursurveysaidtheywouldbewillingtopaymoreforsomesortofimprovementorenhancementtotheservice.Themostpopularoptionsarefasterdelivery(59%),Sundaydelivery(43%)andspecifictimeslots(37%).However,it’sworthnotingthatathirdofconsumerssaytheyarenotwillingtopaymoreforanyenhancements.
Whileonlineshoppinghasboostedgrowthinretailsales,themajorityofretailerssaythattheamounttheychargeconsumersfordeliverydoesnotcoverthetruecostsofhandling,packagingandshipping.
Asonlineshoppingcontinuestogrow,oursurveyconfirmsthelikelihoodofhigherdeliverychargesinthefuture.
Thesesurveyresultsunderlinethechallengesofreconcilingthreeinter-relatedfactors:customers’desireforconvenience,theneedforretailerstoreducecostofsaleandpreservemargins;andtheabilityoflogisticsoperatorstorespondtothesedemandsanddifferentiatetheirservices.
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Speed of service
Cost of service
Reliability of service
Politeness of staff
Amount of care taken of your package/parcel
Quality of packaging
Flexibility to change collection times or options
Amount of information provided
Quality of information provided
Collectionratings
16.3
15.3
26.4
25.2
35.3
36.3
24.2
18.4
29.0
POOR
49.9
54.2
33.4
54.5
30.9
22.5
25.1
40.6
37.2
GOOD
33.8
30.5
40.2
20.3
33.8
41.2
50.7
41.0
33.8
AVERAGE
Deliveryratings
Speed of service
Cost of service
Reliability of service
Politeness of staff
Amount of care taken of your package/parcel
Quality of packaging
Flexibility to change delivery times or options
Amount of information provided
Quality of information provided
28.6
39.5
45.7
33.5
15.0
37.4
50.0
36.6
36.7
POOR
40.9
23.8
23.8
30.9
29.7
23.7
16.5
24.7
18.4
GOOD
30.5
36.7
30.5
35.6
55.3
38.9
33.5
38.7
44.9
AVERAGE
Deliveryratings
Speed of service
Cost of service
Reliability of service
Politeness of staff
Amount of care taken of your package/parcel
Quality of packaging
Flexibility to change delivery times or options
Amount of information provided
Quality of information provided
28.6
39.5
45.7
33.5
15.0
37.4
50.0
36.6
36.7
POOR
40.9
23.8
23.8
30.9
29.7
23.7
16.5
24.7
18.4
GOOD
30.5
36.7
30.5
35.6
55.3
38.9
33.5
38.7
44.9
AVERAGE
Speed of service
Cost of service
Reliability of service
Politeness of staff
Amount of care taken of your package/parcel
Quality of packaging
Flexibility to change collection times or options
Amount of information provided
Quality of information provided
Collectionratings
16.3
15.3
26.4
25.2
35.3
36.3
24.2
18.4
29.0
POOR
49.9
54.2
33.4
54.5
30.9
22.5
25.1
40.6
37.2
GOOD
33.8
30.5
40.2
20.3
33.8
41.2
50.7
41.0
33.8
AVERAGE
Deliveryisnot particularlywellratedbyconsumers
Collectionfromstoregenerallyreceivesmorefavourableratings
(Percentageofconsumers)
(Percentageofconsumers)
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Betterrated‘clickandcollect’
‘Clickandcollect’servicesfromstorestendtoberatedmorehighlybyconsumersthandeliveryservices.Priceisoneofthemainareasofsatisfactionwith‘clickandcollect’,whichisunsurprisinggiventhatmanyretailersoffertheserviceforfree.Politenessofstaffandspeedofservicearealsoidentifiedasimportantfactors.
Ourresearchsuggeststhatfurthergrowthin‘clickandcollect’–amuchlower-costservicethandelivery–maybeonewayforretailerstoaddress‘lastmile’costsandmeetcustomers’priceexpectations.Inadditiontocostsavings,collectionservicesalsopotentiallygiveretailersgreatercontrolandmoreopportunitiestoprovidevalue-addedservicesin-store.
Feedbackfromretailerssuggeststheyarealreadydoingthis:69%provideforcollectionfromtheirownstorestwoormoredaysafterpurchase,while62%offerthesameoptionfromotherstoresorlocations.
Oursurveyofretailersalsoshowscollectionthesameday,nextdayandtwoormoredaysafterpurchasearetheirfastest-growingcollectionoptionscurrently–andthehighestrankedoptionstheyplantoofferinthenexttwotothreeyears.
