Edition 48
Repair in a “Post Retail” World
by Bryant Underwood, Public Safety Sourcing, Cassidian Communications

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About a year ago Thomas Welsh and I described the growing trend of show-rooming that was placing severe pressure on all of retail. People were using the retail store to decide what they wanted and then would go online to make the purchase. Since that time there has been any number of retailers that have stated they have solved the problem and that all is fine. However, recent data is mixed at best. In February a well reported story broke, after a memo was leaked from Walmart describing the severe nature of sales weakness. Clearly there are some economic issues still at play. To help place this in context take a look at some recent forecasted store closings in retail:

Barnes & Noble:200 to 300
Best Buy: 200 to 250
Gamestop: 500 to 600
J.C. Penney: 300 to 350
Office Depot: 125 to 150
OfficeMax: 150 to 175 (possible merger)
RadioShack: 450 to 550
Sears Holding Corp:
Kmart 175 to 225
Sears 100 to 125

Clearly not all is well in retail. Derek Thompson for The Atlantic Magazine recently covered this issue and included this very illustrative chart that tracks jobs by segment, from 1997 to 2012.


One of the interesting conclusions many are making from this trend is that retail is going the way of agriculture. It will still be around in the future, but will be smaller and much more efficient. I tend to agree with that notion. For me the greatest indicator is not employment and not even the advent of the web. It is the shift from a model that generated profit on goods to a model that generated ROI on inventory turns. Retail at its core works when it is part of the value-add. When that happens, the goods will have margin. As pressure from the market increases the retailers shifted from providing value at the retail level to providing value from the sourcing, inventory control, delivery and distribution.

To clarify where the value-add lies in retail, bear with me in this thought experiment. If by chance a major retailer was forced by some new regulation to be broken-up, what would be of valuable entities to be sold off? I believe you would find significant capability in freight, warehousing, distribution and real estate along with a massive analytics data warehouse and an efficient treasury team. While these capabilities add value, they only do so in the context of needing large amounts of inventory located near consumers. There are more efficient ways for the retail model to work and I believe we are entering the beginning of a “post retail” period.

If that is the future, what does it portend for reverse logistics? I believe there will be four increasing tendencies.

• More integrated logistics models
• More real value, less screening, more real repair
• Lower volumes
• More local repair


Today the F2F nature of local retail creates a lot of leverage for the consumer. That leverage manifests itself in returns that have nothing to do with product failure. There are returns because the product was later found at a better price, the customer did not understand how to use the product or returns from plain old buyers’ remorse. When product is returned from online purchases the model today is very competitive with local retailers and the returns are handled with ease. However, as the local retail presence decreases this easy level of acceptance of returns will also change. The current practices for online and local retail that allow for easy and painless returns for the consumer are in fact very expensive and not really painless at all; they all increase cost that must then be absorbed somewhere.

Today the consumer’s leverage for easy returns is balanced by using contracts and service bundling. This is why service delivery for products like cellphones or cable TV while expensive, will often cost less than a comparable pure retail service offering. When there are bundled services with a contract in place the consumer position is weakened greatly.

An example of how this happens is with shipping costs can be seen from one satellite TV supplier. They will gladly pay all the shipping costs for repair of a defective DVR/Receiver and will even provide an advance exchange. But if you cancel service, the contract requires all equipment to be packaged up and shipped back at the consumer expense. Many consumers will then just keep the service rather than go to the trouble to gather, pack and ship the equipment. This asynchronous use of logistics cost is a good example of the tools that online suppliers will use to limit gross returns to actual failures. Today manufacturers regularly receive returns with massive rates of NTF (no trouble found). Adding shipping costs to products for no good reason cannot be sustained.
RLM
Bryant Underwood manages Public Safety Sourcing for Cassidian Communications, an EADS North America Company in Frisco Texas.

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