NextGen Supply Chain: H&M’s low tech approach to inventory management

While a number of retail organizations have been investing in omni-channel initiatives to keep up with the likes of Amazon, others have fallen behind. That includes H&M. The fast-fashion darling is reportedly struggling to sell off $4.3 Billion of unsold inventory. To move the merchandise, H&M has been increasing markdowns, but this in turn has led to lower profits and sales.

One of the driving factors behind H&M’s struggle of late has been a comparatively slow supply chain and difficulty managing inventory to efficiently meet customer expectations. For example, H&M’s lead times are almost double those of Zara, one of its main competitors. In response, H&M has said that 2018 will represent a “year of transformation,” with plans to invest in technological, operational and digital improvements like RFID tagging, store operations and warehouse automation tools. While companies like TJX have demonstrated that there is more to retailing than bleeding edge technology, H&M’s current struggles are very much rooted in traditional supply chain and inventory visibility issues.

The H&M story goes along with many things that we have seen in our 2018 retail report – “Foundational Layout and Requirements of Enabling Omni-channel Retail Initiatives.” Inventory visibility is the single biggest hurdle for retailers attempting to implement omni-channel initiatives, but only 41.9% of respondents in our omni-channel survey viewed inventory visibility as extremely important. In the case of H&M, struggles with inventory management are not new, largely because of its inventory practices as well as a reliance on outdated back end systems. As illustrated in the chart below from our report, retail organizations that audit inventory on a quarterly or annual basis tend to be more prone to inventory management issues.

If H&M wants to enable inventory visibility and accuracy across the entire enterprise it will need to do more frequent auditing of inventory in its warehouses and physical store locations, and develop a strategic long-term plan around its technology investments.

A new direction
Based on recent announcements, H&M appears to be on the right track to improve its customer experience and create value through omni-channel initiatives, but one has to wonder if this will be enough to turn around its business. Moreover, the success of these “customer-facing” initiatives will be dependent of how well H&M can gain accurate visibility into its operations.

At VDC Research, we believe that organizations need to move away from a reactionary approach to omni-channel and think instead about the operational implications of these initiatives. By doing this, organizations can avoid issues like additional costs of shipping which have eroded the profitability of retailers. Moving forward, VDC recommends the following best practices for retailer’s enabling an omni-channel strategy.

* Retail organizations must build out and plan multiple deployment methods for these supporting technologies to avoid leveraging initiatives that lack internal support, have below-average performance measurements, and fall significantly short of shopper’s in-store and online expectations.

* Establishing an effective omni-channel strategy requires all stakeholders of the company to buy into these new technologies as well as evaluate their existing organizational structure to identify employees, potential service gaps, and processes that won’t coincide with the strategy.

* Retail organizations should strive to create a seamless and personalized shopping experience both within and beyond the physical store. While there has been a significant amount of market pressure on retail organizations’ E-commerce development over the past few years, the physical store continues to be the primary sales mechanism in retail and fulfilling orders from here represents the best opportunity to attract and drive customers into the store and generate incremental revenue. Beyond the store, customer engagement is critical for retail organizations trying to build relationships, push ads/promotions, and track specific shopping habits.

* In general there has been a lack of top-down approach in the way stores organize their key performance indicators (KPI’s). Retail organizations need to reevaluate, reshape and create a proven set of KPI’s in order to benchmark their omni-channel capabilities against those of their competitors.

Initiatives like these can have a transformative result on your business. However, true transformation requires more than just an investment in technology. Organizations need to have a dedicated and trained staff in place to support these functions. What’s more, an organization’s processes and culture need to be aligned with the new technology before it will deliver value. Throwing technology at a problem is only effective when associates have the knowledge and understanding to leverage its capabilities and create insights.

Chris Kondracki is a research associate with VDC Research. You can find more on this topic at VDC Research’s report “Omni-Channel Retail Initiatives.” VDC Research also invites NextGen Supply Chain readers to receive free access to its Technology Influencer & Buyer Portal – a content delivery service with on-demand access to some of its research offerings. Click here to sign up for our newsletter.