The other week, as tariff after tariff was announced by the White House, I found myself thinking about supply chains, and specifically how much retailers have adapted and evolved theirs over the past two decades to accommodate the change in consumer shopping habits. Much has been said about retail theatre, and how important the shopping experience is in order to keep brick-and-mortar stores alive on the high street, but I began to think that perhaps there was more to the store story; perhaps, behind the scenes, the role of the shop has been changing like the rest of the supply chain since the advent of online shopping at the turn of the century.
It was around a decade ago when click and collect really hit the big time – although the service had been around since the early 2000s – with around 35-40% of UK retailers offering it as a way to encourage shoppers to come in-store whilst still providing the convenience of guaranteed products. Speaking to John McNamara, Chief Strategy and Transition Officer at Authentic Brands Group, he told me: “When the consumer comes in-store they can be converted into buying something else as well as what they have already purchased online and that raises the average order value.” Now, around 70% of major UK retailers offer click and collect and virtually 100% have an online faucet. But how has this changed organisations’ approaches?
It was around a decade ago when click and collect really hit the big time – although the service had been around since the early 2000s.
The crux of the issue is fundamentally an IT one, according to John, who tells me that it is the operational side of the supply chain that has seen the most change. He says: “If I’m going to fulfil a consumer order, I need to know that I’ve got stock to cover it. It’s a two step process. The first step is, if I’ve got a consumer on my website, I need to be able to tell them with certainty whether I do or don’t have inventory in the store they are looking to collect from. The second is I then need to put that order against the item that they have ordered and reserve them for the consumer to come and collect”.
“That’s a massive change for most companies, particularly those that have legacy IT systems.”
This is because, before click and collect or online shopping, the system was dramatically different as retail supply chains were structured around a more linear and store-centric model. This meant that goods were produced by manufacturers and then shipped in bulk to national and regional distributors. These distributors acted as intermediaries, managing inventory and logistics for multiple retailers before shipping the products to brick-and-mortar stores based on forecasted demand. These forecasts were calculated in line with previous sales, so many companies were looking backwards rather than forwards.
Now, however, there is far more flexibility and efficiency in this process, with considerably less product being held on-site. For smaller retailers, who aren’t as developed in this area, there are alternatives. Roy Perticucci, former Chief Executive Officer at Allegro, explains to me that these smaller retailers can harness the ever-growing locker systems whilst they scale because online sales are only going to continue to rise. He tells me: “Overall, parcel volume is going to increase as the share of online spend grows and then I think on the supply side, the scale of the supply chains will continue to grow to reflect and support that. Off the back of this, I think there’ll be a shift to lockers.”
Although click and collect only accounts for around 20% of total online orders in the UK it remains a strategic priority for many retailers because it not only encourages customers to come into stores, it then gives stores the opportunity to upsell. It is also more efficient for companies. This is because it allows for better inventory management and lower fulfilment costs due to reduced delivery expenses, and the ability for orders to be picked and packed in batches rather than individually, like for home delivery.
Yet, there are some challenges that click and collect brings with it, namely creating bottlenecks in-store as their consumers are more likely to collect their purchases around lunchtime or after work. This then feeds into considerations around staffing and stock availability which logistically can be quite complicated. According to John, there is potential for a store in major cities to take on a similar role to ‘dark kitchens’ which have emerged in the hospitality sector, which simply fulfils orders without being customer-facing. He tells me: “It feels like, in the future in big cities like London and Berlin, some stores may turn into dark stores to fulfil e-commerce orders as opposed to there just being one distribution centre for Europe.”
Yet, there are some challenges that click and collect brings with it, namely creating bottlenecks in-store as their consumers are more likely to collect their purchases around lunchtime or after work.
It stands to reason that an increase in online orders inevitably leads to an uptick in returns, which John says causes a headache when it comes to supply chain. “Supply chains are designed to go in one direction,” he tells me. “They only have a forward gear, so returns are difficult. Lots of retailers won’t accept returns back in-store because they don’t have the ability to refurbish the product there.” “When items are returned, it makes sense for them to go back to the warehouse as there’s an entire section which is set up to handle returns. For example, if the box is damaged, it will be re-boxed, or if there’s a mark on a product it can be cleaned. This doesn’t exist in stores. John tells me returning to stores only lengthens out the process. “It becomes a two-stage process when the consumer returns it to store because then the store has to return it to the warehouse,” he says.
Although there has been much conversation around how AI could help to solve issues like returns, Roy tells me that he doesn’t think this technology has been used to anywhere near its potential yet. He says: “Generally speaking, I’m not so sure how far people have got on the supply chain side, beyond forecasting. I think there are probably quite a lot of retailers who are using AI increasingly well to improve their demand forecast.” John agrees, saying: “I don’t know how many retailers have found a way to utilise AI beyond some simplistic automating rote tasks.”
And there is still human nature and unpredictability to think about when considering forecasting, such as a celebrity wearing an accessory or an item of clothing, which makes the product go unexpectedly viral with a surge of sudden demand.
Compared to a decade or so ago, the retail landscape has changed dramatically, and the consumer’s role is far more active than it used to be thanks to click and collect and online orders.
Compared to a decade or so ago, the retail landscape has changed dramatically, and the consumers’ role is far more active than it used to be because of click and collect and online orders. Going forward, it is crucial for businesses to focus on their inventory visibility and to consider the changing role of the brick-and-mortar store, which, in some cases, now acts as a mini warehouse. Although the innovation isn’t there yet, AI is certain to become critical in the future of supply chain, and as the landscape keeps evolving, it is clear that retailers and their supply chains will need to do the same. Retailers that have already embraced advanced technology and in particular AI, will be the clear winners. As the AI revolution continues, we at MBS are tracking the stars in the space.
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