Retail's Reset Moment: How Omni-Channel Selling Affects The Supply Chain

1. Retail's Reset Moment: How Omni-Channel Selling Affects The Supply Chain Paula Rosenblum Managing Partner Retail Systems Research, LLC October 2013

2. Agenda • About RSR • Retail’s RESET Moment • Innovations On The Selling Side Affect the Supply Chain • SPS Commerce and RSR Joint Survey • How is the Supply Chain responding?

3. About RSR • Founded in 2007. Quickly became the leading source of insights for trends in retail technology, and retail ecosystem in general. • Mission: To elevate the conversation about retail technology to a strategic level within the retail enterpriseby: • Providing objective, pragmatic advice to both retailersand solution providers • Leveraging our extensive retail industry experience • Providing a deep bed of research into retailers' technology investment plans and the business opportunities and challenges that drive those investments. • We help retailers keep their IT strategies aligned with corporate objectives. • We help solution providers align their products and messages with retailers’ needs.

4. Retail’s Reset Moment

5. RSR’s Take: The Retail Industry Is At A “Reset Moment”. Today (As Before) Technology Is The Trigger For Major Shifts In Business And Society Participation Age Information Age Industrial Age Time Agrarian Age

6. Consumer Behaviors Are Fundamentally Changing … From This …(very orderly) Store Web Catalog Direct Sales

7. …To This (Many Paths To Purchase –Chaotic Patterns) Investigate Fulfill Select Pay for Store Store Store Store Call Center Call Center Direct Delivery Call Center Web Web Web Direct Sales Direct Sales Direct Sales Mobile …and This is the Omni-Channel Phenomenon Anything

8. What Does That Mean to Us?

9. The Retail Model Was Built On An Uni-Channel Assumption £ £ € € £ € $ $ $ Expense Revenue Margin & Profitability Sell More Stuff Run Better Buy Better, Turn It Faster

10. But the World Has Changed Forever…

11. A Worldview Designed Around This: Or This:

12. Met a Worldview Enabled by This: And This: A dramatic shift in the power dynamic between the retailer and the consumer.

13. Omni-Channel Enables One Brand Across All Selling Channels – But That Requires Aligning Supply To Demand Differently

14. The Addition Of Multiple Selling Channels Didn’t Change The Model… But Did Add Inefficiencies

15. Cross-Channel Enables “One Brand Across All Selling Channels”, But Doesn’t Address Inefficiencies

16. The Question That Is Only Beginning To Be Asked Is… “How Do We Meet These Fulfillment Requirements Profitably?”

17. The Payoff? Beyond Any Doubt RSR Research, June 2013 But how much profit are we leaving on the table?

18. The State of the Union: RSR & SPS Commerce Asked YOU

19. How We Structured the Survey:RSR’s BOOT MethodologySM Business Challenges B Opportunities O OrganizationalInhibitors O Technology Enablers T A simple, yet powerful model Puts technology in the context of business issues

20. Who You Are • Total of 306 Respondents. • Profiles: • 21% Retailers or Distributors • 8% Logistics providers (LSPs) • 71% Vendors/Suppliers • What you do:

21. Overview The State of the Union at a Glance

22. Overview • The omni-channel imperative and how we got here • A 360 degree viewpoint • A Supply Chain still bullish on the future • Retailers lagging suppliers in buy-side readiness • Budgets reflect a willingness to spend, but some lack of clarity on what to spend it on

23. In The Next 18-24 Months, Retail Will Move To Address How To Profitably Serve Anytime/Anywhere Shopping 2010-13 2013 2014 2015-16 The harmonization of the digital and physical selling environments The Impact of the massive adoption of consumer technologies (mobile, social) on the retail selling environment Next Generation Supply Chain Next Generation of Sales & Marketing 23

24. Bullish on the Future These percentages almost identical to last year’s survey

25. A Sorry State of Affairs RSR Research, September 2013 Retailers lag… likely needing a champion (as marketing was for sell-side)

26. … and It’s Not About the Money RSR Research, September 2013 “Bearing in mind that an equal number of respondents reported budget increases last year, we can assume that those whose budgets rose continue to keep those increases intact. The ecosystem recognizes that it is behind, has some headroom for growth, and is continuing to invest.”

