The New Brick-and-Mortar

How traditional retailers are rethinking supply chains to compete with Amazon

Jul 31, 2019
Logistics

SMITH BRAIN TRUST  You could be forgiven for associating the phrase “brick-and-mortar” with an old way of selling things. But brick-and-mortar retailers increasingly are discovering how their physical stores can help them transform their supply chains, their image and better compete with the biggest rival in retail – Amazon.com.

“It’s about innovation. And it’s about reimagining everything across retail and rethinking what it means to have hundreds or thousands of stores across the country,” says Gary Cohen, clinical professor of Supply Chain Management and Director of the Supply Chain Management Center at the University of Maryland’s Robert H. Smith School of Business.

Amazon.com has been the ultimate disrupter across the retail sector. In its wake, customers have come to demand fast, free shipping, and a seemingly endless assortment of goods.

Retailers, scrambling to compete, have responded with an array of delivery options – with various speeds of shipping service, plus “buy online, pickup in store,” curbside parcel pickup, two-hour delivery windows, and more.

Amazon, meanwhile, isn’t sitting still. The Seattle-based e-commerce giant has been speeding the expectations on Prime deliveries to one-day, from the previous two-day time frame, looking to appease its 100 million Prime members.

That shift, even while creating a profit drag for Amazon, is creating additional pressure across the retail landscape.

“But the advantage that many of Amazon’s retail rivals have, specifically those with stores across the country, is that they can use their stores as little distribution centers, putting them closer to the customer,” Cohen says. “But this initiative does require analytics and exceptional inventory management.”

Without the right analytics and inventory approaches, Cohen says, retailers run the risk of “cannibalizing” their in-store sales, leaving shelves poorly stocked and creating a less-than-optimal shopping experience for their customers.

At the same time, there’s a risk that without the right analytics and inventory management practices, retailers might leave certain locations overstocked, forcing them eventually to mark down goods – a practice that cuts into profits. “It’s the reason why retailers don’t like to sit on inventory for long periods of time,” Cohen says.

That’s where artificial intelligence can play a role as well, determining which goods to ship from which stores to which customers, based on location, shipping costs and current inventory levels. “It can determine, in real time, which stores have sufficient inventory to support e-commerce orders without threatening its in-stock position for brick and mortar shoppers,” he says.

“Strategically, retailers could pull inventory from stores that are overstocked, selling those goods that otherwise might be marked down,” he says. “This allows them to protect their profit margins and satisfy customers at the same time.”

Done right, he says, retailers can use their brick-and-mortar locations as AI-assisted e-commerce distribution centers, delivering goods swiftly, cheaply and conveniently. Or, they can leverage their physical stores, with Buy Online Pickup In Store options, an option that Amazon, so far, generally lacks. “You’re saving that consumer time,” Cohen says. “They are not waiting a day, or two days, for delivery. That’s a win.”

The parcel industry, meanwhile, is expanding to meet the increased demand, as retailers strive to improve and expand their omnichannel offerings. UPS recently announced that it would begin delivering packages seven days a week, matching an earlier announcement from rival FedEx.

UPS is taking it a step further, however, announcing it would also be making deliveries via drone.

“And why not?” says Cohen. “Everybody wants their stuff now.”

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About the Expert(s)

CohenGary

Gary is a Clinical Professor of International Business, Global Trade and Supply Chain Management. He has served as the Associate Dean of Executive Programs and was the founding Academic Director of the Master of Science program in Supply Chain Management. Gary has led Undergraduate, MBA and Executive MBA Consulting Projects in the U.S., Europe, South America and Asia, and has served as an Executive Coach in the Executive MBA program.

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