In a May 2014 Supply Chain Matters commentary, Recruiting the New Era of Retail and Online Fulfillment Leaders, this Editor made the following statement:
“In this era of online retailing and Omni-commerce, there are two leadership competencies that will differentiate tomorrow’s executive leaders in retail. They are a deep understanding of social-media fueled marketing and Internet focused retailing, and a deep awareness, understanding and appreciation of end-to-end supply chain inventory deployment and fulfillment capabilities. From our lens, recruiting for retail C-level executives has been too focused on classic merchandising, finance or traditional brand marketing.”
Our commentary at that time reflected on business media reports indicating that major retailers such as JC Penny, Target and others were finding it difficult to recruit a qualified CEO.
Now, more than seven months later, it is important to reflect on what is occurring, namely that some retail industry CEO selection teams now weigh operations leadership experience over that of pure merchandizing.
In late- July, Target, for the first-time in its history, brought in former PepsiCo executive Brian Cornell as its CEO. Before accepting the Penny CEO role, Cornell had prior experience in leading PepsiCo’s Americas Food business unit and the Sam’s Club warehouse business for Wal-Mart stores. Cornell is now in the process of re-evaluating all of Target’s operations and supporting processes.
Also in late July, Tesco recruited Dave Lewis, a 28 year executive veteran of Unilever as its new CEO after first-half profit trailed the grocer’s expectations. Lewis previously led the expansion of one of Unilever’s fastest-growing businesses, and was the first outsider CEO hired by the UK retailer. Lewis’s leadership experience included the chairmanship of U.K. and Ireland business and president of the Americas operating units at Unilever. When the Chairmen of Tesco was asked why that retailer sought with Lewis, he stated:
“If you look at what Dave Lewis brings, David is absolutely the leader in brand management and brand identity, communication, customer development, customer management. Tesco is not short of retail skills.”
Last week, JC Penny finally selected its new CEO designate. In its reporting, The Wall Street Journal lead-in to the announcement noted that Penny elected to go with strength in nuts and bolts retailing rather than flashy merchandising. Former Home Depot and Target operations executive Marvin Ellison will ramp into the CEO position by August of 2015 after a several month transitional period as President. After the disastrous episode when former Apple retail executive Ron Johnson brought the retailer to near financial disaster with a $4 billion hit in revenues, Penny’s directors are opting for a longer ramp-in for its new CEO designee. Ellison will serve under the stewardship of Myron Ullman, who was brought back to save Penny in April of 2013.
Ellison’s accomplishments include 15 years at Target before joining Home Depot, where he held roles in global logistics and vice president of U.S. stores. Ellison was reported to have helped to integrate Home Depot’s e-commerce operations with brick-and-mortar stores, namely implementing the buy online and pick-up in store initiative.
Regarding the JC Penny CEO selection, the WSJ provided the following commentary:
“The appointment also reflects a broader shift in retail in which some big companies have favored detail-oriented operators over executives mainly lauded for brilliance in merchandising, as the industry faces giant new challenges in managing its supply chains and keeping customers from defecting to the web.”
Certainly, each retailer requires different leadership skills at a point in time, and operations experience may or may not be favored. However, the evidence from above indicates that for those retailers who have especially struggled with the impacts and ramifications of today’s Omni-channel retail environment and permanent structural shifts in retailing are opting for proven operations leadership.
Sales and operations, supply chain and customer fulfillment professionals in retail industry environments should take note that this now building evidence of value in operations leadership will hopefully continue for selecting next generation retail leaders.
Keep that in-mind as the next several weeks bring the usual doses of operational realities.
Earlier this month, Supply Chain Matters featured a commentary focused on predictions of upcoming holiday sales. Our commentary referenced the latest forecast from the National Retail Federation (NRF) indicating that holiday sales in the coming quarter are expected to increase 4.1 percent, which in monetary terms, represents the largest rise in holiday sales in the past three years. We further noted an interview on business network CNBC featuring the NRF chief economist indicating that the 4.1 percent may be on the low-end, considering the current trend toward lower gasoline prices and increased employment in the U.S…
A new data point is a recent joint release from both the NRF and Hackett Associates that forecasts ocean container shipments will rise 6.4 percent in October, compared to last year’s monthly volume. The report does caution that August and September port volumes saw modest increases. A report published by The Wall Street Journal interpreted this latest container data prediction as an indicator of more confidence on the part of retailers to bring-in additional holiday sales inventory.
For curiosity, we re-visited the port container volumes for the Port of Los Angeles for the periods of July through September, which is traditional high volume inbound period, contrasting TEU volumes in 2013, vs those this year. Indeed, for the three months, 2014 TEU inbound load volumes this year are trending up roughly 6 percent from 2013 levels. That is in the backdrop of the continued uncertainty of a potential port labor stoppage as union labor talks have continued since labor contract suspension earlier in summer. Therefore, if October inbound container volume trends even higher, as indicated by NRF’s forecast, than perhaps retailers have indeed become more optimistic.
We would appreciate hearing from Sales and Operations planners and procurement professionals residing within retail and wholesale supply chains.
