Editor's note: Nikki Baird is managing partner at Retail Systems Research, Denver. This is an edited version of a post that originally appeared here under the title, “Three things about retail I never expected to hear from equity analysts.”
This year, I attended the Retail Industry Leaders Association’s Supply Chain conference in Florida. I moderated a panel of analysts – two equity analysts, Matt McClintock of Barclay’s and Paul Chisell of Deutsche Bank, and one supply chain analyst, Jing Wang of Fung Global Retail.
I had a whole list of my own questions, though we didn’t even get through half of those. The rest came from the audience. The panelists said a lot of things I expected to hear, but there were some things I did not expect. They may surprise you too.
1. Amazon has not won. The store is not dead – but experience matters.
The group did concur that there is no category that can be considered safe from Amazon. I think the line goes, if even Amazon can sell lingerie, groceries and auto parts, no retailer should believe they are immune to competition of the online giant. What was surprising, though, is that they also concurred that the store is not dead. There is still too much retail square footage out there, but that came with an acknowledgement that retailers can’t just shut stores down overnight, and that shutting stores down comes with a cost to customer service and to the business.
Rather, the panel felt that stores will need to convert more of the existing square feet to other uses besides selling activities. Panelists also called for retailers to focus more on the customer experience when shoppers do come to stores, to make sure they’re maximizing their opportunity to sell.
It was startling enough to hear equity analysts say that retailers need to focus on customer experience, but even more startling (at least to me) was when they followed that up by saying that they look at number of employees per (sales floor) square foot, and they have expectations that the number should be high.
2. All eyes on store traffic.
There was a lot of agreement on the panel that year-over-year store sales just no longer cuts it as a measure. What these analysts look to instead is traffic: Is store traffic rising or falling? Are retailers doing everything they can to capitalize on that traffic? This gets back to employees per square foot – and experience. Sales can ultimately be captured however the retailer (or the consumer, for that matter) prefers. But a healthy store has strong traffic, whether that translates to same-store sales growth or not.
3. The most important supply chain metric (for equity analysts) is lead time.
We talked about whether it was more important for supply chains to be efficient or flexible. But in the end, panelists converged on a third option: fast. Cost will eventually reach the level of importance it was not so long ago, but right now the panelists are looking for speed in the retail supply chain. And not just speed in customer fulfillment, but speed from source to store and source to customer.
Speed is an interesting metric to focus on because it neatly solves the question of efficient vs. flexible. You can’t be so efficient that you’re slow. You can’t be so inflexible that you can’t recover if something goes wrong. But flexibility as a measure is meaningless if you can’t measure that in terms of speed.
With the disruption in the air over a border adjustment tax and how that might impact retail, it will be interesting to see how the calculus plays out – what does it take to get speed in today’s retail supply chain? Near-sourcing? Inventory optimization?
One thing it means for sure – it’s an interesting time in retail supply chain, and that doesn’t look to change any time soon.