To stand out from the clutter, companies in the retail industry have to make sure that their shelves are always full of products that the customers want, predict the sales, allocate employees as per customer footfalls, manage returns, and handle vast inventory with multiple SKUs. Even after doing all the tasks, they have to deal with a meager profit margin. The revenue has to pay for all the employee costs, warehousing costs, land lease, merchandising cost, logistics cost, damages, returns, stock obsolescence, and other operational costs. However, despite all such difficulties, players in the retail industry such as Walmart, Costco, and Amazon are dominating the Fortune 500 lists and also are some of the most valuable companies in the world. So, what are the challenges facing a modern-day retailer? Read on to know more.
Understanding the Customer
The buying habits of consumers have evolved to such a level that it can be compared to fingerprints and DNAs, i.e., no two customers’ shopping habits are the same. This is a big problem for retailers who want to create a promotional campaign for their consumers. A particular kind of promotional campaign may incite excitement among certain groups but not the others. At an age where sufficient customer data is available, it is essential to know your customers, so that personalized offers can be provided. To complicate matters, the buying habits evolve over time and are affected by uncontrollable external factors. It is due to such factors that the retail industry players are struggling to understand and segment the customers into similar groups to create effective promotions. Predictive analytics models can help companies comprehend the changing customer preferences, and determine in advance the future retail trends so that retailers are always prepared.
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Scale of Investment
The scale of investment that’s required to open just a regular mom and pop store can be enormous. Retail companies have to pump in a lot of cash in order to set-up stores, incurring land acquisition or lease cost, employee cost, and inventory cost. A single retail store will have multiple categories of the product, with multiple varieties, with multiple brand names, in multiple SKUs. Stocking an appropriate level of inventory of each product can deal with a big blow to a retailer’s budget. So, the players in the retail industry have to be smart when it comes to managing inventory. Additionally, they have to perform analysis regarding a location’s expense versus the profits it would generate, which would help them to allocate scarce resources effectively. Also, buying in bulk can yield volume discounts, but buying strategically can optimize their inventory cost.
The explosion of retailers like Amazon into the scene has caused retailers to take up an omnichannel approach. That’s the exact reason why Walmart is trying to get into the online space, and Amazon trying to get into the brick and mortar retail format. However, those retailers who are experts in one channel often struggle to take up alternative channels. The challenge lies in maintaining consistency and achieving operational efficiency across the omnichannel platform. It is crucial that retailers provide a similar level of the customer experience through all possible customer touchpoints. A recent study has identified that almost half the retailers have lost more than a million-dollar in revenue due to cross-channel challenges. Lack of transparency of inventory also contributes to the omnichannel problem in the retail industry. Data analytics technologies can help identify customer behavior patterns so that companies in the retail industry can deliver seamless customer experience across all channels.