Due to refraining from going out, the number of purchases on EC sites has increased, and the enjoyment of spending time at home has become established, and consumer values have changed.
However, the distribution and retail industries have been greatly damaged by the impact.
In this article, we will explain the current state of the retail industry and the challenges it faces in the new normal era, as well as introduce countermeasures and future prospects.
Table of contents
- Current situation of distribution and retail business
- Issues faced by the distribution and retail industries and ways to deal with them
- Changes in consumer needs
- labor shortage
- Inefficient supply chain management
- Distribution/retail industry future outlook
- Building a foundation for global store openings in overseas markets
- Taking on the challenge of research and development of new business formats
- Distribution and retail success stories
Current situation of distribution and retail business
First, let’s look at the definition of “distribution and retail industry”. “Distribution industry” is a generic term for the retail industry and the wholesale industry in a narrow sense. The retail business sells directly to general consumers products procured from wholesalers (retail sales).
Wholesalers purchase products from manufacturers and sell them to multiple retailers (wholesale sales). Simply put, the “distribution industry” exists between product producers and product consumers.
Examples of the distribution industry include department stores, convenience stores, supermarkets, large electronics stores, drug stores, and home centers.
As the examples show, retail is a major consumer spending destination and is directly impacted by changes in demographics, household composition, income and lifestyle.
According to the ” Population and Age Composition Estimates (Birth/Death Medium) Data ” released by the National Institute of Population and Social Security Research , the population aged 15 to 64 with the highest propensity to consume from 2015 to 2030 will be The population is projected to decrease by 8.528 million, while the population aged 65 and over is projected to increase by 3.292 million.
Looking at this forecast, it is clear that while the impact of population decline is not so great at present, it will have a significant impact on the retail industry over the next 10 years.
In addition, major changes are occurring in the retail industry worldwide due to changes in the social environment and the evolution of digital technology. Technology has permeated the management and field operations of the distribution industry.
For example, using AI, we aim to provide a personal customer experience with higher added value and improve productivity. Furthermore, there is a trend to launch new business models such as RaaS (Retail as a Service).
In this way, the distribution and retail industry has undergone rapid changes in short-term cycles, repeating growth, evolution, and decline, while developing various business formats in response to changes in the social environment, lifestyle, and consumer sentiment. I’m here.
Issues faced by the distribution and retail industries and ways to deal with them
It is clear that it will be difficult for a company to grow further if it sticks only to the complete retail business of “selling goods” due to the shrinking population and decreasing disposable income due to the declining birthrate and aging population. Many challenges have already begun, but in the process of expanding from a complete retail business to e-commerce, and further focusing on new businesses that create synergies with e-commerce, various challenges have emerged.
From here, I would like to list four issues facing the distribution and retail industries and explain what solutions are available for each of them.
Changes in consumer needs
For retailers, it is also an important issue whether they can meet the needs that change with the times. For example, one of the major characteristics of modern society is that the shift from “owning” to “using” has become commonplace.
In particular, the development of the digital field has had a major impact on the retail industry. Until now, the mainstream pattern of consumption has been for consumers to visit stores and purchase products. But now you can easily shop online.
As a result, sales at physical stores are declining as more customers window shop at physical stores. As the number of customers leaving brick-and-mortar stores is increasing, it is becoming difficult to achieve growth in the traditional retail business. In order for retailers to survive, they must always grasp the needs of consumers and develop services.
Countermeasures: Convergence of offline and online
In the retail industry, “online” and “offline” used to be fierce rivalries. However, as customer engagement and retention improve, and new customer needs continue to change, the line between the two is becoming thinner. The era of marketing measures that induce online to offline, or offline to online, and a business model that fuses both is coming.
With the spread of smartphones and the heyday of e-commerce sites, modern business has diversified contact points with customers. Against this background, the “omni-channel” measure, which is already being implemented by many retailers, was first tackled by Macy’s, a major US department store, and spread all over the world.
The omni-channel strategy is characterized by the creation of a comprehensive sales channel by integrating all channels related to sales and distribution, such as physical stores, websites, e-commerce sites, and applications. As a result, customers can buy products and use services in the same way from any channel. In other words, an omni-channel strategy can be said to be a digital strategy for comprehensively managing those touchpoints and providing consistent services.
One example of successful omni-channel in Japan is MUJI.
The MUJI passport app is the gateway to MUJI’s omni-channelization. This app is equipped with functions such as news delivery and inventory search of MUJI products, and is equipped with a mileage program that adds points just by visiting the physical store, increasing the number of inflows to the physical store.
There is also a check-in function that allows you to accumulate miles when you have a smartphone with MUJI passport installed and enter within 600m of the store, and you can receive coupons and the latest information according to the place and time of check-in.
②OMO business model
With the spread of digital platforms such as smartphones and payments, there is a growing demand not only for providing a comfortable shopping experience online, but also for smoother coordination with offline to create a more realistic customer experience like offline. I was. Against this background, Kaifu Li, former CEO of Google China, who currently heads Sinovation Ventures, began advocating OMO, and the “OMO Strategy” was born.