27. Business Challenges Bad Memories Die Hard

28. Business Challenge Headlines • Optimism colored by painful memories • Meeting customer expectations remains a key challenge • The Amazon Effect • Demanding customers across the entire supply chain • Transparency informs decision-making • Wanting broader assortments • Loyal to valued partners • What if the future looks like the past? • Fear of economic and supply chain shocks color our world • Regulations and politics shape our decision-making • Consumer preferences constantly shifting

29. The Economy and Customer Color our Worlds RSR Research, September 2013 Customer expectations increase pressures on the entire ecosystem “The Amazon Effect”

30. Man…These People Are Demanding Glimmers of good news RSR Research, September 2013

31. The Future Brings More of the Same RSR Research, September 2013 The economy, the customer and political climate will drive us

32. Opportunities Meeting Customer Demand Wherever It Comes, but Driving Traffic to Stores

33. Some Differing Points of View • Retailers are pragmatic • Fulfill customer orders from inventory, regardless where order is generated • Drive increased traffic to stores • Vendors deliver mixed messages • Top priority is to drive customers to retailer stores • Following closely behind: selling direct • Their approaches differ… as we’ll see

34. Retailer Pragmatism RSR Research, September 2013 Retailers presume that consumers can find detailed product information on their own, yet interest in “endless aisle” grows

35. Vendor Mixed Messages A new world of frenemies: Private Label vs. Vendor Direct RSR Research, September 2013

36. What Do Retailers Want? RSR Research, September 2013 Vendor perception on assortment depth value far outweighs retailers’

37. Organizational inhibitors Management and Employees Hold the Key

38. Internal Forces Affect Change • Strong leaders a must • The next generation of employee emerges across the Supply Chain • Technically savvy • Good interpersonal skills • Vendors anticipating retailers’ future needs • Retailers are very slow in synchronizing • Mixed messages on “product information” • In a world where we’re used to sharing documents, is it time to think about sharing all kinds of structured and unstructured data?

39. The Visionary Leader and The Empowered Employee RSR Research, September 2013 All the technology in the world will not help if people cannot use it

40. Retailers Lag, Vendors Waiting RSR Research, September 2013 Retailers lack of omni-channel capabilities also reported in other RSR’s 2013 reports. Vendors generally doing a better job anticipating customers’ omni-channel needs. Example: Cross-channel price synchronization. Retailers struggle. Vendors recognize it’s important to their retail customers; retailers just have to make it work.

41. Technology enablers WHERE IS ALL THAT BUDGET MONEY GOING?

42. Tech Enabler High Notes • LSPs focus on warehouse improvements • All others making investments “across the board” • Can EDI drive visibility? And why aren’t retailers planning to invest in the most important tool in their omni-channel toolkits? • Can retailers use the data they get? • How many item attributes are enough?

43. A Harmonized Omni-Channel Environment: Wishes vs. The Budget #1 #2 #5 #4 #3 43 Source: RSR Research, June 2013

44. Then How’d We Get Here?

45. The World of Product Attributes • Generally, vendors provide more than retailers use • Vendors expecting to provide more in the next year • Most currently provide mundane, but necessary attributes Are we setting our sights too low?

46. Final thoughts The Rise of Drop Ship?

47. Vendor Direct With or Without the Retailer • All agree drop ship volumes will rise • Vendors shipping on their own behalf • Also shipping on retailers’ behalf • LSPs supporting both • A reliance on the empowered employee • Dated means of communication may slow the process • Further shifts coming. The wise company will invest in improving product information capabilities and supply chain efficiencies

48. Thank You! Paula Rosenblum, RSR Research prosenblum@rsrresearch.com Further Information on Products & Services: info@rsrresearch.com www.rsrresearch.com