Priceisoneofthemainareasofsatisfactionwith‘clickandcollect’,whichisunsurprisinggiventhatmanyretailersoffertheserviceforfree.
The ethical dimensionConsumersandretailersagreeontopethicalconcerns–butshoppingbehaviourisnotalwaysdrivenbyethicalconsiderations.
Whenitcomestoethicalissuesinthesupplychain,ourresearchshowsthatretailersandconsumersbroadlyagree.
Oftheethicalconcernscoveredbyoursurvey,childlabouristhebiggestsupplychainworryforretailers,mentionedby67%ofrespondents.Thisiscloselyfollowedbycausingharmordamagetolocalcommunities,workingconditionsandpollution.Bycomparison,ratesofpayandfairpayarerankedlower.
Thischimeswiththeviewsofconsumers:theconditionsfor,andsafetyof,workersarethetoptworatedconcerns,followedcloselybyharmtowildlifeandthefairtreatmentofsuppliers.However,somelesspeople-relatedfactorslikeclimatechangearestillimportanttobothretailersandconsumers.
Foodforthought
Lookingspecificallyatthefoodanddrinkretailsector,ourresearchshowsconsumersaremostconcernedabouthonestyaboutingredientsandfreshness.Treatmentoffarmersandfishermenandanimalwelfarearealsoonthemindsofamajorityofourrespondents.
However,ourconsumersurveyrevealsthatconsumerbehaviourisnotalwaysdrivenbyethicalconsiderations.Whileretailersgenerallyrecognisethis,theyarenonethelessbeingproactiveabouttakingactionoverethicalissues,suggestingthatthisisdrivenmorebygood
corporatecitizenshipthanbycommercialimperatives.Thisraisessomeimportantquestionsaboutthewayinwhichretailerscommunicatewithconsumersabouttheirethicalcredentials.
Ageisakeyfactor
Itisnotablethatwhenconsumers’feedbackisbrokendownbyage,theyoungestagegroup,comprising18to24yearolds,isoverallmoreconcernedaboutethicalissuesthantheoldestagegroup,55yearsplus.
Themostmarkeddifferencesseemtobearoundenvironmentalconcerns.Depletionofresourcesisranked8.1outof10bytheyoungergroup,butjust3.9bytheoldergroup.Differencesofopinioncanalsobeseenintheresultsonclimatechangeandpollution.
Conditionsfor,andsafetyof,workersarethetoptworatedethicalconcernsforconsumers,followedcloselybyharmtowildlifeandthefairtreatmentofsuppliers.
Factor Ethicalconcerns% Havetakenaction% Planningtotakeaction%
Childlabour 67 28 22
Harmordamagetolocalcommunities 66 52 41
Generalworkingconditions 64 42 31
Pollutionoremissions 63 67 45
Treatmentofworkers 59 12 18
Workinghours 52 32 19
Illegalactivity 51 23 11
Fraud 49 71 38
Poorstewardshipofnaturalresources 48 43 26
Slavelabour 39 11 10
Maintainingqualityofproducts 32 82 57
MaintainingCSRtargets 29 66 69
Fairpay 28 59 51
Ratesofpay 12 31 21
Percentageofretailerswithethicalconcerns,andwhohavetakenorplantotakeaction
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HighlyunethicalIf you found out a retailer was highly unethical in its supply chain, how likely would you be to avoid it and shop elsewhere?
Highly unlikely
12.8%Not sure8.9%
Not reallythink about it
6.8%
Highly likely
12.2%
Fairly likely
14.5%
Fairly unlikely44.8%
Highly likely
19.7%
Fairly likely
28.4%
Fairly unlikely28.7%
Highly unlikely
9.8%Not sure8.2%
Not reallythink about it5.2%
Slightly unethicalIf you found out a retailer was slightly unethical in its supply chain, how likely would you be to avoid it and shop elsewhere?
Retailers’actions
Feedbackfromretailersdemonstratestheyareproactiveabouttakingactiononethicalissues:almostallhavetakenorplantotakesomeformofethicalactionovertheirsupplychains.Themostcommonactionstakenarearoundmaintainingthequalityofproducts(82%),dealingwithpollutionoremissions(67%)ormaintainingcorporatesocialresponsibilitytargets(66%).Lookingaheadatplannedactions,fairpayisalsohighontheagenda,beingmentionedbyoverhalfofretailers(51%).
However,retailerssaytheyhaveconcernsaboutthelevelofcontroltheyhaveovertheirsupplychainsonethicalissues.Thisismostlikelybecausetheirsupplychainscanbesolongthatcompletecontrolisextremelydifficult.Oursurveyalsoshowsthatagreaternumberoffoodretailers(39%)feeltheyhave‘alot’ofcontrolovertheirsupplychainthanfashionretailers(21%).
