Supply Chain decision-makers and online sellers, as highlighted in the recent Direct-to-Consumer (DTC) survey sponsored by Deposco, expect their DTC business to increase substantially in the coming years, with their consumer fulfillment channels contributing as much as 50% of overall sales. 

The implications of DTC growth are substantial, in that many of the businesses surveyed built their highly effective retail-focused supply chains using tools and operating out of facilities which didn’t anticipate this complex type of product flow. 

So what’s different? The well-run and highly effective supply chains in place were largely built with the expectation that the point of demand would be at retail stores, vs. the diverse and unexpected locations in a consumer-centric supply chain. 

Why the big rise in DTC?

The transition to direct-to-consumer is accelerating for several reasons. 

Manufacturers and brands, with retail temporarily unavailable to provide their value-added, high-touch customer interactions during COVID, have increasingly turned to establishing direct fulfillment links to their own consumers in order to preserve sales and margin. 

The potential for higher margins selling directly also presents a significant motivator. Finally, the empowered consumer researching, selecting and purchasing products of their choice, at the time of their choice, have all led to dramatic growth in the global DTC landscape.     

The implications, behind closed doors

On the operational side, however, manufacturers and distributors that handled bulk orders are now needing to break pallets, open up packing cases, and pick singles in order to fulfill customer orders directly. Not only were those unfamiliar processes for which the physical supply chains and supporting systems were not suited, but an extended set of activities like customer returns and managing multiple new shippers (for fulfillment to consumer), emerged.

In response to those challenges, businesses looked to modify their existing infrastructure where possible inserting pick-pack-ship operations into their bulk storage facilities. At a small scale, those operations, albeit highly manual, could possibly be accommodated. Add rampant new channel growth into the equation and cracks started to appear. 

Meanwhile, in brick-and-mortar…

In parallel, shopping centers and out-of-town retail saw declining sales as consumer demand transitioned to ecommerce, and zero sales during the pandemic. Therefore, many became increasingly over-spaced with a larger footprint than required to display and sell a given range. So they looked for means to sweat the assets through range extension and other services to visiting customers. 

Add the backdrop that retail space is notoriously expensive, as well as locked in by long-term binding contracts, and the imperative for tenants – and ultimately their landlords – to address that challenge is huge.

Fast-forward several years with ecommerce accounting for a greater proportion of sales, vastly accelerated by the pandemic, and those same shopping centers are no longer the thriving consumer destinations they once were. 

The state of play then has become a growing desire from the consumer to be able to order directly from the source. The problem? Those facilities were somewhat unsuited to support that demand. Factor in retail locations that were suffering a decline in demand, and the scenario is ripe for change and collaboration in a very different form.   

So we look forward to a supply chain where all inventory nodes (manufacturer, retailer DC and Store, shopping center, marketplace, etc.) are all able to pick, pack, and ship to consumers. The question then moves to: Which, at any point in time, is the optimum to mobilize to satisfy consumer demand?

Change is required

Starting with the relatively fixed assets of retail property in the face of declining footfall, the priority is to augment the purpose of the retail facility, expanding the offer to include other product ranges through store concessions, such as complementary products from partner businesses and the like. A great deal of effort has focused on attracting customers in greater numbers, through entertainment offerings in a series of wider collaborations to bring retail closer to other consumer activities.

This, in turn, introduces a complex supply chain model, where the consumer offer comprises products that may be sourced from a wide variety of supply points. This introduces new supplier management complexities, such as onboarding new processes for specific labeling compliance or packaging standards that are unfamiliar to your warehouse management staff.

The fact remains that the location for the retail stores – i.e. located close to the buying customer – continues to be a critically important attribute which has potential for greater exploitation.

Having brought those mixed supply routes together at the retail location, a consolidated supply point exists which has the potential to provide a wider mix of products to the visiting customer. But critically, this location could also provide a close-to-the-consumer fulfillment location for all of the products represented. Here is where it will become table stakes for retailers to represent real-time, accurate available-to-promise quantities that sync automatically to digital systems, to ensure great customer experiences regardless of the touchpoint. 

Order management’s role in retail spaces

We expect landlords who want to offer their retail tenants greater value beyond declining footfall, to step up with micro-fulfillment services to their renters. This approach can be used to provide multi-retailer basket fulfillment to consumers in the locality.  

For those product sources already enabled to manage a fulfillment network, this provides yet another route to consumers. And for those suppliers constrained to ship purely from central distribution and retail, this provides a close-to-consumer ecommerce fulfillment location that allows one to leverage inventory that was not previously considered in the mix.

With the changing purpose of those shopping locations, including an increasing bias toward leisure, there exists a potential for a click-and-collect value-added service for consumers. This is differentiated as a multi-retailer order that could be ready for collection on the back of a visit to theater, cinema, or other leisure activity.

Apply this to the increasingly environmentally aware consumers and local authorities looking to reduce unnecessary van deliveries into urban environments, and a highly fit-for-purpose offer emerges.

To effectively compete in DTC channels, retailers must have real-time visibility across all inventory pools via an order management software mechanism that can offer a shopping experience across multiple sub-brands. This way, landlords or local authorities have a compelling new service for their customers and for the end consumer.