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Retailers, Forget Loyalty and Focus on This

Inventory is the new loyalty program and competitive advantage remains with the supply chain, according to a new study from Deloitte.

“Main Street retail was changed forever by big box. Big box has been changed forever by direct-to-consumer and online. So the battleground always comes back to the supply chain,” said Rod Sides, Deloitte vice chairman and U.S. retail leader.

Deloitte surveyed 50 senior retail executives, representing companies of $1 billion in revenue or more, with participants asked about their views on the next 12 months for retail. The findings were presented in Deloitte’s 2022 Retail Industry Outlook, with workforce retention, bolstering the supply chain and digital investment identified as the top priorities among executives.

The report underscored the importance of supply chain investments, amid the current challenges in moving goods from source to store.

Some 80 percent of those surveyed by Deloitte said they expect consumers to place greater importance on retailers’ ability to keep their shelves stocked over loyalty to any given brand.

“It’s all about finding that [product] in the moment,” Sides said of consumers, adding, “The bird in hand is certainly what everybody is looking for.”

Retailers looking to remain competitive have managed that in different ways.

Anaheim, Calif.-based retailer Pacific Sunwear of California LLC, which has in more recent years touted a digital-first strategy as it seeks to remain relevant to Gen Z, launched same-day delivery in December.

The 375-store retailer tapped 40 of its stores in primary markets including Los Angeles, Chicago and New York to be the first to offer same day, enlisting software company Delivery Solutions to help with fulfillment.

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Executives surveyed by Deloitte are currently pumping money into enterprise resource planning, inventory management, supply chain analytics software, fulfillment and warehouse management systems as the top five areas of investment.

Fifty-seven percent of the executives participating in the survey told Deloitte they are not currently planning to spend on robotics or automating goods handling.

“The business case for a lot of retailers is it’s a pretty long payback when you start to look at the amount of labor in the distribution aspects, in the DCs, etc. Most of the retail supply chains are still set up as flow facilities,” Sides said of why there may not be as much interest in robotics investment currently.

The other part of it is most expenses are still wrapped up in the stores for most brick-and-mortar companies. That’s different, Sides said, for direct-to-consumer companies that may be able to justify greater investment in areas such as automation.

“If you’re a digital-first player and you’ve got a larger percentage of your headcount tied up in supply chain activities, I think you could make the case a lot easier,” he went on to say. “It’s not that retail executives don’t understand the value. I just think it’s a relative prioritization.”

One thing a growing number of companies may want to look into is transparency, particularly as consumers demand more information about product sourcing.

Sharing of information between retailer and supplier has never been more important, with Sides saying information around the product, such as how something is manufactured, engineered or the type of labor involved, could add a level of substance for consumers interested in that information.

Retailers’ supply chains could also be enhanced by working with landlords in what could be a beneficial move for both parties.

Brands share information about their consumer, and real estate operators could potentially assist with receiving or last-mile shipping.

“If you’ve got a mall operator or owner, knowing the profile of the consumer walking in the door of the center is pretty important,” Sides said.

Some mall operators have begun dabbling with these kinds of partnerships in more recent years at varying degrees.

Santa Monica, Calif.-based shopping center owner and developer Macerich in 2018 made a go at that with BrandBox. The retail concept was aimed at bringing digitally native brands into the physical realm by offering retail real estate, with access to data, such as conversion rates and foot traffic.

The concept launched at Macerich’s Tysons Corner Center in Tysons, Va., with the property the current sole location touting BrandBox.

Another interesting partnership struck between a mall operator and its retail tenants is Dallas-based Centennial, which has made some of its physical centers shoppable online and also key players in fulfillment for tenants.

The real estate company tested the Shop Now feature at its MainPlace Mall in Santa Ana, Calif. and has since expanded it to eight other properties. Consumers can shop real-time inventory from participating stores at the mall from the mall’s website, with same-day delivery an option for locals.

“There’s a lot of sharing that can go on there,” Sides said of mall landlords and tenants. “I think there’s an opportunity for landlords to be more than just a node of distribution. I think they can be valuable partners for retailers as we move forward.”