Observations and sound bites from the Melco Forum in Spain
I was invited by CONTEXT to speak at the Melco Forum in Valencia, Spain last week. Melco Forum proved to be a unique event where vendors and retailers came together in an intimate gathering, to discuss common issues and identify mutual opportunities (#newretailthinking). All too often, vendors of consumer products and retailers are seen as adversaries, or at least as aggressive negotiators. However, in a world where omnichannel is the new normal, there are new opportunities and increasing demands for vendor/retailer partnership. The Melco Forum is a snapshot of the kind of emerging dialog and exchange that will be required for both retailers and vendors to be profitable in an omnichannel world.
Why this is important: Strength or size in the current market does not ensure future success. Future survival will depend upon partners' ability to adapt and collaborate to rapidly changing consumers who shop many channels, any time, everywhere.
Sound bites for survival in a consumer centric world
One of the interesting developments of conferences over the last few years is the use of Twitter hashtags to engage participant's pre, during and after the conference. The interesting thing about Twitter, is that you have to distill the message down to 140 characters, actually less if you use the hashtag. Such a format creates some interesting sound bites that become focal points for discussion and exchange.
My opening keynote at Melco Forum (#Melco2014) was on the future of "retail" and what that means for both vendor/manufacturers and retailers. There were three major themes that emerged at the Forum, and were retweeted most often in our twitter feed (#imsretailu):
Omnichannel is the new normal
Consumers have changed their behaviors dramatically … and they are not going back. They shop any time and everywhere. They pre-shop before visiting stores, and they use phones to shop while in the store aisle. Retailers and vendors traditionally think in terms of "channels" … consumers don't know they exist. Today's consumers are looking for a seamless experience and that will require unprecedented collaboration between vendors and retailers as partners to provide. Everything from real time information, to rich content and experience, to buying products in store that are not even displayed on the shelf. All will require new levels of partnership.
The classic methods of driving consumer sales was to advertise and promote on price. The result has been a "race to the bottom" on cheapest price. Retail stores cannot afford to win the race to the bottom on price, nor can consumer products vendors. While today's consumers do a lot more research online that is also a major opportunity to showcase value over price. In technology products for example, retailers and vendors need to be able to show and demonstrate the value of a more expensive "2 in 1" computer with a detachable keyboard which enables it to become a tablet. This will require rich content, video and demos, online as well as hands on experience in store.
Results Count … everything else is conversation
In the past, retailers had their metrics and vendors of consumer products had theirs. To some degree, there is a need for separate metrics to measure unique aspects of each business model. But increasingly, retailers are collaborating with vendors, and vendors are investing in retailer stores. SiS (Stores in Stores) are becoming very common place not only in apparel and cosmetics, but also in technology. When a vendor builds a branded shop within a retailer store, both need to JOINTLY measure the impact conversion rates, market basket attach of profitable accessories, and the ROI of the business model for each partner. This requires new collaboration and data.
GMROII - A key metric of success which requires partnership execution
Stepping aside from SiS and other collaborative experiments in selling products, a core metric for survival is GMROII – Gross Margin Return On Inventory Investment. If GMROII drops too low for retailers, they are not returning enough profit to invest in future inventory. Products not selling through eat up inventory working capital. This in turn causes banks to not extend more credit so that retailers have "open to buy" for the latest products for the upcoming season.
Most vendors have traditionally thought of GMROII as a "retailer metric" and not their problem. But in categories like fashion and technology, the vast majority of purchases (75+%) are in store, NOT online. So, it becomes mission critical for vendor suppliers to have their very best current products on the store shelf today. To achieve that requires joint collaboration with the retailer on managing inventory levels and product line transitions.
But, there is another area related to GMROII, which requires ultimate collaboration between vendors and retailers. It is the concept of the "endless aisle". Increasingly, today's consumers are making decisions in store and then purchasing an item with specific specs not carried in a store's stock. This creates a sale for both the retailer and vendor without having to have the inventory stock in store, which increases potential GMROII. It also creates a significant demand on how to partner to establish "virtual inventory" and the logistics, which enable drop shipping to stores or consumer homes.
Future Opportunities: Most powerful four letter word is "TEST"
At the Melco Forum, there was significant interest and discussion around CX – Consumer Experience. And, rightfully so. Nothing drives consumer purchase behavior more than a positive engaging consumer experience. There is no substitute for direct hands on consumer experience with a product, and there is no better way to sell "solutions" and services that go with a core product than at the moment of purchase. In the technology products arena, vendors have a critical need to get consumers first-hand experience with their latest product technology, so that consumers don't go online and purchase low margin alternatives based primarily on price.
Changing the consumer experience is perhaps one the greatest opportunities and challenges today. Historically, most have viewed consumer experience as the domain of the retailer. But with the growth of SiS areas in retail stores, the vendors are investing quite literally in experiments with retailers on how to change the consumer experience first-hand in the store aisle. The approach and metrics must be a partnership win-win to be sustainable.
Perhaps the most powerful force to change the future of retail is TEST. The best outcomes are from tests involving vendors and partners working together. After all, there are many, many theories. At the end of the day, Results Count … everything else is conversation.
To receive more information and sound bites from IMS follow IMS Results Count on Twitter, Facebook, Pinterest and Google+.
Sources:
- Partnership Cube Image: Freedigitalphotos.net; Renjith Krishnan
- Lock Image: StockFreeImages.com
- Puzzle Partnership Image: Freedigitalphotos.net; Salvatore Vuono
- Test Image: Freedigitalphotos.net; DDpavumba
Thanks Chris for a great summary which we will post to the LinkedIn group so that the attendees of the Forum can read this..and also discover your blog. We are immensely grateful to you for coming and leading us through an excellent keynote speech. We'll be posting some choice moments from the video which we took as well.
Posted by: Adam Simon | June 04, 2014 at 04:36 PM