Why can’t retailers fix their age-old problems?

Cast your mind back to 2018 and think of the main challenges that the retail industry faced at that time. There are six main challenges, all of which are ones that retailers, regardless of their sectors, would recognise:

• Competition from similar brick-and-mortar retailers with online presence, online-only retailers and discount retailers offering similar product assortments.
• Organisational structures that still bare the hallmarks of the channel-silo created during the birth of online shopping some 15 to 20 years previously.
• Less-than-ideal levels of inventory accuracy, especially in stores.
• High costs of last-mile delivery of online orders.
• Low levels of demand forecasting accuracy.
• Rising levels of product returns, considered as an unavoidable cost of a growing online business.

Fast forward to 2023 and all these challenges are still with us. Not only are they unresolved, in some cases, they have become significantly more problematic.

• Competition now comes from online marketplaces, through the increased demand for pre-used product available through resale channels and from brand manufacturers selling direct to consumers.
• Siloed organisational structures remain in many companies, engrained with vocabulary such as the retail division being responsible for stores and the direct-to-consumer division looking after the online channel.
• Underutilised transportation capacity, with costly delivery fleets operating below capacity in a retail market in which consumers are increasingly concerned about emissions.
• Return volumes have skyrocketed in the past two years, and in the United States alone now represent 16.5 percent of sales revenue, up from 10.6 percent just two years ago.

So why are the challenges of the past five years still evident within the retail supply chains of today and why have many become more difficult to resolve?

The clues lie in the nature of the challenges, the difficulty and, in some cases, the attractiveness of their resolution within the organisation.

Some challenges are difficult to tackle

It’s really hard for retailers to recognise that the model they’ve built up over the years may not be the most appropriate one for the future. Their investments in stores, web presence and the development of supply chains to service these channels may no longer be the most appropriate for the challenges that lie ahead in their markets.

Retailers that predominantly sell new product to consumers through their own channels need to recognise that the choices available in the digital department stores of today’s marketplaces have a compelling attraction to consumers.

Equally, the growth in environmentally conscious consumers keen to avoid used product entering landfills prematurely is driving an increase in purchases or rentals of used, rather than new, products across many sectors, especially apparel, footwear, do-it-yourself and consumer electronics.

Organisationally, the decisions retailers made many years ago to establish a separate, fledgling online channel remained unchecked for many years and have now created a situation in many retail companies where employees work for a channel rather than the enterprise. This promotes age-old infighting over ownership of inventory, the consumer and, more tellingly, the consumer experience itself.

Others aren’t that attractive to resolve

From the angle of how attractive challenges are to resolve, we need to look no further than transportation utilisation and returns management.

In the main, retailers are isolated entities. Fiercely competitive and, in most cases, highly reluctant to collaborate with peers and in danger of suffering in silence. Retailer supply chains pretty much all do the same things: make products, move them, sell them to consumers and then deal with returns.

Due to the similarity of these supply chains, there’s also a high degree of similarity in the difficulties they encounter in improving operations and profitability. Yet to a large extent they tackle the same problems, using their best efforts, but in isolation from their peers looking to do the same.

To avoid retailers battling current and historical challenges in isolation, they need to develop more collaborative transportation arrangements, working more closely together or through third-party providers to reduce emissions, present themselves to consumers as more purpose-driven than profit-driven and improve the efficiency of their supply chains.

Finally, onto returns. How many people join a retail company with the intention of reducing the volume of product returns versus working on a high-profile digital transformation program? How many more need to do so to tackle the growing issue of consumer returns? None.

What’s needed is for retailers to rebalance the relentless, and often unattractive, chore of processing more and more returns towards innovation. They need to create space for innovation, for emerging technology and for enhanced understanding into not just what consumers buy but why they don’t retain some of those purchases. Resolving the returns issues of today requires prevention rather than processing. And that’s something much more attractive for employees to work on.

The challenges of 2018 are still the challenges of 2023. But through a shift in how they’re solved, retailers can avoid them being the challenges of 2028.

This article was republished with permission from the Gartner Blog Network.