Stephen J. Congel on post-pandemic consumers

STEPHEN J. CONGEL

on post-pandemic consumers

When Chain Store Age asked me to write a piece about what I thought 2022 would look like, they suggested that I write about what pandemic-influenced changes would endure once the virus had receded. But as the owneroperator of one of the 10 largest shopping destinations in the

United States — Destiny USA in Syracuse—we at Pyramid felt that the biggest impact COVID-19 had on our business was the acceleration of a process that was already well underway at our properties. For the last 50 years we have been transforming enclosed spaces that, at their inception, were all about shopping into destinations that drew people from hundreds of miles away to traverse the world’s largest suspended rope course, to dine at 40-plus restaurants like P.F. Changs to the Cheesecake Factory and, yes, to shop at 250 stores ranging from Apple to Zumiez.

We have long labored to create the centers that would be the first stops for people “Brands like Amazon, on back-to-school or Christmas runs in a Warby Parker, and retail center business that had been far Untuckit are doing over-built. However, I do nationwide expansions believe the pandemic effected a profound into physical retail. If change—not on us, the center owners; not online sellers are out on you, the retailers— but on the audience to kill brick-and-mortar we both strive to attract and satisfy: retail, why are they consumers. moving into our malls?” The pandemic truly changed the shopper. How could it not have? People were afraid to leave their homes. In fact, they were told not to leave their homes if they didn’t absolutely need to by the Surgeon General, by their local governments, and by their employers who encouraged them to conduct all their business on their phones and PCs, turning

Zoom into America’s conference room.

And in the process, it made the shopper more highly educated.

More educated about pricing, about quality, about alternative brands and alternative buying options.

What we’ve observed is that the retailers that most successfully embraced an omnichannel platform during the past year (and previously) were the ones that won the most business during the pandemic and the ones that best positioned themselves for success in 2022 and beyond. Today, whatever the consumer wants, retailers have to provide. They need to do a better job on choices for pricing and availability. They have to provide new options for how people research and make a purchase, employing both physical and digital options. Both Target and Kohl’s have done an excellent job of swiftly embracing omnichannel, setting up package pick-up zones inside their stores and curbside pickups in their parking lots.

There has been a big mind change in the general public about shopping brick-and-mortar and shopping online. Look at the some of the most successful direct-to-consumer brands like Amazon, Warby Parker, and Untuckit and they’re doing nationwide expansions into physical retail. And it’s not brought about so much by COVID-influenced changes. It’s been amplified by supply chain issues that the pandemic shined a spotlight on. Industrial real estate is in very short supply and physical stores now play a crucial role as local distribution centers for high-volume online brands. Not long ago I saw a story on Chain Store Age’s website called, “If you own a mall, you also own a warehouse.” It’s so true. If online sellers are out to kill brick-and-mortar retail, why are they moving into our malls?

Truth is, the formula for Pyramid’s success is relatively simple. It’s to put a few hundred of the highest quality sellers of goods and services together with the best entertainment options, the widest selection of restaurants — hotels in our larger properties—and provide them excellent service and amenities.

Not all enclosed shopping centers will survive, but the best ones, the ones that are paying attention will—especially those that find exciting new retailers, redefine the shopping experience, and adapt to changing consumer preferences.

Stephen J. Congel

Stephen J. Congel is the CEO of Syracuse-based Pyramid Management Company, owner-operate of 13 malls and shopping centers in the Northeast.

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Retailers Eye Tech Platform Transition

More retailers are attempting to transform themselves into full-fledged technology platforms — and with good justification.

Retail enterprises that include iWalmart, Target, Kroger and Instacart want to join major technology providers such as Amazon, Apple, Google and Facebook by evolving into broadly-based tech platforms. Here are three underlying reasons driving these (and other) retailers’ ambitions to become developers and providers, as well as end users, of innovative technology solutions and services.

Competitive Advantage

Imitation is the sincerest form of flattery. As an example of this axiom in action, when a retailer obtains an edge over its rivals by using a third-party solution, they attract attention, often followed by attempts to duplicate their technology success. As a longtime retail technology journalist, I can attest to retailers’ frequent reticence to publicly share the details of their IT deployments for this very reason.

Even when a retailer leverages a heavily customized version of a technology solution, or employs a “best of breed” strategy involving disparate modules from multiple vendors, inevitably their competitors will take notice of successful rollouts and either copy them outright or use them as a building block for a more advanced version.

However, retailers with a sophisticated proprietary technology lab can develop solutions that provide them with a competitive advantage that is much harder for their peers to duplicate or iterate. Earlier this year, Target publicized a pilot of a new, in-house-developed sortation center model in its home city of Minneapolis that streamlines the process of fulfilling digital orders from stores, which fulfill more than 95% of the discount giant’s online orders.

The pilot uses store associates to pick and pack digital orders. A Target-controlled truck then collects the packages and brings them to the center, where they are automatically sorted with proprietary technology for individual routes and immediate delivery at the neighborhood level.