Impactofethicalconcernsonshopping
Despitegoodintentionsandsomestrongviews,nearlytwothirdsofconsumers(61%)saythattheytendtoforgetabouttheethicaltreatmentofworkerswhenthey’rebuyingproducts.Breakingdownresponsesbyage,fewerinthe18to24yearoldagegroupagreewiththisstatement(52%)thanthe55-and-overgroup(63%).
However,ourresearchstillshowsthatanarrowmajority(52%)ofconsumersofallageswouldbewillingtopay‘alittlemore’toensuresupplychainsweremoreethical.Interestingly,60%ofconsumersacceptthattheyarepartlytoblameforsomeoftheethicalissuesbecauseoftheirdesireforlowerprices.
Thoseaged18to24arethemostcynicalaboutretailers,withmoreofthem(67%)sayingretailersarebecomingworseinthewaytheybehavetowardssuppliersandpeoplewhoworkintheirsupplychainthanthe55-plusagegroup(55%).
Changingbehaviour
Almosttwothirdsofconsumerssaytheywouldbeunlikelytoavoid,orwouldnotthinkaboutavoiding,shoppingataretailerthatwas‘slightlyunethical’initssupplychainpractices.
Thisfiguredropsslightlyforconsumersaged18to24.Unsurprisingly,moreconsumerssaytheywouldbelikelytoavoidshoppingataretailerthathadactedina‘highlyunethical’way.
Notonlydomostconsumersinoursurveyadmittheytendtoforgetabouttheirethicalconcernswhenshopping,butfeedbackfromretailersshowsthattheybelievethatconsumerbehaviourisnotdrivenbyethicalconsiderations.Askedhowmuchitactuallyinfluencesconsumerbehaviourindecidingwhattobuyandwhentoshop,58%ofretailersagreewiththeanswer‘notverymuch’.
60%ofconsumersacceptthattheyarepartlytoblameforsomeoftheethicalissuesbecauseoftheirdesireforlowerprices.
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Highly likely
19.7%
Fairly likely
28.4%
Fairly unlikely28.7%
Highly unlikely
9.8%Not sure8.2%
Not reallythink about it5.2%
Highly unlikely
12.8%Not sure8.9%
Not reallythink about it
6.8%
Highly likely
12.2%
Fairly likely
14.5%
Fairly unlikely44.8%
Strategies for successThereareanumberofconsiderationsthatretailerscankeepinmindwhenoptimisingtheirsupplychains.
Usedataeffectively
Theuseofmultipleretailtouchpointshasmadelogisticsandsupplychainsmorecomplex,buttheyalsoprovidearichstreamofdata.Usedeffectively,thisdatacanbeanalysedtohelppredictpatterns
ofdemandandstreamlineplanningwithinthesupplychain.
Partnerup
Smallerandmedium-sizedretailerscanpiggybackonthesupplychainsofotherproviders.Thissavestheeffortandexpenseofbuildingasupplychainfromscratch,especiallyinanewchannelormarket.Amazon,forexample,allowsmanysuppliersandretailerstodeliverandstoreproducts
initsownwarehousesforonwardfulfilment,aswellasworkinginpartnershipwithMorrisonsandOcado.
Tapintothesharingeconomy
Retailerscanmakeuseoftheonlinesharingeconomytocopewithexceptionaldemandorpocketsof
demandthatarenotlargeenoughtomeettraditionalsupplychains.Forexample,wheresame-daydelivery
isnotpossiblethroughabusiness’ssupplychain,usingUber’scourierservicemayallowittomeet
demandcost-effectively.
Focusonefficiencies
Onceretailershaveinvestedinnewsystems,warehousesandoperations,thefocusshouldswitch
togreaterefficiency–forexample,prioritisingdeliveriesandshipmentsaccordingtoneedratherthanhavingasinglestandarddeliverytimeframe.
Buildintransparencyandshareinformation
Retailersshouldensureproductsaretraceableateverystepofthesupplychain.Thisallowsthemtoshareinformationwithconsumersandgivethem
peaceofmindaboutethicalissues.
Balanceflexibilityandrigidity
Whilesupplychainsneedtoberobust,atleastpartofthechainneedstobeflexibleenoughtorespondtosuddenchangesindemand.
Thismeansretailersneedtobeabletoscaleupandscaledownquickly.
