With the economy struggling out of the recession, retailers are implementing innovative supply chain strategies, embracing the latest technologies and going “green” to cut costs and entice skittish consumers back to stores and Web sites.
Despite hints of a recovery and an improving stock market, deep unemployment and depressed housing values are expected to continue to exert downward pressure on consumer retail spending for the upcoming holiday season. The National Retail Federation expects 2009 holiday retail sales to drop 1 percent from 2008 to $437.6 billion. That’s well below a 10-year growth average of 3.4 percent, although not as bad as the 3.4 percent decline a year earlier.
For all of 2009, retail sales are expected to decline 3 percent.
“As the global economy continues to recover from the worst economic crisis most retailers have ever seen, Americans will focus primarily on practical gifts and shop on a budget this holiday season,” said Rosalind Wells, the NRF’s chief economist.
According to the most recent monthly Port Tracker report by the National Retail Federation and IHS Global Insight, container imports for 2009 at the nation’s major ports are expected to total 12.7 million TEUs, down 16.8 percent from 2008 and the lowest total since 2004’s 14 million TEUs. Year-over-year volume has declined for 26 consecutive months. And, as retailers go, so go the container carriers, intermodal railroads and trucking companies that move their goods.
How important is retail to container shipping? The top five — and 36 of the top 100 — importers on The Journal of Commerce’s ranking of Top 100 Importers are retailers. All told, those 36 retailers imported 3 million TEUs in 2008. (To see the complete list, go to http://joc.pressmart.com//index.aspx?issue=issue103.)
Grim as it is, the 2009 forecast represents an upward revision from last summer. “As we move closer to the end of the year and get updated numbers, we’re seeing a steady improvement with year-over-year declines becoming smaller,” said Jonathan Gold, the NRF’s vice president for supply chain and customs policy. “Retailers are slowly starting to import more merchandise, and that’s a positive sign.”
As retailers slowly come out of the downturn, many are maintaining their focus on going green after finding environmental initiatives actually helped cut costs amid slack demand. Retailers increasingly are embracing it as a long-term business strategy. said Dan Butler, the NRF’s vice president for retail operations
“They’re finding that building sustainability is very effective at driving down costs, improving profitability and reducing expenses,” Butler said.
In going green, retailers are following the lead of their customers, who now expect them to embrace sustainability and will see them as behind the curve if they don’t. A 2008 NRF report, “The Consumer View on Green,” said the “Green Revolution represents one of the most significant shifts in consumer attitudes in the nation’s history.” The report found 95 percent of consumers say they would make a special effort to buy environmentally friendly products, while 78 percent would consider paying more for them.
And the number of “true-blue” consumers — the most environmentally active — climbed from 11 percent in 2005 to 30 percent in 2007. Fifty-two percent of consumers say it is very important that retailers use recycling services; be energy efficient, 45 percent; and use sustainable materials, 43 percent.
Grocery store chains were the earliest adopters of environmental best practices, followed by department stores and other large space users, and specialty stores.
The survey identified three key action points for companies to realize a return on investment from their sustainability initiatives: appointing “green” advocates throughout the organization, reducing energy use and reducing waste.
Recognizing they can’t manage what they don’t measure, more than 80 percent of the companies in the NRF survey measure and track energy usage, waste produced and carbon dioxide emissions, transportation and water usage. They are employing various measures to reduce waste and energy use, including recycling, reusing packaging, waste diversion, damaged goods recovery, efficient lighting and carrier mandates for reduced fuel use.
Supply chain is one of the five focus areas in the retail industry’s broad framework for going green, according to “The Bottom Line of Greening Retail,” a 2009 survey conducted by Evans and Company Consultants and the NRF’s Sustainable Retailing Consortium. The other areas are governance, energy, waste, and customer education and marketing.