The Vendor Life

While retailers that become technology platforms have the opportunity to keep the advantages provided by their proprietary solutions to themselves, they also have the option of sharing those advantages – for a price.

If an in-house-developed solution is good enough, retailers can turn around and sell it (or a version that doesn’t betray any company secrets) to their competitors. Amazon, the most prominent example of a retailer which successfully made the transition to tech provider, spun off its proprietary cloud computing platform into the separate Amazon Web Services (AWS) unit in 2006. AWS now serves as a significant profit driver for Amazon.

More recently, Amazon began licensing its “Just Walk Out” autonomous checkout system to retailers including Hudson Travel.

Custom Fit

Even the most “vanilla” enterprise technology implementations, which utilize solutions from a single vendor to manage a large number of workflows, involve a fair amount of customization. The customization process typically involves one or several third-party specialists and can consume valuable money and time.

Retailers that operate as technology platforms sidestep the need to bring in consultants, integrators, or value-added resellers. They can develop the exact features and functions they need, while minimizing or eliminating any integration that might be required with existing infrastructure.

For example, since 2018, Kroger has been developing an automated “customer fulfillment center” (CFC) model with global online grocery retailer Ocado. Two CFCs are currently operational in Florida and Ohio, and Kroger plans to open 20 across the country in the next few years.

The in-house-developed CFC model leverages proprietary technology solutions focused on artificial intelligence (AI) and advanced robotics and automation to create more seamless and efficient fulfillment, picking and delivery capabilities for enhanced digital commerce capabilities across the U.S. CFC also represents one of the models engineered for the grocer’s flexible, vertically integrated Kroger Delivery network, which will also include smaller automated facilities and spoke locations.

Dan Berthiaume

dberthiaume@chainstoreage.com

Gap’s Supply Chain Transformation

Retailer in five-year plan to build out fulfillment capacity

By Dan Berthiaume

Gap Inc. is leveraging a variety of automated solutions to ensure its supply chain can meet holiday demand and overcome pandemicrelated strains and delays.

Chain Store Age recently spoke with Kevin Kuntz, senior VP, global fulfillment and contact centers at Gap Inc., about the apparel retailer’s application of automation and robotics across its supply chain. Kuntz also discussed how automated systems play a key role in state-of-the-art distribution facilities the retailer is building and retrofitting.

“We are preparing for a robust holiday season,” stated Kuntz. “There is pent-up consumer demand. We were seeing explosive online growth even pre-COVID-19. And then like most retailers, through the pandemic we have had explosive online growth. From the customer viewpoint, we are better positioned than ever to meet our online promise.”

According to Kuntz, Gap experienced a steady increase in buyonline-pickup-in-store and curbside pickup orders during the COVID-19 pandemic.

“BOPIS has a place in our supply chain, but omnichannel business will level off post-pandemic,” said Kuntz. “BOPIS and curbside will continue to be an option convenient when you pass the store on the way home, or need to pick up an outfit the same day to wear that evening.”

Gap is in the midst of a five-year supply chain transition aimed at building out fulfillment capacity. In 2020, the company built out fulfillment capacity at a new supply chain facility in Ohio to 1 million units per day from 650,000 units per day.

On the heels of this expansion, Gap is undertaking three major supply chain facility projects in 2021. The initiatives include retrofitting a Canadian distribution center with current robotic automation technology, as well as boosting the fulfillment capacity at two distribution centers in the U.S.

“At a distribution center in Phoenix, we are in the middle of a ramp-up from processing 175,000 pieces per day manually to 350,000 pieces per day,” Kuntz said. “And at a parallel development project in Gallatin, Tennessee, we are increasing capacity from 300,000 units per day this year to 500,000 units per day in 2022.”

Kuntz said that the updates are enabling Gap to cut days out of its distribution centers and stock the facilities quicker. Although the pandemic hasn’t caused “significant” inventory delays, according to Kuntz, he acknowledged the retailer is fortunate to have long-term supplier contracts in place.

“I wouldn’t want to be on the spot market right now,” he said. “There are port delays you have to adapt to. We changed transit planners. In addition, we use technology tools. Our control towers have capabilities from proprietary internal software that allow us to model inventory delays and adjust accordingly.”

Gap's supply chain transformation strategy includes the use of robotic technology in its distribution centers.

Automation

Kuntz also reviewed some specific automated solutions Gap is using in its distribution facilities.

“There is a lot of automation in our distribution centers,” said Kuntz. “For automated store retrieval, we installed a robotic arm that scans goods and places them into a cubby. Then the cubby is lit green when it contains an item that needs to be retrieved.”

Kuntz said Gap obtains significant labor benefits from this system, as the retailer now needs only four employees to work four shifts each, instead of the 16 that were previously required.

“It mitigates labor risks, and we’re still hiring for jobs in other areas, such as maintenance technicians for the machines,” commented Kuntz.

He also described how Gap utilizes the Exotec Skypod smart robotic solution to streamline returns processing at its Gallatin, Tenn. facility.