OMO is an abbreviation of “Online merges with Offline”, and it is one of the marketing methods and business styles that have been attracting attention in recent years, mainly in the retail industry.
In the OMO business model, customer data, which has been managed separately online and offline and used for separate marketing measures, can be transformed into the ID of customers who “purchased at stores” by utilizing smartphones and various sensors.・You will be able to link the information with the ID and information of the customer who “purchased at the online store”.
In this way, in addition to “unifying customer data of stores and online shops”, “integration of official site and online shop”, “product and sales linkage with core system”, “inventory and shipping linkage with WMS”, “posting with CMS” Examples include data linkage and search engine linkage.
In addition, by using AI to analyze the behavior of the same person, customer satisfaction can be further improved, such as receiving a push notification on a smartphone when walking near a store that has products registered as favorites on the online store. Providing high quality service will improve the customer experience.
Suntory’s coffee shop “TOUCH-AND-GO COFFEE” in Nihonbashi, Tokyo is one example of a successful implementation of the OMO strategy.
With the slogan “Select properly and receive immediately”, you can make a coffee with your favorite flavor by pre-ordering and paying in advance from LINE.
First, pre-order Suntory “BOSS” brand bottled coffee customized to your liking on LINE, and then go to the locker for pick-up at the designated time to pick up the finished coffee. You can select the pick-up time in 5-minute increments, and pay with a credit card or LINE Pay. It is supported by many users because it is possible to customize the taste and label, and you can receive the product without waiting in line.
According to a report titled “Current Status and Issues of Work Styles in the Wholesale and Retail Industry” released by the Ministry of Agriculture, Forestry and Fisheries in 2018, the vacancy rate in the retail industry exceeds that of the food manufacturing industry. We are facing the problem of shortage. In particular, labor shortages are seen in “sales/sales,” “distribution/transport work,” and “product production (simple work).”
The wave of digitization is surging into the distribution and retail industries as work style reforms are being called for by improving operational efficiency due to the declining working population.
Countermeasures: Manned contact with customers, unmanned simple work
In order to improve the productivity of physical stores in the future, it is necessary to strengthen customer service while maintaining polite contact points with customers. On the other hand, simple work other than customer contact points should be thoroughly labor-saving and unmanned. The two-pronged strategy of manning customer contact points and unmanning others is the future roadmap for improving productivity in the retail and distribution industries.
In other words, it is necessary to transform physical stores into “smart stores.” With the evolution of IT and the advent of the IoT society, the “sales method” and “work” of real stores will change significantly. “Cashless stores”, “Visualization of purchasing behavior using cameras”, “Visualization of out-of-stock items using cameras”, “Signage advertising”, “Dynamic pricing using electronic shelf labels”, etc. will change significantly.
In addition, the use of unmanned robots is also attracting attention. For example, in 2017, Ikebukuro Parco introduced a successful self-propelled guidance robot, Siriusbot. During business hours, we provided facility information to customers by conversation or touch panel operation, and guided them to their destinations on their own. Furthermore, after the store was closed, we read the RFID tags attached to the products in the tenant store and checked the inventory unattended to reduce the burden on the staff.
This “Siriusbot” has been adopted as a guidance robot in the demonstration experiment conducted by Tokyo Big Sight at the end of 2019, and since it supports Japanese, English, Chinese, and Korean, it is suitable for foreign customers. It is also expected to be used for guidance of
Inefficient supply chain management
A supply chain is a term that refers to a series of supply flows in the economic market, from the purchase and processing of raw materials to the final consumer.
In grasping the concept of the supply chain, the concept of “Supply Chain Management” is important. Supply chain management is the production and distribution process from product to consumer. It can be said that the purpose and essence of supply chain management is to properly manage the “process” and “information” of the products that reach the hands of consumers, and to optimize corporate activities.
However, many Japanese companies face challenges such as the digitization of supply chain information and the sophistication of supply chain planning as supply chains become more complex due to globalization and the strengthening of private brands.
“Private brands (PB) are products that are sold under their own brand by companies that do not originally plan and produce their own products, such as retail stores such as convenience stores and home centers, and wholesalers that distribute products to retail stores. .”
In addition, one of the major issues is the occurrence of “excess inventory” in which products that have been purchased but have not been sold are piled up as inventory. On the other hand, shortages occur when the products that consumers want are not in stock when they need them. It is also a problem that the appropriate product lineup is not known because the consumer’s needs are not visible.
As such, many retailers continue to suffer from inefficient supply chain management, resulting in unnecessary costs and labor costs, resulting in poor sales growth.
Countermeasures: Introduction of telematics, logistics, and IoT
As the use of IT in the distribution and retail industries progresses, the number of cases where IT is used to review operations in the supply chain sector is increasing. For example, the optimization of transportation and logistics through telematics, and the introduction of IoT to improve operational efficiency. .
Five steps are required to build and manage an optimal supply chain.
By centrally managing information on each process from purchasing to processing, manufacturing, transportation, and sales in this way, we can expect to improve the efficiency of supply chain management.
