Sell More, Mark-down Less

For many retailers and brands, projects on the docket for the coming year are focused on tactics to support an omni-channel shopping experience.  Often overlooked in this flurry of activity are big picture opportunities to leverage the direct to consumer channel as a platform for enabling core strategies.   Here are two success stories:

1. Separate models for Full-Price vs. Markdowns – a fashion footwear company’s merchandise strategy is “fashion footwear at full price.” To support this fashion strategy, aggressively timed markdowns are taken both in-store and on-line to quickly turn styles and maintain excitement for the core full price customers.  In this model, eCommerce with store-to-customer fulfillment is essential to support the churn in footwear styles necessary to “clean up” a style once the size run is broken.  During the markdown period, the company’s on-line site helps customers interested in last seasons’ style to find their correct size.  Both in-store or on-line ordering are enabled with robust Order Management software that will not only find the correct size somewhere in the chain but also does this while looking for the closest store that has the complete customer order.  This strategy does result in slightly higher supply chain costs than a pure centralized fulfillment but this is more than offset by the merchandising advantages of lower markdowns.  More importantly, each store clears out aging styles faster and therefore can bring in additional styles sooner supporting the core fashion strategy.   In contrast, during the initial introduction of a style while the style is at full price, this retailer enables Centralized DC fulfillment of on-line orders – keeping stores in stock with the latest style and size while at full price.  This is a tale of two direct to consumer supply chains:  One for full priced beginning of life (maintains store in-stock on full price merchandise at the style-size level) and another for End Of Life (cleans out the stores so they can be refreshed) that satisfies customers and maintains margins.
2. Segment Shopping Occasions – a beauty supply retailer is positioned to provide “easiest” service to customers.  The core strategy is to offer service levels comparable to a department store cosmetics counter in a specialty store setting.  An analysis of loyalty card data provided evidence that customers used the on-line channel differently than the store: web orders generally supported replenishment of previously purchased items, not emergency replacement of an empty eye liner or purchase of a new category.  These are two very different shopping occasions, requiring two very different service models.  As a result, the company has adopted 100% centralized DC based direct to customer order fulfillment in order to keep web fulfillment out of the store and store personnel focused on providing very high levels of customized customer advice. The web experience has been optimized to support market basket replenishment as well as to drive promotional impulse purchases.   This model has built customer loyalty and full price sales.

In both cases, these companies looked beyond typical omni-channel tactics to figure out how digital retailing and direct to consumer supply chains could significantly add value to the business and their customers – something to consider when planning for 2017.