While a decent chunk of retail organizations over the past few years have been increasing their in-store and online sales via investment in Omni-channel initiatives to keep up with the likes of Amazon, retailers like H&M have fallen behind. This can be seen most notably in H&M’s struggle to sell off $4.3 Billion of unsold inventory. As a way to combat their inventory problem H&M has been increasing the amount of markdowns they have, but this in turn has led to slipping sales and more importantly, lower profits. One of the driving factors behind H&M’s struggle as of recently has been their slow supply chain and difficulty managing inventory to efficiently meet customer expectations. To put H&M’s supply chain issues into perspective with one of their main competitors Zara, lead times for H&M were almost double. 2018 will represent the “year of transformation” for H&M, where they will start investing a significant amount of resources into technological, operational, and digital improvements like RFID tagging, store operations, and warehouse automation tools. While the success of retailers like TJX clearly indicate that there is more to being a successful retailer than bleeding edge technology (in the case of TJX it is their merchandising operations that sets them apart), H&M’s current struggles are very much rooted in traditional supply chain and inventory visibility issues.
The H&M story goes along with many things that we have seen in our 2018 retail report – “Foundational Layout and Requirements of Enabling Omni-channel Retail Initiatives”. Inventory visibility is the single biggest hurdle for retailers attempting to implement Omni-channel initiatives, but only 41.9% of respondents in our Omni-channel survey viewed inventory visibility as extremely important. In the past H&M has struggled with managing their inventory. The primary reason why this is the case is because they have been driven hard by the industry leaders to catch up with modern day retail technology, but are using inefficient solutions on the backend to put everything together and aren’t thinking about investments that will benefit the company long-term. If H&M wants to enable inventory visibility and accuracy across the entire enterprise then it will require them to have more frequent auditing of inventory in their warehouses/physical store locations, as well as develop a more strategic long term plan around their technology investments. Retail organizations that audit their inventory on a quarterly/annual basis tend to be more prone to inventory being mismanaged and not being sold.
H&M seems to be doing everything they can to improve their customer experience and create value via various Omni-channel initiatives, but one has to wonder if this will be enough to stall their decreasing sales and negatively affected profits. Moreover, the success of these “customer-facing” initiatives is a function of how well H&M can manage their inventory and provide accurate visibility into their operations.
Implementing Omni-channel initiatives today is a specialized process, and it is crucial for retailers like H&M to find solutions that have the ROI on the front end that can be converted in tangible/real results. Retail organizations in general need to move away from this reactionary approach to Omni-channel and need to think about the operational implications these initiatives have. By doing this, organizations can avoid issues like additional costs of shipping and coordinating in-store activities (staffing; location; etc.), which have presented challenges and eaten into/eroded the profitability of retailers. Moving forward, VDC sees these as some of the best practices for retailer’s enabling an Omni-channel strategy.
For more on this topic, see VDC Research’s report Omni-Channel Retail Initiatives.
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