Distribution/retail industry future outlook
I would like to explain the future prospects of the distribution and retail industry as risks due to changes in the environment, changes in lifestyles, and changes in purchasing styles are progressing.
Building a foundation for global store openings in overseas markets
In Japan, population decline is expected to accelerate from around 2026, ten years from now, and it is expected to fall below 100 million by around 2048. In this way, as a countermeasure against the shrinking market size due to the decline in the total population, a global strategy of opening stores in Asian countries where population growth is expected can be cited.
A leading example here is AEON MALL, which is rapidly growing in number in China and Southeast Asia. According to the Deloitte Tohmatsu Group’s “World Retail Rankings 2020” report, Aeon is ranked 13th among the top 250, and is the top Japanese company in the same ranking. Having achieved the No. 1 operating revenue among Japanese retailers for seven consecutive years, Aeon is the number one retailer in Japan both in name and reality.
In 2019, Aeon announced that it will strengthen overseas store openings, mainly in China and ASEAN, and aim for 70 overseas malls in 2025.
According to the consolidated results for the second quarter of the fiscal year ending February 2020, the operating revenue of the China and ASEAN business was 24,159 million yen (up 11.7%), and the operating profit was 4,352 million yen (about 13 times). Due to the effect of strong consumer confidence and demographic bonus, it is showing growth that greatly exceeds that of Japan.
In addition, when Aeon expands overseas, it has been successful with strategies to increase brand value in the area. For example, when we open stores in ASEAN countries such as Vietnam, Indonesia, and Cambodia, we do not open stores in enclaves, but rather focus on regional areas to raise awareness of the area.
In addition to opening stores as shopping malls, we are continuing to expand profits through approaches that are different from those in Japan, such as trying to open stores as entertainment facilities.
In this way, Aeon is not only opening stores based on the Japanese model, but building a foundation that matches the region and country is the key to its success in expanding overseas.
Taking on the challenge of research and development of new business formats
In order to survive in the distribution and retail industry, it is essential to research and challenge new business models.
Among them, the transformation of the sales approach is particularly important. For example, “live commerce”, which was born in China, is a new form of e-commerce that enables interactive connection with users. It has already become a common sales method in China, but it is not yet popular in Japan.
“Live commerce” is a new sales format that combines live distribution and EC. Users who participate in the live distribution can purchase products immediately, and they also serve customers while distributing on a dedicated platform or their own EC site or SNS account.
The beauty of live commerce is that you can take advantage of the commenting feature and ask questions in real time. Consumers can learn more about product features by asking questions in the comments. Another feature of live commerce is that you can check the feeling of use and atmosphere through video, so you don’t miss the intuitive desire to buy.
The strength of live commerce is the special feeling, familiarity, and sense of unity of live video, and it is possible to create an experience that cannot be obtained simply by purchasing on an EC site. In addition to video distribution by professionals who are familiar with the brand, there are also cases where influencers and celebrities are invited to advertise in order to attract more customers.
In the future, with the advent of 5G, the business use of live distribution will further accelerate in Japan. For distributors and retailers, for whom business model research is essential, new sales forms such as live commerce may become a key point in the future.
Distribution and retail success stories
Intermestic Co., Ltd., which operates the major eyeglass brand “Zoff,” is trying to create new value in eyeglasses. Until now, glasses were nothing more than a vision correction device. However, the company established Zoff Eye Performance Studio (hereafter, ZEPS) to make eyeglasses items that improve human performance, and is working to create new value for eyeglasses.
Zoff first launched its own e-commerce site, started omni-channel, and now also runs the OMO model. Even if people remember their eyesight, there are few people who remember the degree and type of lenses they have, so we introduced a system that links that information with the EC site.
Information such as the power and lens type of eyeglasses purchased at a physical store, and information such as where and which eyeglasses were previously purchased are linked to the e-commerce site. Therefore, once you log in, you do not have to enter new information, and even if you do not know the power of the glasses you are using, the system automatically reflects the information on the site.
There are about 400 7-Eleven stores nationwide. Among them, the “Seven-Eleven Kojimachi Ekimae Store” is operating as a demonstration store that introduces new technologies, systems and products on a trial basis.
As an attempt to save labor, the store has reduced the number of manned cash registers and installed many new self-checkout counters, more than half of which are cashless only. In addition, we are promoting the digitalization of convenience stores by introducing AI cameras and electronic shelf labels for customer analysis.
In addition, there was a need to grasp data in real time and respond to changes, so we started full-scale use of the cloud. The company collected and analyzed point-of-sale (POS) data from all approximately 21,000 stores, and worked to build a big data utilization platform called “Seven Central” that enables real-time understanding of the situation.
Currently, Seven Central can only collect POS data, but in the future we plan to add functions every six months so that we can aggregate data from both inside and outside the company, such as product ordering and sales promotions. We aim to utilize it for business collaboration.
In order to provide customers with a better experience, it is necessary to link online and offline behavior history to optimize the customer experience.
In addition, in order to survive in the after-digital era where consumer needs are changing, it is essential to challenge new business formats through DX. From now on, the retail industry needs to think about plans to expand overseas, regardless of the domestic market, for further growth.