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Retailers Look To Innovation To Gain A Competitive Edge

0Amanda Mathes C2FOTraditional brick-and-mortar retailers still dominate the retail space, but online sales are increasing as a percentage of retail sales around the world. Consumers’ preference for e-Commerce purchasing has been trending steadily upward for well over a decade and shows no signs of slowing down.

In the U.S., e-Commerce sales currently represent approximately 7.8% of retail spend. A study by the Centre for Retail Research found that the online share of retail trade was 15.2% in the UK and 9.4% overall for Europe last year. In China, the National Bureau of Statistics reported that online retail sales made up 12.1% of total retail sales in 2015.

So what can more established retailers do to compete with online players? One answer is to look to technology and innovation to help even the playing field. Naturally, this often takes the form of adding online and mobile to their customer experience, but there are other ways in which traditional retailers can become more innovative.

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For most online retailers, innovation is part of their DNA. Major web-based retailers not only benefit from the convenience of their online platform but also from efficient and streamlined processes throughout the company. These competitive advantages are usually built in from the start and are constantly fine-tuned to increase efficiency and profitability.

In contrast, many traditional retailers are held back by legacy processes in finance, treasury, procurement, accounts payable and other key departments. Over time, some retailers may overlook or get used to fixable problems such as outdated processes and non-optimized payment terms. However, the longer it takes for them to modernize, the more difficult it will be for them to compete with e-Commerce players and their more forward-thinking brick-and-mortar counterparts.

In order to increase their competitiveness, progressive retailers are increasingly exploring technology that increases the value within their supply chains. Often this takes the form of early payment programs designed to provide cash flow to suppliers in exchange for a discount.

Small to medium-sized businesses (SMBs) make up a significant portion of the supplier base for major retailers. Since the global financial crisis, these businesses have had an increasingly difficult time borrowing the cash they need for things such as operations, manufacturing, hiring and expansion. Cash-starved suppliers represent a risk to a retailer’s supply chain, but retail buyer companies can mitigate that risk by offering technology-enabled early payment options.

Early payment programs, including technology-enabled dynamic discounting platforms, enable retailers to use their available cash and leverage innovation to achieve key performance objectives. The benefits to retailers can include reducing cost of goods sold; improving EBITDA, gross margin and EPS; generating higher returns on cash; and improving supply chain health.

Well-known global retailers including Costco Wholesale, Walgreens, Toys “R” Us and Nordstrom utilize a working capital market that allows buyers and suppliers to collaborate on early cash flow at a rate that’s profitable for both. Motley Fool once cited Costco Wholesale’s early payment program for suppliers as a factor in the retailer’s competitiveness, based on the company’s ability to reduce its cost of goods sold due to the discounts suppliers offered in exchange for early payment.

This type of true dynamic discounting solution is especially valuable when implemented as part of a holistic supply chain early payment program that offers traditional SCF to larger suppliers and P-cards to the smaller ones. A full range of options benefits suppliers across the entire supply chain and down multiple tiers to help ensure an uninterrupted flow of goods.

When suppliers have the option to get early cash flow when they need it, it increases their financial stability and lengthens their relationships with their retail buyers. It can also improve the working partnership between a retailer and its supplier, which is particularly valuable when the two companies work closely on product development.

Offering suppliers early payment options at rates that may be less than their cost of borrowing is an ethical supply chain practice that is equally beneficial to the retailer. More than ever before, consumers are paying attention to business best practices and rewarding companies that adhere to high ethical standards when dealing with their suppliers. Modernizing business processes with an eye toward fairness to suppliers can provide a healthy boost to a retailer’s corporate reputation.

In today’s hyper-competitive business environment, retailers are fortunate to have access to established, proven technological solutions that can help them improve their internal processes and increase profitability. The sooner a retailer can get up to speed with the latest innovations, the more competitive it is likely to become.


 

As a Managing Director at C2FO, Amanda Mathes aligns best-in-class organizations with best-fit working capital optimization strategies to maximize value. She works with individuals in finance, treasury, accounts payable and procurement to understand both goals and constraints alongside their current corporate culture and landscape. Through careful analysis and understanding of underlying opportunity, she fashions a go-forward approach, taking into account margin improvement goals and the cash management strategy at hand. In roles prior to C2FO, Mathes was a financial advisory services consultant and vice president for a post-payment audit and advisory service company.

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