Richard Howells, VP of Solution Management for Digital Supply Chain at SAP, answers questions about the benefits and challenges of subscription-based retailing models.
Q: What are the benefits of a subscription-based retail model? Is this generally a good business decision for retailers?
Richard Howells: To remain competitive in the digital world of online shopping and one-day deliveries, subscription-based retail models are growing in popularity, and are on the front lines of the movement towards consistent, incremental value for consumers. In the retail world, the modern consumer is afraid of commitment — with 67% of shoppers checking the returns page before making a purchase, it’s clear that shoppers want to be able to return whatever they order directly after they order it, and “final sale” labels are enough to make them break into a cold sweat. Retailers offering subscription-based models are catering to this modern consumer by allowing them to shop with “no strings attached.” They can try on clothes or test products in the comfort of their own home, offering convenience, flexibility and the novelty of having a personalized experience.
On top of appeasing consumer’s needs, subscription-based models offer several benefits for retailers as well. Brands can learn a lot about their shoppers from what they decide not to keep from their subscription box. AI and machine learning can be applied to help companies understand and predict what their consumers like, and eventually reduce the amount of returns coming back from a subscription service.
Q: How do supply chains need to scale to accommodate subscription retailers? What are the major differences between a normal retail supply chain and one that sends out monthly subscriptions?
Howells: The volume of shipments will grow as the size of shipments shrink with a direct-to-consumer subscription model. This means that depending on how a brand approaches a subscription model supply chain, they can either use retail stores as a distribution center or leverage large warehouses that ship both to retail shops and direct to consumers. Either way, brands will have to shift their logistics model to serve a new type of fulfillment strategy, in order to accommodate a subscription model that breaks the mold of a traditional retail supply chain.
Additionally, brands will have to drive more intelligence into the picking of items they send, based off of the clothes that come in through returns. This is not a repetitive supply chain, as every box is unique and handpicked for the customer, giving brands better visibility at the individual level for buying patterns. Supply chains in these circumstances must determine how to minimize costs and maximize customer service to provide a unique and tailored subscription service.
Q: How sustainable are subscription retail models compared to regular e-Commerce? What are the factors that contribute to this and how can brands address these areas of waste?
Howells: Embracing subscription models requires a shift in your logistics model, which will inevitably impact your carbon footprint. By default, with more regular and unique shipments, there will be more emission costs (transportation, packaging, etc.).
Consumers are drawn to brands with sustainable practices — according to Nielsen’s 2015 Global Corporate Sustainability Report, 66% of consumers would spend more on a product if it came from a sustainable brand. With customers putting an increasing focus on sustainability, brands looking to embrace new retail models (like subscription services) cannot afford to ignore sustainability as a priority. The ultimate goal for retailers should be to decrease the packaging materials and waste that accompanies each order/subscription box.
In addition to finding a packaging method that wastes as little as possible and attracts eco-savvy consumers, supply chains for subscription models should look toward their transportation emissions as an area to cut down their carbon footprint and optimize travel. By planning the trip for the truck driver or delivery person, they can exponentially reduce emission costs and ensure that, while there are more deliveries than usual, these delivery routes are planned as precisely as possible to optimize time and energy. For example, by shipping in bulk, retailers can leverage somewhat of a “carpool” approach to save on energy and money. This type of planning requires a digital mirror ofthe end-to-end supply chain — from design, planning and manufacturing to logistics and ongoing maintenance.
Q: Are there any retail brands you see maintaining a sustainable supply chain that subscription model companies should look up to?
Howells: Sustainability is becoming a priority for more and more brands as the reality of cost savings sets in for them. Sustainability doesn’t just make sense from a moral perspective; it makes sense from a business perspective as well. Companies such as Allbirds, which drives sustainable practices in its supply chain by implementing practices and materials that make it more efficient, and Nike both set a good example for sustainable practices, as well as brands that are reducing carbon emissions for the consumer as well such as Tesla.
The data is out there, and the evidence is proven around a sustainable supply chain model. Retailers have made huge strides in becoming sustainable in their practices, and while new practices such as subscription models have emerged, retailers can still embrace some of the same sustainability practices. No brand — subscription-based or not — should go into this blindly. Sustainability is top-of-mind for consumers and businesses, and brands that do not prioritize the initiative will surely fall behind.
Q: How do you see this trend panning out over the course of 2020? Do you have any predictions around subscription-retail?
Howells: Subscription-based retail models are changing the way that retailers have to think. When you bypass the store and go straight to your consumer, there is a lot more planning that must be done, but also a lot more data and insight to be derived that can strengthen the customer experience through personalized items and recommendations. Existing brands have an opportunity in the subscription market as well — Nordstrom’s Trunk Club is an example. With the right strategy and a strong sustainability model, retailers will be able to give consumers what they want through a personalized and sustainable subscription-based retail model.
Richard Howells is VP of Solution Management for Digital Supply Chain at SAP. He has been working in the supply chain management and manufacturing space for over 20 years. He is responsible for driving the market direction and positioning of SAP’s Supply Chain Management solutions. Prior to joining SAP in 2004, he spent 15 years with Marcam Solutions as VP of Marketing for the company’s Process ERP solutions. He has also implemented ERP and SCM systems at companies such as Nestle, Gillette, Colgate Palmolive, Rohm & Haas, Wyeth, Royal Worcester Spode and Dairy Crest. Howells holds a Bachelor of Science degree in Computer Science from the University of Mid Glamorgan in the UK.