Key Takeaways from NRF 2017

Last week, I attended the National Retail Federation’s (NRF) Big Show at the Jacob Javits Center in New York, NY. This was my ninth straight year attending the show since becoming an analyst, and my fourth year of attending as a member of ARC Advisory Group. This show has historically been a very large and busy show, and this year was no exception, with nearly 35,000 retailers and industry partners in attendance. Every year a central theme seems to arise as I walk the show floor. This year, one of the main themes emerging was around personalization. There is not a huge supply chain impact when it comes to personalization, as it is all about personalizing the customer experience. Even so, it is very interesting to see where personalization is moving, and the amount of data that retailers have at their fingertips to make improvements to the customer experience.

From a supply chain standpoint, there was a strong presence of e-commerce fulfillment and inventory visibility as major themes. And really, these two themes go hand in hand. Inventory visibility is critical for the success of e-commerce fulfillment. E-commerce fulfillment has many layers and many complexities; it is something that cannot be jumped into lightly. The starting point is figuring out how to fulfill e-commerce orders. According to ARC data, the majority of retailers fulfill e-commerce orders through a distribution center (DC), either from a traditional DC that also serves e-commerce, or a web-only DC. Of those retailers that are using a DC, nearly two-thirds are segregating e-commerce operations from traditional fulfillment operations, either via physical layout, inventory availability, or labor management.

The other main method of fulfilling e-commerce orders is from the store. There has been an uptick in store-fulfillment over the last few years, as more and more retailers see the store as a fulfillment center as well. The two main methods for store fulfillment are shipping orders from the store and holding orders for pick-up at the store. Both of these methods have their benefits and pitfalls.

One benefit of shipping from a store is the reduction of mark-downs. If an item is not selling in the store, inventory can be sold at full price in the web store. However, the skill sets attributed to assisting customers in the store and picking, packing, and shipping orders are quite different. This requires added training, and can leave the store short-handed. When looking at pick-up in store, one benefit is getting the customer in the store for a web order, with the possibility of an up-sell or cross-sell. A downside, however, is the dedicated resources to picking that order when they could be assisting another customer. Both of these methods rely on accurate inventory counts. This means store associates need visibility into how much inventory is in the store, and where that inventory is located. Without accurate counts, the store will remain the weak link in the omni-channel commerce landscape.

Two of the big meetings I had really touched upon these themes. The first meeting was with Manhattan Associates. In that meeting, we discussed how retailers now have the tools to essentially optimize demand versus supply. However, one of the shortfalls is the fact that when decisions are made about how much inventory to carry, other stakeholders are impacted. As a result, Manhattan has built out their sales and operations planning (S&OP) solution. Now, when a company is looking at the demand of products, they can make adjustments to inventory levels that allow relevant stakeholders to see if the change makes sense. This means that sales, marketing, operations, and logistics executives can see how the change will impact their department, and ensure they have the necessary resources in place to deal with the change. Manhattan has also added a “what if” feature that looks at the impact of scaling back inventory. The goal here is make sure that retailers are making the right decision on inventory levels, and providing visibility to all stakeholders that will be impacted by these changes.

The second meeting that touched on the main themes was with JDA. In this meeting, we discussed how historically, the store has been the weak link in omni-channel operations. More and more retailers are trying to make the store a fulfillment center, which brings on a set of challenges (as outlined above). JDA is seeking to solve the problem of the store as a fulfillment center. The company took a lot of what it has learned from building its warehouse management system (WMS) and applied it to its store optimizer product. This solution is all about inventory visibility within the store. This goes beyond knowing how much of an item is in the store; it is also looking at the specific location of the inventory, including if it has been put back in the wrong place or left in a dressing room (for apparel). Too often, store orders cannot be fulfilled, or are delayed, because the item simply cannot be located. The store associates use a communication device that knows where they are in the store, allowing the store manager to delegate tasks more easily. The goal is to make the store an integrated part of the omni-channel footprint.

Now with another Big Show officially in the rearview mirror, it will be interesting to see how the main themes evolve over the course of the year. Inventory visibility and e-commerce fulfillment are becoming increasingly important as more and more retail traffic is flowing to the Web. I’ll certainly keep a close eye on both of these trends, and will check back later in the year to see how they are changing and hopefully improving. NRF 2018 is only 51 weeks away. I’m already curious to see which themes will emerge next year.