We have added a Supply Chain Matters interactive polling question: (Located on the lower portion of our right-hand panel) Is your organization planning increased inventory levels, relative to 2013, to support expected 2014 holiday sales? The poll is anonymous and will provide trending results. Let’s all see what those closest to the action indicate. We will run this poll for the next three weeks.
Like many of you, we will also closely monitor inbound container stats for October.
In the meantime, let’s all observe and best wishes in the upcoming 10 weeks of craziness.
Business media and online channels are abuzz regarding the latest rather optimistic forecast of expected retail holiday sales issued by the National Retail Federation (NRF), an industry trade group of the retail industry. However, retail supply chains need to be prepared for even more challenges and unknowns in the coming weeks leading up to the end of year.
The NRF is forecasting that upcoming retail sales in the months of November and December (excluding autos, gasoline and restaurants) will increase by 4.1 percent over 2013 levels, equating to nearly $617 billion. According to the NRF, retail sales incurred an actual 3.1 percent increase during this same time period in 2013. The current forecast marks the first time since 2011 that holiday sales would increase by more than 4 percent.
In an interview with business network CNBC, NRF’s chief economist indicated that the 4 percent increase could be on the low end, given the current downward trend in energy prices that are benefitting consumers.
Also today, Shop.org released its 2014 online holiday sales forecast, expecting sales in November and December to grow between 8 – 11 percent over last holiday season to as much as $105 billion. Holiday non-store sales in 2013 grew 8.6 percent.
In its release, the NRF wisely warns retailers that shoppers will remain extremely price sensitive and that retailers will have to overcome such challenges through differentiation in value and exclusivity. That trend was reinforced by a recent PwC study based on a poll of more than 2,200 consumers across the U.S. that spanned all demographics and income levels, and defined the holiday season as September through January. The PwC study reported that 84 percent of respondents indicated that they plan to spend the same or less than they did in 2013. That is a somewhat conflicting data point relative to spending levels and for us, is a clear indicator of continued price sensitivity among the majority of consumers. Thus, the retail winners in 2014 are those with the most attractive promotions and merchandising creativity.
Even more confusing is presumptions that termed “webrooming” (researching online and buying in physical store) the opposite of “showrooming” (research and touch in-store and buy online) will prevail this year. We refer readers to various commentaries, including our own, written at the conclusion of the 2013 holiday buying period regarding lessons learned. In early January, the Wall Street Journal produced ShopperTrak trending data related to total retail foot traffic since 2010 that clearly indicates a significant reduction in store visits, by a factor of almost a half since 2010. In our Supply Chain Matters 2013 lessons learned commentary, we addressed information data security (credit card data breaches) coupled with logistics and transportation capacity breakdowns as important lessons. Some of those learnings are now reflected in conversations among retailers and their logistics partners.
What does all of this mean for retail supply chain teams?
It essentially means that the challenges in the upcoming holiday surge are going to be even more dynamic than last year and supply chain agility, flexibility and patience will be all important factors.
Sales and Operations teams will probably have dynamic, perhaps even heated discussions with merchandising and marketing on the timing of promotions, including how late to keep the channels open for orders and guarantee holiday delivery for consumers.
Planning for inventory needs in the correct fulfillment channel will be another challenge and will require a lot of demand sensing and day-to-day collaboration with marketing and merchandising teams. There are but 11 weeks remaining of planning time. Because of the threat of a west coast dock labor stoppage, most of the inventory has arrived and is making its way to various distribution points. Similar to last year, the period between the Thanksgiving and Christmas holidays is a short 26 days and the severity of winter weather conditions will again be all important in assuring continuous logistics flow without last year’s numerous logjams.
One very important other wildcard to monitor is whether economically stressed but savvy consumers, who may have lost trust in the data and information security practices of retailer systems, trend toward shop online and pickup and pay by cash at retail stores at the very last minute. That may well be the 2014 doomsday scenario for retail supply chains that lack adequate agility in inventory re-positioning, multi-channel and logistics partner fulfillment capabilities.
Good luck, best wishes and let the planning and execution begin.
Today’s Wall Street Journal reports (paid subscription) that both FedEx and UPS are working hard to influence retailers on taking different promotional perspectives during the upcoming holiday buying season and avoiding the last-minute delivery breakdowns that occurred in 2013. The tone of this WSJ report indicates resistance to change by many retailers, but Supply Chain Matters is of the view that there are other forces at-work.
The report indicates that UPS is asking online retailers to hold the bulk of their sales discount programs in mid-December, and stagger promotional programs by region, instead of promoting an all-out nationwide surge in the final days leading up to December 25th. Brown further prefers that online retailers suspend free overnight shipping offers on December 23.
FedEx is reported to be attempting to collaborate with retailers on frequent forecasting of volume loads and advising how much volume the carrier’s network will be able to handle in the weeks before Christmas. The carrier will also adhere to supporting a certain defined number of package shipments for individual retailers, but if the FedEx network becomes strained, it will turn away volume that exceeds pre-defined capacity agreements.
Not reported is whether either carrier is willing to extract premium shipping surcharges for last minute, guaranteed shipments which has threatened earlier in the year.