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Putattheheartofthebusiness
Effectiveretailersnowviewthesupplychainastheheartofthebusinessandasameansforsatisfying
consumerdemand.Ensurethatsupplychaincolleaguesmeetandtalkwithbuyers,store
managers,customerinsightteamsandothercustomer-facingpartsoftheorganisation.
Test,testandtestagain
Regulartestingofthesupplychainwithexercises–realorsimulated–isagoodwaytoensuresystemsandoperationscancopewith
changesindemand.
Thinksmall,notbig
Traditionalsupplychainsaregeareduptothinkinbulk:multipleunitsdeliveredandsuppliedtoalimited
numberofdistributionpoints.Themodelhasnowchangedandneedstobeabletocopewithsingle
unitsdeliveredtomanydistributionpoints,includingtocustomersathome.
Spreadrisk
Thiscantakemanyforms,includingusingarangeofsupplierssothataretailerisnotreliantonasinglesourceforanimportantproductorcommodity,
orensuringthatapopularitemisnotdeliveredfromasingledistributioncentre.
Theomni-channelsupplychain
Thesupplychainnolongerendswhenaproductisdeliveredtoastore.Omni-channelmeansthatstoresareoftenmini-warehousesordistributionpointsfrom
whichproductsaresuppliedtootherstoresordeliveredtocustomers.Assuch,retailersneeda‘onestockview’ofthesupplychain,givingthemvisibilityofinventory
acrosstheentireorganisation.
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Case study: John LewisInaturbulenteraforretail,JohnLewishasemergedasoneofthesector’ssuccessstories.However,itssuccessisn’tjustdowntoshinynewstoresandaniftywebsite.Behindthescenes,thecompanyhasrevolutioniseditssupplychain.
AsTerryMurphy,DirectorofNationalDistributionCentreOperationsatJohnLewis,putsit:“Thesupplychaintodaylookscompletelydifferentfrom10yearsago.Backthen,wewerehavingdebatesaboutwhentomovefromfive-orsix-daystoredeliverytoseven-day.Nowthat’soldnews:thedebate’sabouthowtobecomeevenfasterandmoreflexible.”
Thechangingroleoftheirdistributioncentre
JohnLewis’extensiveinvestmentinitssupplychaincapacityandcapabilitieshasembracedthespiritofomni-channel,withdistributioncentresnowfillingthedualroleofstockingstoresanddirectlysupplyingcustomers.Atatimewhenmanyindividualcustomerordersaresenttostoresforpick-up,thishybridmodelmakessense.IthasalsochangedthewayinwhichJohnLewissuppliesitsshops,withmanymoreitemspickedinsingleunitsratherthaninbulk.
AsTerryMurphyexplains:“Sincewewerepickingsingleunitsforcustomers,wealsoprovidedsingleunitsforourstores.Thatreducestheneedforshopstohaveexpensivestockroomspace.It’salsomoreefficientthatway–thebestplaceforstockisupstreamratherthaninstore,soitcanbedivertedtowhereitneedstogoratherthanperhapsbeingstuckatabranchwhentherecouldbestrongdemandinanotherpartofthecountry.”
DistributioncentreslikeJohnLewis’immenseMagnaParkarealsosmart;theyhavethelayoutofeveryshopfloorintheirsystemswhichenablesthemtointelligentlypickforanypartofthestoreandunderstandhowmuchstockisneeded.
Consumerdemands
AsmuchasJohnLewishasbeenwillingtoinvestinitssupplychainand,indeed,hasprofitedfromit,likeotherretailersitshandhasbeenforcedtosomeextentbyincreasinglydemandingconsumers.
“Peopleexpectthingsnextdayorthesamedaynow,”saysTerryMurphy.“That’sthenorm.We’vehadtoreacttothatandwe’renowatrue24/7operation.Evenso,itcanstillbedifficulttopredictdemand,especiallywheneventslikeBlackFridaycomealong.”
Thisunpredictabilityofdemand,especiallyatpeaktimes,isoneofthecentralchallengesformodernretailsupplychains.Nosupplychaincanbepermanentlygeareduptooperateatmaximumcapacity,soflexibility–beingabletoquicklyrampupandscalebackdownagain–iskey.Whenthisdoesn’thappenseamlessly,theresultsareplaintosee,asrecentfailuresofanumberofhighprofileretailersduringBlackFridaytestify.JohnLewis,however,copedadmirablywiththespikeindemandovertheperiod.
Thesecret,accordingtoMurphy,liesinplanningandtesting.“Weplanextensively.Welookatthenuancesandwepredictdemand.Thenweensurewehaveadequatecapacitytocope.Thatmeansopeningupsomeextracapacity,bringinginstafffromheadofficeandagencies,anddoingasmuchworkaswecanbeforetheevent.”
