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Report That Amazon Has Already Captured Significant Online Holiday Revenue Share

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Business network CNBC is reporting new analytical data made available by Slice Intelligence indicating that Amazon captured nearly 31 percent of all online spending for the period spanning the Thanksgiving through Cyber Monday shopping days.

If this trend is corroborated by other reinforcing market intelligence data, it would represent yet again the significant online dominance of the Amazon shopping platform. Keep in mind that we still have another 22 days of shopping activity remaining before the celebration of the Christmas holiday and Amazon’s reach could well expand.

Other noteworthy findings indicate that online sites of Best Buy and Target Stores made significant online sales gains while Wal-Mart’s online site fell back in the rankings despite having a record number of initial visits.  Macy’s suffered a significant site outage for much of Black Friday and that was reflected in online sales performance.

Data related to just the Cyber Monday period provided by analysis firm ComScore indicates that Amazon, EBay, Wal-Mart, Kohl’s and Target were the most visited retail sites among shoppers utilizing desktops and mobile devices.

The CNBC report further points to major retailers seeing an uptick in the number of shoppers electing to take advantage of the in-store merchandise pick-up option.

Last year, online shoppers waited until the December period to make their purchases, hoping to snag more attractive merchandise discounts and promotions. Going into this year, retailers have generally cut-back on overall inventory investment with the implication that consumers may well experience some stock-out conditions for the most in-demand merchandise.


Initial Indicators for the 2016 Holiday Customer Fulfillment Period

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As we pen this Supply Chain Matters posting on the occurrence of the 2016 Cyber Monday shopping holiday, retail focused supply chain teams already know the obvious. Consumers continue to migrate toward online ordering channels and that presents an added cost challenge for customer fulfillment. The added test for this year will also be which internal teams, supply chain or brand creativity and marketing hold the dominant voice.

Once again, preliminary shopping data from this year’s Thanksgiving and Black Friday shopping holiday periods indicate a continued preference by consumers to avoid crowded shopping malls and physical stores. Most media outlets are currently citing data released by Adobe indicating that online shopping increased 8 percent during the recent shopping holidays. That data is supported by preliminary data from the National Retail Federation that monitored foot traffic among U.S. wide shopping malls. No doubt, other more rigorous quantification data may add more credence to the magnitude of this ongoing permanent channel shift.

Retail focused supply chain teams already know from previous year’s activities that online fulfillment presents added cost challenges in inventory and other logistics costs. This year, many teams have focused on multi-channel inventory optimization and combination ship from physical store fulfillment strategies. Likewise, investments have been made in more automated customer fulfillment centers that can serve both digital and physical channels.

Today’s edition of The Wall Street Journal features a report noting the Gap’s CEO Art Peck’s views regarding the industry’s long fascination with creative brand marketing executives, and that in the end, they have turned out to be “false messiahs.” Instead, the new head of Gap’s business unit is Sonia Syngal, former head of the retail division’s supply chain.  The new focus is now on decentralization in merchandise management, enhanced product demand sensing  and strategies focused more on supply chain agility and response.

Another test for this year will be how much more dominance online retailer Amazon gains in online market share via the combination of Amazon owned inventory and Fulfilled By Amazon online channels. The open question is whether the hosted online fulfillment capability provides a more cost effective channel for small and mid-sized online retailers.

Teams will certainly have more informed data over the coming weeks.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


Supplier Suspends Sales of Inventory to Major Retailer

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This past August, this author penned a Supply Chain Matters blog commentary: The Newest Phase for Elongated Supplier Payments- More Aggressive Push Back. The essence of that commentary was that with many more multi-industry procurement teams extending supplier payments under the umbrella of working capital savings, suppliers themselves are now more aggressive in pushing back, especially when their own financial performance takes a hit from a key customer.  In some cases, such suppliers utilize the threat of supply disruption to force more timely payments.

We cited supplier aggressiveness examples related to AB In-Bev, Boeing, General Motors, Tesco and Volkswagen.

Today, The Wall Street Journal reports (Paid subscription required) on yet another example, this time involving retail firm Sears Holding.

Jakks Pacific the fifth largest designer and marketer of toys and consumer products featuring a wide range of popular branded products and children’s toy licenses announced the suspension of supplying products to retailer K-Mart, part of Sears Holdings. The stated reason, according to reports, was concerns related to the financial health of the retail chain and to minimize risks of not being paid for inventory. While Jakks senior management did not initially disclose the name of the a stated “major retailer”, business media digging confirmed the identity of that retailer.

Normally, supplier pushback on concerns for delayed payments are not extraordinary news. Sears Holding itself has been itself financially challenged as a result of declining sales and profits and subsequent business restructuring and store closings. Sears CEO Edward Lampert had to recently respond to speculation that the K-Mart franchise was about to close in the light of previous decisions to shutter upwards of 130 K-Mart retail stores. In a blog posting featured on the firm’s SHS Holdings blog, Lampert indicated that there are no plans and there have never been any plans to close the Kmart format. He further calls into question whether intended parties seek to do harm to the retailer for other gain.