As noted in previous Supply Chain Matters commentaries, both carriers and retailers have been investing time, money and planned supplemental resources to try and overcome the bottlenecks encountered last year.
The WSJ indicates that while larger brick-and-mortar and online retailers seem willing to work with package delivery firms, numerous others indicate they have no intention of staggering holiday promotions or rolling back last-minute promotions for guaranteed holiday delivery.
Unstated but obvious to retail supply chains is that this has been another challenging year for the retail industry, with some retailers continuing to be financially stressed. Suppliers, in some cases, have to deal with extended receivables or elongated payment schedules. There are therefore critical expectations being placed on holiday sales volumes to provide added cash to coffers. One example is Sears, which continues to re-structure to free-up additional sources of cash to fund ongoing operations. JC Penny continues in its challenge to bounce back from a prior management debacle, and restore consumer loyalty in its promotional incentive program. Target continues to feel the after-effects of last year’s massive credit card data breach.
Another important change this year is that more retailers will be experimenting with ship direct to brick and mortar store options for online sales as well as order online, ship from inventory available in-store. There are some indications that consumers are losing trust in the use of credit cards with retailers after a steady stream of other cred-card data breaches among numerous retailers. Instead, more consumers may opt for order online, pick-up and pay at local store as their holiday shopping preference. There are indications that Wal-Mart is currently planning for such a scenario. These changes may or may not help package delivery companies this year. The last-minute spike and bottleneck could well be experienced at brick and mortar stores as consumers queue-up for last-minute merchandise pickups.
Finally, just as occurred last year, the weather will be another important determinant factor. If severe storms or cold occur during December, especially late December, than we could well observe a repeat of 2013.
The important takeaway however, is that retailers and carriers are at least talking with one another at an earlier phase leading up to the holiday surge and that for the most part, both sides are being far more proactive than 2013.
Supply Chain Matters stumbled upon a rather interesting development, one that perhaps provides somewhat of a perspective on today’s economically distressed consumer. By our lens, it is also another reminder to Sales and Operations Planning (S&OP) teams supporting consumer products supply chains that planning for promotional demand spikes based on point-of-sales (POS) data may be fraught with some distorted or inflated data.
The Publix Supermarket chain, primarily concentrated in Florida, which is in a head-to-head competitive battle with Wal-Mart, has implemented new policies regarding the use of coupons among shoppers. According to a published report by the Tampa Bay Times, Publix will limit shoppers to redeeming a maximum of eight of the same coupon per day, per household. There are other noted restrictions, including that if an individual coupon is valued at more than $5, it will require a manager’s approval. The report points to both consumer abuse and shopper feedback as motivating this type of policy.
Several questions come to mind.
How do consumers amass eight of the same coupon? Is this a flaw in the current world of online advertising and promotional offers when digitally savvy consumers have the where-with-all to secure such numbers? From the product demand planning perspective, the question often debated is whether a coupon promotion amounts to a one-time spike or a reflection of consumer attractiveness to that product, and does that indicate a longer-term increase in that product’s demand. One might suppose that S&OP teams would be conducting such debates, particularly the folks representing sales and marketing. Perhaps some of our readers involved in S&OP and demand planning can weigh-in on these questions and whether coupon abuse can be tracked.
Another thought on the potential economic conditions with which Florida or other geographically based consumers are struggling. Is amassing and utilizing such a high number of coupons per household a worrisome economic sign or just a local practice? That, in itself, may be a place to begin.
Perhaps some readers are not struck by such trends. It certainly caught our eye.
Report Indicates Amazon Has Deployed New Sortation Centers in Preparation for Upcoming Holiday Surge
Earlier this month, Supply Chain Matters posted its initial commentary to prelude what to expect in the upcoming holiday buying surge period. In that posting we observed that retailers and parcel carriers had carried over important learning from the 2013 season.
UPS has invested $500 million in plans to augment its package-car capabilities by an additional 10 percent over last year’s levels as well as dramatically flexing its capacity and intermodal capabilities at its Worldport central hub. Brown will also deploy what it terms as pop-up “mobile distribution center villages” that will function across various U.S, network points beginning with the expected holiday delivery surge.
Bloomberg now reports that Amazon has embarked on its own plans to avoid a repeat of holiday delivery snafus. A North Carolina retail advisory firm is cited as indicating that over the past 18 months, the online retailer has deployed 38 new fulfillment centers across North America, plus an additional 15 new “sortation centers” which are an added layer of capability to bypass the busy hubs of carrier partners such as FedEx, the U.S. Postal Service, as well as UPS. These sortation centers reportedly provide added flexibility to work around congestion points during high surge periods, including the all-important days before the Christmas holiday. They are further designed to be an important fulfillment component to Amazon Prime members who have signed-up for free shipping and other privileges.
As we and other have noted, Amazon is further experimenting with its own fleet of delivery vans being piloted in a select U.S. cities.
It is indeed going to be an interesting upcoming test of acquired learning as both online retailers and package carriers over the coming months. Supply Chain Matters will provide continued coverage of B2C/B2B Omni channel commerce learning during the 2014 holiday surge.