Recently I sat down for a podcast interview with Trent Kling of Retail Focus to talk about emerging strategies such as inventory considerations, Machine Learning (ML), and customer loyalty. This is a summary of our discussion, or if you prefer to listen, here is the podcast replay link.
Inventory is on retailers' minds, along with how to leverage technology to help. With the expansion of supply chain channels to keep up with the growing customer demand, it's a matter of figuring out the correct path for the retail inventory that's been piling up due to COVID-19. In this Q&A interview, Trent and I explore how retailers can get a handle on their inventory leveraging technology and best practices.
Trent: What are some of the big decisions for retailers regarding distressed inventory, especially those that have too much on hand due to traffic reductions?
Me: One of the first questions that they have to get a good understanding of is, "what do I have and where is it?" In the fashion space, I think retailers still struggle with answering that question. How much of it and where is it makes those subsequent discussions and decisions a bit harder.
I think this is where we've come a long way in the retail space over the last 5-10 years, having that answer to what do I have and where it is. A lot of retailers had to answer that to start with, and then that second part of that is where it should be? If it's in a closed store, can I do anything with it, or is that unavailable to me to fulfill orders? Or can I leverage that closed store in the short term as a gray store to fulfill customer orders?
Trent: Some retailers might have figured out that there's a problem with not only knowing what inventory they have on hand but where specifically that inventory is. Is it a situation where once you figured out the problem exists, it's too late, or how quickly can retailers scale up a full knowledge of their inventory to the extent that they need it in 2020?
Me: I think it's going to vary a bit by the type of retailer and what systems they may have in place, but we have seen some customers with the right solutions in a matter of weeks be able to execute curbside pick-up for the first time. We've also seen some of our customers open up those closed department stores and use those as fulfillment centers. So they knew what inventory they had, but they needed a way to quickly spin up a solution that would let them sell that merchandise and fulfill it without having a customer present and without running it through a traditional customer shopping journey in the store.
Trent: For retailers with too much inventory, how can they leverage data and technology to help? What can retailers do to avoid making decisions regarding this inventory that might provide a short-term Band-Aid, through deep discounting, but would cause a long-term scar in customer engagement or their bottom line?
Me: It's one thing to have the inventory, but then how do you now get it out the door? If you go back 5-10 years, some retailers went down the path of promotion, promotion, promotion. And everything is a markdown, and the item is on sale, it seemed every week, and I don't think that's necessarily the right path for a retailer to take because it can impact the brand.
So everyone needs to take a look at what is that right path. I may do a few more promotions, or maybe I'm going to do fewer promotions, but at a better discount. It's taking a step back and doing more of that analysis and leveraging the tools at your disposal and bringing science such as ML into play to improve margins and doing 'what if' analysis and understanding. For example, deciding are two promotions better than doing six and then going into markdown.
When taking a look at your brand, is it based around every day discounting, or is your brand more around the quality of the product, and what is it that you sell? Having to balance that tight rope that our retailers are walking today isn't easy, but I think if you look at where you're at today and where you want to be down the road and then letting technology help. JCPenney comes to mind. They had changed their discount strategy, and it didn't quite work, and so then they had to revert back because it seems discounts are their brand at this point.
Then some retailers are having the opposite problem. They're struggling to keep inventory in stock. Home improvement retailers such as Home Depot and Lowes are reporting record sales and products flying off the shelves across all categories.
Trent: What are some of the things that you're seeing in terms of retailers who have the problem of keeping things on the shelves and finding a work-around through the use of supply chain technology and data augmentation?
Me: Retailers have finite resources. So I think they have to be able to pivot quickly. When they know that the supply chain timelines can't change, they need to figure out what the alternatives are and be able to provide accurate inventory information to the customer. So if a customer is shopping online and a store that is 15 minutes farther of a drive away shows the item is in stock and they drive there, it better be there. If let down, that customer may never shop that brand again.
So it goes back to inventory at the root of all of this. Your inventory is accurate, and you're updating that as close to real-time as you can, so then your customers are getting that information as quickly as they can. Also, considering upsell or cross-sell or substitute items to position and taking it into account for forecasting is helpful. If you're out of product A, can you replace it with product B? Retailers can use machine learning to understand not just the impact of that primary product, but any ancillary products.
Trent: On the technical side of retail, how much have things changed in the development and implementation of software for retail stores over the last ten years? And what have you seen in terms of a push back against science technology?
Me: When you say AI and ML, it's like when you say cloud, everyone has a slightly different definition of what that is. We've had science built into our products for many years, but it's getting people comfortable with it. Let's look at a buyer; for example, for 20 years, they have known 'better' than a system does based on their job experience. So it's a mind shift in getting people comfortable with using advanced science in the right place for the correct application, and not just about having science for the sake of it.
A retail buyer might say, "that's just an algorithm; it doesn't know about certain things, I've been doing this for 20 years." So it's really about helping retailers understand that science and ML is something to complement, not replace the knowledge base that is there. It should be there to augment the employee's depth of knowledge. By leveraging ML and AI to do some of those more mundane day-to-day tasks lets them focus on the uniqueness of their business – the exceptions, discrepancies, or even the more exciting tasks at hand.
Trent: How can companies extend customer loyalty at this time during COVID-19 without coming off as exploitative of the customer, given that customers are more alert and educated than ever?
Me: It's about being appreciative of your customers and not expecting something from them. Also, retailers should take a look at who isn't their customers. Who are the other consumers that are not my customers and understanding, here's who I have today, and yes, taking good care of them, but also looking at that broader consumer base to see who isn't a customer yet and understanding why aren't they shopping with me? Leveraging Consumer Insights is great for determining that.
Looking at your loyal customers as individuals and putting the customer at the center of things is also very important. It's not just about doing a blanket promotion after promotion, but doing something that is indeed targeted to that individual and making that customer feel that they're valued. Once you better understand a customer and why they shop with you—making your promotions more relevant and timely is key. Also, being mindful of those marketing campaigns that you're sending out and fine-tuning them even more. Because in the end, everyone wants to feel like they are valued. It's becoming a lot more about individualization, personalization, and segmentation as we continue into 2020.