Legal, procurement, supply chain—oh my!
Visiting some retail clients during the holidays, I was struck by the impact of the accelerated shift from “bricks to clicks” on procurement, supply chain and legal. It’s no secret that recent holiday shopping sales showed a continuing significant shift to online buying habits. Actual physical toy retailers are nearly nonexistent, mobile phone retailers are all online, booking holidays is a 100% online pursuit, banking, grocery and now urgent purchases are easily accessible for online same-day delivery.
This is not a new phenomenon, but I was surprised by how unprepared indirect procurement or GNFR (goods not for resale) is for this change.
So what is the impact on GNFR, supply chain and legal?
Bricks and mortar
Let’s take one area first: the real estate, that is, the actual bricks and mortar. In Europe, the cost of space in urban areas is far more expensive than in the U.S. The concentration of shoppers is also different from the U.S. due to the extensive use of public transport (with the exception of urban centres such as New York City). So considering this, here are some key observations:
- Shops (stores) are becoming showrooms and space is at a premium. Retailers need to reduce space to maintain a return per square foot; when shoppers are only browsing and not buying, this is a problem.
- Shops are “pick-up joints” for online orders
- Shops are “drop-off joints” for unwanted orders
- Drop-off points are different from pick-up joints (feeling unloved yet?)
- Shop size and how the space is used needs to change
- The display equipment requirements need to adapt
- Transportation models need to evolve from hub-and-spoke to a localised multimodal approach
Considering all of the above, what impact is this having in the key areas of procurement, supply chain and legal? I would like to start first with legal, as I believe this will experience the most impact:
- Store footprints. The current store footprints are either too large or in the wrong place, or both. The speed of consumer buying patterns has changed dramatically and retailers have been left holding the baby on up to 20-year leases. They need to negotiate shorter leases, but where do they start without visibility into their obligations, and with little leverage? (see below)
- Physical leases. The current leases are are still on paper, stored in filing facilities typically located in warehouses nowhere near the people who need to access them.
- Obligations management. Since the contracts have been stored away in remote facilities it is difficult to review and understand all the obligations that the leaseholder has: What are they responsible for? Do they own the asbestos legacy? Are they responsible for the roof repair whilst it is empty? Do they know the renewal date?
- Leverage. This is a key point for lawyers: If you have a successful retail outline, but you don’t want to relocate because you need the space to help sell online, where is your leverage to negotiate shorter leases?
- Equipment requirements and design will need to be interconnected. Faster turnaround of creative solutions to new ways of consumer buying. Procurement will have to integrate supplier design capabilities into the selection criteria.
- Move to digital content. This requires not only a change in talent, but the indirect spend profile will change. The need for services procurement tools will be greater.
- Procurement technology. This and supplier capabilities will have to shift to a more current consumer-led approach. The time to market will need to be shorter, that is, it will require real-time decision making and approval.
- Legacy procurement tools will need to be improved. The shift to a more consumer- led approach that reflects the habits of the new buyers will start to impact adoption.
- The driverless and drone revolution. Using these to home in on the last mile has yet to take hold, but will imminently have a major impact on equipment requirements and staff skill levels.
- Localization. Rather than hub-and-spoke, networks have to adapt to new consumer buying patterns.
- Returns, and dealing with returns to a different location. New local and small collection points will impact:
- Sourcing – equipment specification
- Legal – negotiating appropriate space and leases
- Supply Chain – pick-up and delivery logistics
The “brick to clicks” revolution is not new, and I have written about it before. What is new is the impact on the support mechanisms that empower stores to deliver what the consumer wants at the right time.