It is no secret that retailers suffered through the past two years. With business, as in life, Nietzsche’s adage “what does not kill me makes me stronger” holds true. While the pandemic-era supply chains have been strained to their limits with the unprecedented and unanticipated major consumer shift to e-commerce, retailers are now ready to rise from Covid’s ashes to become stronger, but first they must embrace a totally new reality.
Retail is ready for the Next Big Thing, but it isn’t going to happen with a new fashion trend or simply improving product lines. It’s going to require a much less visible but game-changing paradigm shift that will permanently alter the industry’s course.
What Covid laid bare was an uneven playing field, with the “Big 3” retail giants pocketing an ever greater share of consumer wallets by leveraging their scale and scope to compete in the free shipping, fast delivery game. Exacerbating this dilemma, smaller retailers and brands have been absorbing constant and unexpected rate increases from transportation providers compounded by a seemingly endless drumbeat of capacity and labor issues that continues to chip away at their bottom line.
To compete and even survive in this challenging environment, retailers and brands require economies of scale that are seemingly beyond their reach. The question becomes: how can they achieve that goal?
The answer is simple: Small and mid-size retailers need to take a step back and acknowledge where they can successfully compete and excel in today’s increasingly e-commerce-centric market–and where they cannot. In my experience, retailers thrive when they focus their mindshare and finite resources directly on customer-facing priorities through better product design, merchandising, store operations, and marketing. In contrast, their fragmented “go it alone” approach to back-end systems such as supply chain and tech, especially in the e-commerce era, continues to siphon off large chunks of precious capital and margin.
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Fortunately, retailers have a lifeline: each other. While competing for the hearts, minds and wallets of consumers on the front-end, they can gain economies of scale in fulfillment and shipping by cooperating on the back end. The goal of this model of “co-opetition” is to aggregate relationships and bring scale and efficiency to the business of moving products through the supply chain.
There’s precedent for this.
Decades ago, brands began to shift product sourcing offshore to contract manufacturers, often right alongside direct competitors utilizing the same facility. This move allowed those brands to manage their cost of goods and selling price points by leveraging the economies of scale. It’s now time to do the same with their extended supply chains.
While co-opetition is not new for retailers in the manufacturing arena, executives need to realize that the same level of co-opetition can be achieved at both ends of the supply chain–sourcing and shipping. Although not explicitly acknowledged, shipping co-opetition is already in play in last-mile delivery as competing brands’ parcels ride side-by-side on national carriers’ delivery vans to reach the customer. Unfortunately, retailers and brands are not the ones benefitting from this efficiency. It’s time brands take control of their collective destinies and band together on all stages of shipping—from the fulfillment center to the customer’s door. It’s simply the only way to prevent ever-escalating shipping costs from entirely consuming their profit margin…and eventually their company.
As the world starts to see a light at the end of the pandemic tunnel, let’s look toward the future with a new way of thinking…and a new way of business. Now is the time to team up on the back-end while competing (and succeeding) on the front-end. The next Big Thing in retail is co-opetition.
Brent Beabout is the president and founder of AirTerra Inc. He is a seasoned supply chain executive with extensive experience leading large-scale supply chains, including numerous Fortune 100 retail brands like Nordstrom, Walmart (e-commerce division), and OfficeDepot|OfficeMax. Beabout holds engineering degrees from the Pennsylvania State University and Massachusetts Institute of Technology (MIT) and an MBA from MIT’s Sloan School of Management.