Retail Infrastructure Obsolescence is Now Inevitable

Most, if not all, of current legacy retail infrastructure is already in the process of becoming obsolete.

Retailers who continue to ignore this fact risk also being brought down by the sheer weight as these assets continue to rapidly become liabilities.

Large fully stocked stores, networks of mega automated Distribution Centres, legacy Retail Systems not connected to consumers, and even the very Shopping Malls where many retail stores are located, are all now subject to creeping extinction.

Let's touch briefly on each of these to better understand why these claims of looming obsolescence are real.

In the past having the largest size and number of stores with the broadest possible inventory of products on hand was a sign of great strength and success, but no longer.

Large fully stocked stores

Beyond the sheer cost of renting and staffing all of this high cost selling space, such a retail sales model also leads to an explosion in volumes of inventory carried and associated cost to the business.

A somewhat obscure mathematical law known as The Square Root Law of Inventory confirms that the inventory required in any network or system is geometrically increased by the number of locations at which said inventory needs to be kept in stock.

New models of stores which are lean on inventory and tightly connected to rapid fulfillment networks are the emerging retail model which is poised to drive Internal Rate of Return on invested retail capital through the roof.

For those unfamiliar with what is being suggested here, see my previous posts "Sharing Kevin O'Leary's Omni-Channel Epiphany!" and "Breaking the E-Commerce Sound Barrier with Matrix Retail!" which both provide greater insights into the hybrid bricks and clicks models emerging to rule the retail world.

Networks of mega Automated Distribution Centers

In a similar manner to retailers thinking bigger is better when it comes to size and number of stores, many Chief Logistics Officers are proud to have created massive national Distribution Center networks to serve their stores which function typically at a case and pallet level.

Additionally, with the rise of E-Commerce Fulfillment, many are creating duplicate Fulfillment networks to support each picking. Not only does this approach require serious additional investment, it also creates a massive duplication of inventories.

A number of these related issues are discussed in Seven Signs Your Retail Business Needs an Omni-channel Makeover and suffice it to say that before creating a duplicate network, it may be time to give consideration to treating your stores on more of a rapid replenishment basis which requires less on hand inventory and similar automated picking methods to e-commerce. Such a methodology will also allow you to create new more efficient and likely smaller store formats building on first point above.

Last but not least, it's my sincere belief that retailers should get out of the logistics network business and move instead to managing third parties. In fact, if I was to go back to a Senior Logistics Operating role at a major retailer I would immediately begin the process of outsourcing the Distribution Center Network to third party.

Additionally, would incentivize the Third Party (or third parties) to begin converting any Major National Brand inventory held in the DC Network to being paid for by the National Brand Vendors offering up and introducing a clear methodology to eliminate the current duplication of inventories in Retailer and Vendor warehouses.

Once this conversion is complete, the only inventory and handling costs Retailer would be paying are for Direct Imports and perhaps Domestic Private Label products if you couldn't get Contract Manufacturer to take on Third Party logistics costs.

By utilizing Third Party Logistics Providers to run this type of hybrid Retailer / Vendor DC Network model in shared facilities, Retailer costs and Asset Investments would be dramatically reduced and both Retailer / Vendor product would still be picked and shipped together to the stores.

Such a hybrid model is already in operation for Ahold USA in York, Pennsylvania operated by ES3 in a 1.5 Million square foot fully automated Distribution Center, details of which are available in this article from Supply Chain Brain.

Legacy Retail Systems

In much the same way that Distribution Assets need to be examined, rationalized and changed to accommodate evolving retail business realities, the systems being used by retailers also need a major overhaul and/or replacement.

Most current Retail systems are purely business focused on transactions and sales dollars with all else an afterthought. Successful retailers going forward need systems that are Customer Centric versus Business Centric; and one has to look no further than Amazon to see the success of this methodology.

Getting more specific, adopting a Matrix Retail approach to engaging customers in a B2C CRM manner and employing methods for E-Commpetition such as Personalization, Dynamic Sequencing, Dialogue & Outreach and Cognitive shopper assistance represent some system supported tactics which can be employed.

Most importantly, the need to focus on clear and ubiquitous identification and accurate inventory by location is critical to omni-channel retail prowess. Additionally, retail success will also be dependent on the ability of Retailers to adopt Distributed Order Management approaches to rapidly and accurately react to item specific ordering at all levels of inventory holding within the retail organization.

Last but not least the Blockchain continues to emerge and key retail and supply chain thought leaders are already asking what role blockchain will play in e-commerce and supply chain aspects of the retail marketplace.

Shopping Malls

Since the introduction of the first Shopping Mall in 1956 there's been little more than incremental improvements made other than perhaps making them larger and larger which only exacerbates the flaws of the Shopping Mall model from a logistics perspective.

To better understand where I'm coming from read my post Successful Shopping Environments of the Future Will Be Logistics Friendly! to understand why I'm still adamant in saying retailers should Beware the Ship-From-Store Spin Cycle especially for Mall based stores.

In addition to the logistics unfriendliness of today's Shopping Malls, just think about them from an access and egress perspective. When you look at current Shopping Malls from the above, it's clear that at least half of the land area they occupy is filled with parking lots. As we move to improved transit and ride sharing services, all of this space will be wasted and require redevelopment as shoppers who decide to still visit a bricks and mortar store are dropped off and picked up at the time and place of their choice.

From a personal perspective this eliminates one of the most frustrating aspects of malls which is finding parking and walking all the way in and out of multitudes of stores I have absolutely no interest in to get to the one place I need. If you're getting the feeling that I hate Shopping Malls with a passion, you're absolutely right and look forward to engaging with architects and developers who're truly interested in designing and building the most effective Shopping Mall of the future as I have more than a little input!

As I listen to the growing industry buzz around omni-channel and related issues of e-commerce versus brick & mortar, I can't help but feel that retail leaders are still struggling with the specific actions and issues they need to address, and hope the above provides some food for thought in this regard.

And in order to wrap this retail obsolescence diatribe up, will close with the immortal words of H.G. Wells: 'Adapt or perish, now as ever, is nature's inexorable imperative.'

Jeff Ashcroft

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