By our lens, the extraordinary aspect is the overall timing of the supply suspension, coming just before the all-important and business critical holidays fulfillment period. The vast majority of sales related to children’s toys occur during the Christmas holiday season. The other aspect to timing relates to the Wall Street community’s concerns as to whether other key suppliers will take the same actions related to Sears and K-Mart.

The CEO of Jakks indicated to the WSJ that the decision impacted his firm’s financial performance during the recent quarter as revenues fell by 10 percent, and the company’s stock value plunged by 15 percent. Reviewing the toy supplier’s latest third quarter financial results, we indeed noted the citing of suspended sales “to a major customer that is experiencing challenges” but there is mention to other causal factors such as the impact of Brexit and negative foreign currency effects. A balance sheet review indicates that there has been a nearly $109 million increase (63 percent) increase net accounts receivable over the past nine months. Working capital balances have eroded by nearly $24 million over the last year.

On its part, K-Mart management reinforces that it has an active and long-standing relationship with Jakks and that it continues to receive inventory from this supplier. One wonders whether that implies that compromises are already at-play. The SHS Holdings blog further weighed in a blog commentary from is CFO: Just the Facts- Vendor Relationships. It states in-part:

We can tell you that we have had a longstanding relationship with Jakks as we do with our tens of thousands of other suppliers and vendors. Despite the speculation and rush to report the negative, we have always paid our vendors for orders we have placed and as part of the normal negotiations between retailers and vendors, there are occasionally disputes over prices, allocations of product and other terms.”

That latter statement regarding occasional disputes can be interpreted in various ways depending on the perspectives of supplier or major customer. The tone of the commentary can have different interpretations as well. The transfer of the burden of working capital management or cash flow ultimately comes with certain consequences which need to be managed.

Regardless, the overall trending of increased supplier aggressiveness is prevalent, especially when such suppliers perceive their own financial and operational harm.


Remain Cautious of Overly Optimistic Retail Sales Forecasts Regarding the Coming Holiday Fulfillment Quarter

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Last week the National Retail Federation (NRF) issued its annual forecast concerning holiday related spending which painted a very optimistic picture regarding the upcoming holiday sales period.  We advise B2C and B2B retail planning teams to be very cautious and diligent regarding the applicability of such data. Actual retail sales activity pegged to each channel, coupled with end-to-end supply chain visibility and agility as to sudden shifts in demand will be far more important to planning and execution.

The NRF forecast indicates that it expects this year’s holiday sales, excluding automobiles, fuel and restaurant sales will increase 3.6 percent above last year’s levels. That amounts to approximately $656 billion in physical store and online retail sales.  Keep in-mind that the NRF is a trade organization made up of retailers, and thus has a track record for being fairly optimistic. Last year, the organization predicted holiday related retail sales to grow by 3.5 percent, but the actual number was closer to 3 percent. Once more, the organization literally missed on gauging the increased dependence of consumers towards online holiday sales, which grew dramatically last year. From the period of November 26 thru December 20 2015, one forecasting firm had indicated that online sales grew nearly 12 percent in just that period.

Retailers are betting that current levels of low inflation and dramatically lower costs of gasoline and heating oil will drive more optimistic holiday buying. That was relatively the same assumption as last year. However, we continue with our stated belief late last year that consumers have already fundamentally shifted their retail buying habits in favor of online purchases. Even the NRF acknowledges that consumer spending patterns are shifting, favoring more personal based experiences such as travel and customized unique experiences. Unless online buyers are provided an incentive for visiting a brick and mortar store, there will be little incentive for impulse buying.  In August, we issued our Research Advisory, The Beginning of a New Phase of Online and Omni-Channel Fulfillment for B2C and Retail Supply Chains, that in essence questions the long-term presence of existing brick and mortar storefronts.

Operationally, the retail industry as a whole is struggling with high levels of inventory. Muted U.S. economic growth and consumers’ increased desire for immediate availability and delivery on online goods have driven such trends to-date. If you have recently visited a physical retail store of late, you will see a visual manifestation of that challenge with lots of merchandise on the shelves but little of it moving.  Our recent mall visit provided such evidence as to markdown sales or sales promotional activities especially concerning clothing and accessory items.

Retail focused sales and operations planning, along with respective supply chain planning teams therefore need to constantly be diligent in their context of current optimistic retail sales forecasts for the upcoming holiday fulfillment holiday surge period. Evidence continues to indicate that costs of online fulfillment continue to rise and thus planning resources by means of sales forecasting expectations could well lead to more margin erosion and lost profits.

Transportation and logistics challenges will be yet another concern since major parcel carriers FedEx and UPS continue to experience some of the flaws of major hub and spoke networks during periods of high volume, as was experienced gain last year. Similarly, Amazon continues to build out its own transportation and logistics fulfillment capabilities to support massive holiday surge volumes, placing more pressure on the major parcel carriers to make their profit goals as the expense of shippers.

