Future Sourcing Strategies – is the DIY Sector Ready for it?

Earlier this month, 4C Associates brought together a select group of thought leaders from the DIY and retail sector to discuss the current challenges that impact sourcing and supply chains, including forecasting volumes, ranging strategies and sourcing locations and how the sector can move forward.

The DIY sector remains optimistic for growth; however, the expectations are unlikely to match those from this year. This is largely due to the impact of interest rates and government policies, and right now it is difficult to project sales as no one knows how will the inflation impact consumer confidence, or whether wages will grow in line with retail inflation.

The DIY retail sector is facing challenging supplier constraints, including limited availability of trade people and skills shortages. Amazon is procuring alternative fuel vehicles to address the commodity and fuel issues, however challenges around distribution remain, impacting the overall cost to serve. In addition, ‘location, location, location’ is still essential as distribution centres and travel routes have a direct impact on the ability to forecast supplies.

Covid-altered consumer habits are challenging to predicts as retailers don’t know how sticky are the pandemic fuelled behaviours and whether consumers will digress back to old shopping habits. Consumers are increasingly impatient, expecting quick returns and other convenience factors to be part of the shopping experience, and as focus has shifted to digital channels, the media has an even more powerful impact on shaping retail and consumer decisions. There is an increased focus on wellbeing and creating a personal connection, with top customers expecting to receive preferential treatment. Consumers are more aware of the product’s journey prior to purchasing, many focusing on the story and ethical background of brands, rather than just a lower price.

To attract new customers, retailers need to leverage and continuously analyse data to understand the product mix changes, and retailers who are looking to expand their demographics to increase market share will require a detailed understanding of generational differences – both in their values and how they buy. The working from home trend is driving a sustained growth in digital penetration, with omnichannel and personalisation playing an essential role in driving longevity and building long-term relationships with customers.

With the current boom of q-commerce, there is often a race to be the fastest even if it’s not the right approach for the business. Click & collect remains an important element of the customer journey, however in the DIY environment it is often the staff who are picking up the orders on behalf of customers. We have also seen a change in dynamic of the instore vs. online experience and the re is increased pressure staff members are facing to serve their online customers first at the detriment of customers in store.

Dropshipping, the order fulfilment method that does not require retailers to keep products in stock brings many benefits, however customers can get lost with too much choice. SKU rationalisation works when there is limited shelf space, as well as core range and online only range which could provide a solution to retailers. Overall, for retailers who are looking to grow their product basket size there is no harm in trying new product types to grow market share

Ethics of sourcing is becoming more important, as well as local sourcing – retailers are also more focused on how they buy and who they buy from. Sustainability focused consumers are driven to be greener, but can retailers pass on the associated increased costs on to the consumer? There are alternative ways to be considered – such as CO2 emissions labelling similar to calories labelling on food items or looking at packaging tax the same way we do with plastic tax. But do investors care enough to drive through KPIs to the buying teams? And how well do customers understand product lifecycles? 

Geographical location is key; however it can be a struggle for retailers to find new suppliers. Often retailers have 30-40 years’ experience sourcing in the Far East, whilst sourcing local is more of a challenge without the experience, and new travel routes when sourcing from new regions may not be viable, meaning that sometimes it might be quicker to ship the product.

The changing macro and micro environment poses a number of challenges to the modern sourcing organisations. 

Article written by Andrew Davidson of 4C Associates.

If you would like to find out how to address and overcome your supply chain challenges, please contact Andrew Davidson at Andrew.davidson@4cassociates.com.