“Today, returns are a manual process at most of our facilities,” said Kuntz. “We credit the customer and refurbish and resell the product. There is manual putaway and pull, with a random mix of up to 10 units per single box.”

However, with the automated Exotec Skypod system, Gap places returned items in totes separated by dividers. For outbound pulls, Skypod automatically tells warehouse associates what cubby in a tote contains the needed product.

“This results in a significant reduction in time to service and labor to service,” said Kuntz.

Looking ahead, Kuntz said Gap will launch three additional distribution center projects in 2022. These include building a new greenfield campus in Longview, Texas, as well as adding capacity to existing facilities in Fishkill, N.Y. and Fresno, Calif.

“The Greenfield site will have optional flow for the online channel and improve our service in the Southwest,” said Kuntz. “It will process an additional 1 million units per day. We’re adding 500,000 units of capacity each at Fishkill and Fresno, for a total of 2 million new daily units in the supply chain. We will also roll out the Exotec Skypod system to focus on returns in Fishkill and Fresno.”

Supply Chain Resilience

How to be a supply chain leader

Supply chain problems have been much in the news as global disruptions cast a shadow on the upcoming holiday season and beyond.

Peter Bolstorff, executive VP of corporate development for the Association for Supply Chain Management (ASCM), spoke with Chain Store Age about the many supply chain challenges retailers must overcome in order to succeed in the current market.

What are the major supply chain challenges are retailers?

Retailers, both traditional and e-commerce, are experiencing at least seven pressure points as we head into the 2021 holiday season. First is the competitive pressure of fast, free delivery. The big players have invested in owning their supply chain network and transportation routes and, as a result, can set the consumer expectation at the point of checkout, especially for those consumers that have joined their loyalty program. Next is the quality and position of inventory in Peter Bolstorff is executive VP the distribution of corporate development for the Association for Supply Chain Management. network given the sustained increase in consumers shopping online vs. in-store. There is also increased omnichannel pressure to innovate order, delivery and return models, such as curbside, home delivery, recyclereclaim and app-based order status.

Retailers also face challenges with supply capacity, risk visibility, increasing costs, and delivery reliability – especially international sources of supply. In addition, there are are unpredictable delays with ocean freight, including container capacity, port congestion, weather disruption and the overall effect of stacked backlog stemming from previous disruptions.

Finally, retailers have to deal with labor constraints, including recruiting, developing and retaining employees, as well as with operationalizing corporate social responsibility and environment, social and governance commitments made by the corporation.

How would you define supply chain resilience?

We look at resilience in two dimensions: operational and strategic. Operational resilience is the supply chain’s ability to bounce back and recover to a normal state of affairs. Strategic resilience is the supply chain’s ability to bounce forward and adapt to a new normal. More than half of the retail industry has no formal playbook to deal with disruption.

How can retailers become more resilient and leaders in their supply chain operations?

Retailers that are leaders in the supply chain — as opposed to laggards — are the most connected to their customers and understand the level of sensitivity to delivery lead time and the price associated with it. Product availability will be the competitive differentiator. Loyalty programs will encourage preordering that come with substantial savings, such as ‘everyday Black Friday price.’

In addition, leaders do the following. • Sense demand patterns across channels and dynamically position inventory supporting e-commerce and store re-supply.

At the same time, category managers have identified locally-sourced product substitution options for categories deemed a stock-out risk. • Leverage COVID-19 guidelines to introduce touchless delivery options, such as carside delivery and curbside pickup, and have accelerated innovations and digital investments in ‘self-service’ tools that are both app-based and POS.

Leaders are innovating how to optimize returns and reverse logistics that support

both the customer experience as well as help achieve sustainability goals. • Identify high-risk suppliers and have instituted dual — or more — sourcing strategies that prioritize agility over cost.

Leaders invest in collaborative tools that help assess supply capacity, order status and/or delivery status. They develop tighter strategic relationships with select suppliers to assist with the entire product life cycle. And they utilize digital tools and risk playbooks to assess and mitigate both operation and strategic disruptive risks. • Change the line in the sand on what and how much to outsource. The idea of owning more of the supply chain puts retailers in more control over their short-term destiny. Recent examples include chartering a ship, adding your own private label, locally sourced products to the assortment, adding to your own transportation fleet and hiring your own drivers. • Keep pace with recruiting and retention trends, including signing bonuses, work hours flexibility and the promise of continuing education.

Also, today’s consumers, especially Gen Z, are very concerned about how the products they used are made and sourced. Combine that with big corporate commitments for net zero by 2050, and leaders are focusing on how and where to operationalize sustainability in their end-to-end supply chain. The list includes prioritizing products and packaging that are more circular, investing in emission reductions that both reduce cost and save the planet and transitioning store footprints to carbon neutral. But what really sets leaders apart is the intentional effort to transform their culture from analog to digital. Investment in robotics, artificial intelligence, autonomous material movement, drones, smart devices and exoskeletal applications help associates use technology to make their jobs easier, safer and more productive.