In all cases, being product demand driven vs. forecast-driven is fast becoming table-stakes. Advanced inventory management pegged to Omni-channel product demand levels and broader visibility to supply chain wide inventory exposure applies.  Once again, when multi-echelon inventory optimization is supported by higher and deeper levels of supply chain wide inventory visibility, better informed planning and supply chain wide decision-making can help in determining the various impacts on financial line-of-business business outcomes such as margins and profitability.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Muted U.S. Economic Growth Levels Point to Needs for More Advanced Inventory Management Capabilities

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This commentary represents the fourth of our ongoing Supply Chain Matters- Llamasoft market education series directed at clarifying needs and requirements addressing supply chain wide visibility.

Business media has of-late pointed out that that overall inventory levels among retailers and manufacturers has been unusually high, which is impacting both current procurement activity as well as logistics and transportation trends. In a prior blog posting earlier this month, our research suggested there was indeed an inventory overhang with two potential causes.  Of the three potential causes, one was that with more and more products being offered online, and with consumers expecting immediate availability and delivery, it would seem that inventory levels have risen to the challenges in the transition to support the explosion of online.

Last week, the U.S. Commerce Department released adjusted data regarding U.S. economic growth levels that occurred in Q2.  US GDP growth was adjusted downward to a 1.1 percent annualized growth level in Q2. There was other data relative to inventory levels in the economy.

Overall, the messages delivered were that consumer related spending jumped to an annualized 4.4 percentage rate in the April to June period, the strongest gain since Q4 for 2014. However, business spending on equipment and other items declined at a 0.9 percentage pace following drops in the prior two quarters.  In essence, consumers drove spending levels in Q2 rather than B2B activity. That was reflected in remarks from U.S. Federal Reserve Chairwoman Janet Yellen who also contrasted solid growth in household spending with soft ongoing business investment. The result is that overall corporate profitability rates which are reported by Commerce are now trending down 2.2 percent compared with the year-ago period.

Regarding inventories, The Wall Street Journal quotes PNC Financial Services’ Chief Economist as indicating: “Inventories were a major drag on growth in the second quarter, but now that businesses have better aligned inventories with demand, that should lift and inventories will add to growth in the near term.” Another chief economist is quoted as indicating that profit margins are past their cyclical peak and are set to decline further over the coming quarters. Thus, the usual contrasts and challenges regarding the ongoing management of supply chain wide inventory visibility.

For supply chain executives and strategists overseeing product demand and fulfillment activities focused on U.S. market segments, the message is that inventory hangover and management is very much associated to either a B2C or B2B market segment.

The numbers would indicate that optimistic consumer spending will continue in the current quarter, and perhaps into the final B2C holiday focused fourth quarter, bar the results of the U.S. Presidential Election in early November.  Inventory management in B2C and Omni-channel retail would thus be a reflection of the hottest consumer products and quick responses and calibration to weekly market trends. However, as we all know, B2C product margins are very thin and the overall costs for online fulfillment are rising.

However, in the B2B sector, more cautionary inventory management remains prudent, since many businesses remain in a period of uncertainty with reluctance to spend. The current depressed state of the oil and gas industry coupled with election year and interest rate uncertainties obviously remain as pressures on businesses to reduce further costs and maintain expected profitability.

Thus supply chain inventory levels will remain in the crosshairs of the CFO both for the remainder of the year as well as into the future. Suppliers should anticipate continued pressures to absorb inventory costs.

In all cases, advanced inventory management pegged to item-level actual product demand levels, and broader visibility to supply chain wide inventory exposure applies for all supply chain planners for the foreseeable future.

As noted in our prior commentary related to this market education series, from the user lens, significant challenges in creating a unified view of all supply chain inventory data and information remain as unfulfilled. However, new Cloud or on premise in-memory, data visualization and data cleansing information technology tools now coming to market continue to improve and will better assist in this effort. In particular, the combination of advanced in-memory coupled with data visualization and analytics will add augmented computing power and a more enhanced user-interface.

A further ever important capability has become multi-echelon inventory optimization practices. Such inventory optimization techniques allow the flexibility in the use of what is termed “service classes” which are equated to customer fulfillment service needs. Inventory optimization techniques in essence, calculate “stock-to- service” curves, optimizing individual service and safety stock levels to an inventory location. Such capability is especially pertinent to producers of consumer focused goods which are increasingly being planned n Omni-channel fulfillment. Trying to plan such landscapes with traditional ABC inventory management techniques is sub-optimal and inefficient in terms of overall inventory management.

When inventory optimization is supported by higher and deeper levels of supply chain wide inventory visibility, more informed planning and supply chain wide decision making can be enabled as to various impacts on financial business outcomes such as margins and profitability. An overall inventory dashboard capability provides the means of alerting to average daily inventory levels by distribution segment, product demand that is consuming the bulk of available inventory or important trending in inventory vs, days of supply for key products.

Muted economic growth and high levels of business uncertainty indeed point to needs for end-to-end supply chain visibility augmented by more sophisticated, analytics-enabled inventory management

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Disclosure: This educational series related to supply chain wide visibility is sponsored by LLamasoft.


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