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Thatpre-workincludesthingslikepre-packingitems,testingthesystemsandprocesses,andensuringthatpopularproductsarespreadbetweendifferentdistributioncentressothathighdemandisnotconcentratedinjustonelocation.OnceBlackFridayisover,it’stemptingtothinkofthedistributionandlogisticsteamssittingbackandrelaxing.However,demandgeneratesreturns–somethingtheteamshavetocopewithjustasdemandstartstopickbackupagainforCyberMondayandthentheChristmaspeak.
Adaptingtochange
Despitealloftheinvestmentandtheincreasedflexibility,oneoftheongoingchallengesisthatdemandgrowsmuchfasterthanthecapacitythathasbeenadded.However,Murphyisoptimistic:“It’snotjustaboutaddingmoreandmore,it’saboutworkingmoreeffectivelywithwhatyoualreadyhaveinordertoincreaseefficiencyanddeliveronwhattheshopsandcustomersneed.”
Inthisrespect,JohnLewishasalreadymadechanges,bringinginchargesforlow-value‘clickandcollect’orders,forexample.Butthereisfurthertogo.
ForMurphy,personalisationisthekey.“Atthemomentallofour‘clickandcollect’isdeliverednextday,butnoteveryonewantsthat.Somepeoplemayvisittheirlocalstorejustonceaweek,forexample.Ifweknowandunderstandthat,wecanprioritisebetterandthatenablesustosmoothdemandandmaximisecapacitywithoutphysicallybuildingmorewarehousesortakingonmorepeople.”
Thisconnectionbetweenthefrontendofretail,wherethecustomersits,andthebackend,wherelogisticsanddistributionsit,isoneofthekeystosuccess.Itrequiresmuchmorecoordinationandcommunicationbetweendepartmentsandarguablyputsthesupplychainattheheartoftheoperation.
Murphysaysthat’sexactlywhereitshouldbe:“It’soneofthemostsignificantpartsofthebusiness–ifashopgetsitwrong,that’sbad,butit’saffectingonlyoneshop;ifthesupplychaingetsitwrong,thenthewholebusinessreallysuffers.”
TerryMurphyDirectorofNationalDistributionCentreOperationsJohnLewis
“It’snotjustaboutaddingmoreandmore,it’saboutworkingmoreeffectivelywithwhatyoualreadyhaveinordertoincreaseefficiency.”
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About the authorIan Gilmartin Head of Retail and Wholesale Corporate Banking
Ian Gilmartin is Head of Industry for Retail and Wholesale at Barclays Corporate Banking across the UK and Ireland, where Barclays has operated a sector specialism for almost 30 years. He and his team of Relationship Directors are responsible for thousands of clients, ranging from boutique fashion houses and high-street booksellers to department stores and listed companies.
Ian has over 20 years of corporate banking experience and has spent the last five years providing specialist banking services to retailers and wholesalers as part of the leadership within the Retail and Wholesale team. Prior to that, he was a Senior Relationship Director in the Technology, Media and Telecoms team, and has experience of other sector verticals from his early career.
Since taking on his current role, Ian has become a regular commentator in the national, regional and trade media on retail trends and industry issues, as well as retail sales figures.
T: 020 7116 6868 [email protected]
To find out more about how Barclays can support your business, please call 0800 015 4242* or visit barclayscorporate.com
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No part of this publication may be reproduced or stored in a retrieval system, in any form or by any means, electrical, mechanical, photocopying or otherwise, without the prior consent of the publishers. The views and forecasts presented in this report represent independent findings and conclusions drawn from a study by Conlumino. Conlumino can accept no responsibility for any investment decision made on the basis of this information or for any omissions or inaccuracies that may be contained in this report. This report has been produced in good faith and independently of any operator or supplier to the industry. We trust that it will be of significant value to all readers.
The views expressed in this report are the views of third parties, and do not necessarily reflect the views of Barclays Bank PLC nor should they be taken as statements of policy or intent of Barclays Bank PLC. Barclays Bank PLC takes no responsibility for the veracity of information contained in third-party narrative and no warranties or undertakings of any kind, whether expressed or implied, regarding the accuracy or completeness of the information given. Barclays Bank PLC takes no liability for the impact of any decisions made based on information contained and views expressed in any third-party guides or articles.
Bar clays is a trading name of Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 122702). Registered in England. Registered number is 1026167 with registered office at 1 Churchill Place, London E14 5HP.
August 2016. BD02456.
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