TLQ 0.4 | VC Post | Activant Capital

It’s all about inventory

BY: Steven Sarracino, Founder & Partner, Activant Capital

KEY POINTS

  • 40% of all abandoned carts online can be traced back to slow shipping times. This significantly impacts the top line for both large retailers and digitally native brands.
  • In order to drive outcomes, retailers must focus on the few variables they do have control over: where they source their inventory, how much they pay for that inventory, and how they get it to their customers.

  • Intelligent inventory management and nimble logistics sit at the core of customer experience, driving the need for visibility further down the supply chain.

  • Next-generation warehouse management systems use software to allocate inventory to physical fulfillment nodes, be they stores or warehouses. These platforms can leverage economies of scale across a network of space to turn fixed costs into variable costs – and in doing so, create a lot of value.

Retail, in theory, is a simple business. Buy goods for cost and sell those items for more than the price you paid. In order to do so, you will need several things: a channel to sell those items through, be it digital (a website) or physical (a store), a means to create and service demand for those products, and a fulfillment network to get those products to your customer. What makes this “simple” business complicated is that each of the aforementioned components is under increasing pressure from an ever-changing customer and myriad competitors.

The cost to operate commerce channels is on the rise, be it via rent hikes in high-traffic retail areas or the increasing cost to buy visits to your site. With every player, new and old, speaking into the same few marketing megaphones, having your voice heard is getting more expensive and less effective. Thus, in order to drive outcomes, retailers must focus on the few variables they do have control over: where they source their inventory, how much they pay for that inventory, and how they get it to their customers. Or in retailer speak, “buying,” “allocation,” and “fulfillment.”

With today’s customer’s ever-shortening “demand-span”, only retailers with exceptional buying capabilities will catch the eye, and thus capture the wallet share, of consumers. Furthermore, predicting what consumers will want is particularly difficult, as the most successful brands are those that innovate on their product beyond what customers and competitors have seen before. Think wool sneakers by Allbirds, white labeled products at Trader Joes, or bulk goods from Costco – each drove massive growth in retail but were difficult to predict as they didn’t exist in mass before their introduction.

The other two levers for retailers are allocation and fulfillment. Each is a problem of predicting density and narrowness of demand. Density, in terms of having enough of your products where consumers want them: i.e., within a 2-day deliverable radius, or in a store when they buy in-person, and narrowness, by having enough of the item-level product consumers want: i.e., the blue cashmere sweater in size medium. These two operational problems are only becoming more complex as consumers expand their expectations of experience and fulfillment – how they find and receive their purchases.

It’s no stretch of the imagination to believe e-commerce purchases will continue to be delivered faster. Yet for retailers, meeting consumer expectations and demand across multiple channels is a significant challenge. For instance, 40% of all abandoned carts online can be traced back to slow shipping times. This significantly impacts the top line for both large retailers and digitally native brands.

Like many other industries, the infrastructure behind retail and e-commerce is aging; most technologies are not flexible enough to fulfill rising consumer expectations. We have seen this first hand as investors in the original e-commerce platform, Hybris, and now in the latest order management system built for omnichannel, NewStore. In order to compete with the Amazons and Walmarts of the world, retailers of all sizes need to change the economics of their fulfillment. Amazon has spent the last ten years investing in a network of strategically built warehouse and distribution centers – 100 in all across the country. This isn’t a feasible investment for most retailers to make, yet they must play under the same set of consumer expectations.

Thus when we at Activant think about where innovation needs to happen soonest, it is around inventory allocation and fulfillment. We get particularly excited about companies with innovative go-to-market or monetization models that truly flip the economics of an industry. There is tremendous opportunity in applying technology to inventory supply chains and fulfillment.

Intelligent inventory management and nimble logistics sit at the core of customer experience, driving the need for visibility further down the supply chain. Beginning with the first node in the supply chain, technology can optimize the journey. Companies like Celect, which applies machine learning and data processing to the planning function, can help optimize the allocation issue across multiple nodes of distribution by making product available where the demand is. Next-generation warehouse management systems use software to allocate inventory to physical fulfillment nodes, be they stores or warehouses. These platforms can leverage economies of scale across a network of space to turn fixed costs into variable costs – and in doing so, create a lot of value. NewStore provides a single view of a retailer’s inventory to sales associates to help them fulfill a customer’s needs in the fastest and most cost-effective way, providing great customer service without breaking the bank. And throughout the supply chain, Turvo provides visibility and creates opportunities to optimize routes and loads to reduce costs for the shipper (in this case, the retailer).

At Activant, we see a massive opportunity in supporting the infrastructure upon which commerce runs, and bringing it into the 21st Century. We would like to see brands and retailers level the playing field by investing in the technology that will make the entire supply chain more efficient and costeffective in order to compete against behemoths like Amazon and Walmart.