The retail supply chain is complex and constantly changing to meet the evolving needs of customers. The rise of online shopping over the last few years has significantly impacted traditional high street retail. Many physical stores have closed as consumers increasingly prefer the convenience, variety, and often lower prices available online. High street retailers therefore have adopted omnichannel strategies, integrating online and offline experiences to survive.
High Customer Expectation
Today’s retail customers have high expectations driven by technology, convenience, and sustainability concerns. Consumers expect a seamless buying experience in-store, online, via social media, apps and marketplaces. They want the best quality and variety of goods at the lowest possible prices. This has put pressure on the retail supply chain to meet these diverse customer demands. Retailers must stock a larger variety of goods, including seasonal ranges and assortments, to keep customers satisfied. They also need to offer fast and flexible delivery options, such as same-day or next-day delivery, and easy return policies are highly valued. Consumers prioritise convenience, and retailers are expected to offer quick, hassle-free services.
There is also a growing trend towards sustainability on the high street, with consumers increasingly seeking out environmentally friendly and ethically produced goods.
Rising Costs and Tight Profit Margins
Rising costs are a major challenge for supply chains in 2024, driven by inflation, rising energy prices and other factors. Global shortages of raw materials, including metals, plastics, and electronic components, have increased the cost of production for goods. Retailers, especially those in sectors like electronics, fashion, and home goods, are feeling the impact of higher supplier prices, reducing their profit margins. Additionally, labour shortages across retail, logistics, and warehousing sectors have forced many retailers to raise wages to attract and retain employees. Retailers often find it difficult to fully pass these increased costs onto consumers without risking demand.
Soaring energy costs, driven by global energy supply issues, are raising the operational costs for retailers, especially those with large physical stores, warehouses, or transportation fleets. Energy-intensive retail operations, such as supermarkets and large shopping centres are particularly affected.
Companies can investigate investing in supply chain automation to mitigate the impact of rising costs. With automation, businesses can boost profitability, stay competitive and meet customer demands with more agility. Automation leads to greater efficiency in day-to-day operations like order fulfilment. When businesses automate supply chain processes, they see lower inventory and transportation costs, reduced waste and improved customer service.
Omnichannel Integration and Inventory Management
Omnichannel integration and inventory management present significant challenges for retailers as they strive to offer seamless customer experiences across online and offline platforms. Coordinating real-time inventory data between stores, warehouses, and e-commerce platforms is complex, often leading to issues like stockouts or overstocking. The increased consumer demand for flexibility—such as click-and-collect or return-to-store options requires sophisticated systems to track and fulfil orders efficiently. Managing this alongside traditional store operations strains resources and can result in logistical inefficiencies, increased costs, and poor customer satisfaction if not executed well. Achieving accurate, integrated inventory management is crucial but difficult.
Labour Shortages and Workforce Management
The labour shortage in the UK retail sector is a complex issue driven by immigration changes post-Brexit, the lingering effects of the COVID-19 pandemic, low wages, and competition from other industries offering better conditions and pay. Addressing these shortages will require retailers to rethink their employment strategies, including offering better pay, improving working conditions, and creating clearer paths for career progression.
Retaining skilled workers and managing a workforce that can handle increasingly automated and tech-driven processes are ongoing challenges. Retailers need to invest in training and development to ensure their workforce can meet the demands of modern supply chains.
Reverse Logistics
With the rise of online shopping comes the problem of returns. Companies need a rapid, efficient and cost-effective means of processing millions of returns and getting items back into sellable stock fast to prevent lost margins. This is even more critical for the fashion industry as seasons are very short. With such high return rates, this is costing retailers a great deal of money if they are unable to get returned items checked, cleaned, and repacked rapidly before returning them to the pick face in time to sell them at full price. Even with return fees, it is a costly process and one that must be managed efficiently. Online retailers must ensure that reverse logistics is given just as much attention as the rest of the operation.
Many retail warehouses use manual picking operations for their ecommerce fulfilment, requiring four to five times the labour to fulfil orders compared to high-performance automated robotic systems. Automated systems, in contrast, can speed up the process by quickly scanning returned items into a mixed SKU bin, so they go back into the main inventory.
Having automated returns processes can be the difference between having to offload a returned item at bargain basement prices and being able to resell it at full price. Therefore efficient reverse logistics can help with the profit margin and cannot be overstated.
These challenges require retailers to be adaptive, innovative, and proactive in managing their supply chains to stay competitive and meet consumer expectations in 2024.
Bisham Consulting has extensive experience in the retail sector having worked with JD Sports, Arcadia, Marks and Spencer, River Island and many more.