The survey identified the best environmental practices of 15 major retailers, including IKEA, Wal-Mart, Home Depot and Carrefour. The top supply chain practices identified by the survey were establishment of procurement policies, setting standards for suppliers, auditing suppliers, supporting suppliers’ environmental efforts, and forming supply chain partnerships.
Examples of industry efforts include IKEA’s I-Way, a broad code of conduct for suppliers that includes standards for environmental, social and labor policies. On the energy and transportation side, the company wants to reduce overall energy consumption by 25 percent and use renewable energy sources for its IKEA Group stores, warehouses, distribution centers, factories and offices.
IKEA is noted for its flat-pack distribution, shipping its unassembled furniture products in uniform packs to reduce transportation costs. Transportation service providers must comply with requirements such as use of modern vehicles with cleaner fuels and emissions targets.
Wal-Mart, the world’s biggest retailer, has taken the lead in embracing sustainability. In 2008, the company delivered 3 percent more cases of goods to its stores while reducing its highway mileage count by 7 percent, or about 90 million highway miles. The reduced truck traffic resulted in 200,000 fewer carbon dioxide emissions into the atmosphere. The company added more than 1,100 aerodynamic trucks to its fleet in 2008 and plans to add 1,300 more by the end of 2009.
Wal-Mart recently introduced a worldwide sustainability index initiative in which its 100,000 global suppliers will be asked to complete a survey consisting of 15 questions to determine sustainability rankings based on four criteria: energy and climate, natural resources, material efficiency, and people and community.
Under the initiative, which could take five years to complete, the sustainability rankings would be printed on labels placed near the price tags on a variety of retail items.
The NRF report also cited Wal-Mart’s packaging scorecard, which the company is using to achieve a 5 percent reduction in packaging use across its global supply chain by 2013. The scorecard enables suppliers to evaluate their own efforts using a set of metrics known as the “7 R’s of Packaging: Remove, Reduce, Reuse, Recycle, Renew, Revenue and Read.”
While green initiatives can build brand differentiation and trust, there are pitfalls, such as over-promising and under-delivering, and liability, the report found.
The potential payoff, however, is worth it. “We recognize that we have unique strengths and a unique opportunity to have a positive impact on the environment through our own actions, those of our customers, and those of our suppliers,” said Matt Kistler, vice president of package and product innovations for Wal-Mart subsidiary Sam’s Club. “As vital as the packaging initiative is to reaching our environmental goals, it is also very good for our business and our suppliers’ business.”
Retailers also are investing in technology to execute supply chain strategies for cost-cutting and increased efficiency, despite the recession, said Dave Hogan, the NRF’s chief information officer. The trend is ongoing even though companies in general are curtailing their technology spending — the supply chain management software market will decline 6 percent this year, according to AMR Research.
A growing number of retailers are using product life-cycle management tools, especially for collaborative design and manufacturing. They’re investing more in analytic tools for statistical algorithms that enable them to dig deeper into consumer and supply chain data. From a shipping perspective, a trend among retailers is greater use of DC-bypass strategies and utilizing more regional distribution centers.
“They’re using analytic tools to get down to true localization of inventory and assortments,” Hogan said.
As the economy sputters toward recovery, retailers are focusing intently on rationalizing their SKUs and vendor pools, said Gurdip Singh, vice president of the retail and consumer industries sector at supply chain software provider i2 Technologies. “In lean times, they want to make sure they get their assortments right,” he said. “Proliferation of SKUs is no longer an option.”
Major retailers such as Wal-Mart and Best Buy, both customers of i2, have been rationalizing their inventories with major suppliers, and in some cases, because of sophisticated distribution planning capabilities, have actually increased revenue for vendors even though product lines are thinner, Singh said.
Retailers continue to work collaboratively with brand owners to improve the collection and use of point-of-sale data, long used as a way for retailers to increase sales and extend brand loyalty. More retailers also are reaching out to social network sites and individual consumers, through their wireless devices, to extend brand loyalty and gather marketing data.
Contact David Biederman at email@example.com.