Retail is going through a period of unprecedented transformation. The pandemic has caused mass disruption in supply chains, consumer behaviors are evolving at a rapid pace and digital-first everything is the new way forward.
To discuss the challenges facing retail today and what it will take to thrive in the new normal, Aptos recently hosted a virtual roundtable that included retail expert Rakesh Kumar, who is currently the Director of Retail for Adidas SEA (South East Asia).
With nearly 20 years of retail expertise at the strategic and operational levels, Rakesh oversees top-line and bottom-line growth for Adidas' retail channel in the SEA region, along with Operational Excellence initiatives. Prior to this he had donned multiple roles in Merchandising, Retail Operations and Programme management.
Below, we have summarized Rakesh's insights shared during the roundtable in a Q&A format.
In your opinion, what are the top industry challenges that retailers are facing today?
RK: I think the first challenge is having the right merchandise. The second challenge is speed. As retailers attempt to reduce overall inventory levels in the supply chain but still offer the best possible products to customers, they are considering new approaches, such as one-day production. The challenge is to reduce overall inventory carrying costs while being faster and more responsive to customers' needs.
Did merchandise planning practices evolve to efficiently support those challenges?
RK: I think that in many cases, retail organizations and their merchandise planning processes have not been able to keep pace with consumers, who are becoming more informed and digital.
In the early 2000s, when a shopper wanted to know the difference in price between a product in store A and that product in store B, they literally had to walk or drive from one location to the other and make comparisons. There was information asymmetry, which was often leveraged by retailers to differentiate their pricing and offerings from one shop to the other. Now millennials cannot even imagine that kind of situation. They have all information at the tips of their fingers, and they expect consistent offerings, pricing and brand experiences at every touch point.
More than once, I have seen retailers struggling in providing that consistency in their offerings and a continuous shopping experience across channels. In terms of planning, there is often misplaced faith in Excel; "I have 20 spreadsheets, so I must be doing it right." In reality, planning with spreadsheets is no longer sufficient to manage today's complexity.
How can retailers manage today's unpredictability of demand?
RK: The fashion and retail industries are driven by trends and will always have a component of volatility; demand for some products will always exceed expectations, while other items won't sell as expected. For this reason, it is important for retailers to conduct regular sales analyses and promptly identify what we call the "best sellers" and the "black holes." A black hole is a product that is not meeting sales targets; the consumer is not as enthusiastic about it as the merchandiser would expect.
Every product should be given the best opportunity to sell, but if it doesn't, merchandisers have to act quickly and move the product to another store or promote it on a different channel (e.g., e-commerce), where it might have a greater appeal. If this is not enough and the item still doesn't meet expectations, the next action is to mark it down. This is a process that requires fast decisions. Many retailers get "stuck" in their policies and end up not reallocating or liquidating products as fast as they should. In doing this, they freeze working capital that can be used to buy new, better assortments for their customers.
We talked about planning (science) and buying (art). How can retailers find the right synthesis of these two worlds?
RK: The industry often thinks of buying and planning as polar opposites, with buyers interpreting and envisioning new trends and customer wishes (art) and merchandisers working with numbers and budgets (science). Balance is about understanding where art stops and science comes in and where science stops and art is needed. A clear, collaborative process needs to be put in place. Like in a marriage, reconciliation depends very much upon the people and their will to understand each other and find a compromise.
The pandemic has imposed new restrictions, such as regulating the traffic in stores. How can retailers still maximize revenues when they have limits on store capacities?
RK: We know that safety comes first, and those regulations are key to providing customers with a safe, comfortable experience. Retailers should consider turning these constraints into the opportunity to do something new. For example, I have seen some retailers developing queuing apps, which give the customer the chance to book an appointment. If the customer is planning a journey to a store, he can book a slot that starts at time A and finishes at time B. As soon as he arrives, the store assistants can scan the customer's QR code and let him in. With this approach, the shopper can plan his time better, while the store maximizes visits and avoids frustrated customers waiting in line outside the shop.
In high-traffic stores, the customer can also be given a coupon (we call it a fast ticket), which says that if you finish your shopping in X minutes (let's say 30 minutes), you can get a discount that you can utilize the next time. It's an incentive for the customer to finish his shopping quickly and an opportunity for the store to increase the volume and velocity of customer transactions.
Last but not least, let's not forget that having fewer customers in the store may be an opportunity to create more intimate relationships. Through sales assistants' training and incentives, retailers can improve conversion rates. For example, we noticed that 80% of customers who try a shoe on will buy it. Therefore, we provide extensive training to shop assistants so that they will know everything about the product, provide the right recommendations and always suggest the customer try the shoe on. In this scenario, the customer receives a more personalized and consultative experience, and it also helps to increase the likelihood of converting the sale.
Given your extensive knowledge of retailing in the Asia-Pacific region, what advice would you give to retailers and brands that want to establish a presence in Asia?
RK: First and foremost, it's important to consider that Asia is extremely diverse. Japan is different from China, which is different from Korea, India, Singapore and so on. Each market has unique characteristics that need to be respected, including local languages and communication preferences.
For example, in China, everything related to business, social media and the news is in Mandarin. In India, on the other hand, there are 16 official languages and English is spoken by less than 35% of people. It is essential for retailers who want to succeed in APAC to employ individuals who understand and respect local preferences and apply those localized preferences to business practices.