Auburn Survey Tracks Retail Revolution

An Amazon distribution center like this one is under construction near Mobile.

Even battle-hardened veterans on the front lines of retail might raise an eyebrow at the tone of this year’s State of the Retail Supply Chain report, the seventh annual reckoning from Auburn University’s Center for Supply Chain Innovation. In the past, the report has divided retailers into one of three diagnosis categories: healthy, lifestyle changes required or intensive care needed. New for 2017 is a fourth category: Dead on Arrival.

It’s a hard truth, but retail survival is getting more rare. The report notes that more than 8, 600 retail stores will close by the end of 2017 as shoppers migrate online. Major retailers HH Gregg, Wet Seal and The Limited announced bankruptcies, closures and layoffs, while once-iconic Sears Holding Corp. reported in a March Securities and Exchange Commission filing that “substantial doubt exists” over its survival prospects. Meanwhile, Amazon’s purchase of Whole Foods and expansion of Prime memberships put even more pressure on traditional retailers.

The report, sponsored by the CSCI and produced in partnership with the Retail Industry Leaders Association and DC Velocity, explores strategies from retailers with annual revenues exceeding $1 billion. Supply chain executives from 76 companies, including 22 of the nation’s top 100 retailers, participated. Auburn’s Raymond J. Harbert College of Business colleagues Brian Gibson, Cliff Defee and Rafay Ishfaq conducted interviews with 23 retail supply chain experts, revealing some changes in retail supply chain investments and strategies from 2016 to 2017, with the biggest being that 63 percent of executives have increased investments in supply chain process improvements. Other trends include:

  • 55 percent have increased investments in “omnichannel” fulfillment, allowing more nimble control of pricing, inventory management, sales and order fulfillment.
  • 54 percent have increased investments in technology.
  • 35 percent believe they have achieved integration across all customer service channels.

The report cites a Credit Suisse analysis that predicts up to a quarter of the nation’s shopping malls will close in the next five years, fueling a “race to the bottom” as retailers struggle to deliver goods to consumers in the least expensive way. For those dealing in online sales, two-day, free shipping is the standard for consumers now steeped in Amazon. Therein lies some more hard news, according to the report, for brick-and-mortar retailers trying to do business online: Fewer than 10 percent of the companies involved in the study fully recover their omnichannel fulfillment costs, making it very difficult to maintain strong profit margins.

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