Strategy: Range Consolidation Or Range Expansion?

Towards the end of last year, it became obvious that two very distinct and yet opposing ranging strategies were beginning to emerge across established retailers in the DIY, Home and Garden sectors. When it comes to the management of bricks’n’mortar stores, it’s all about range reduction and simplification, driving efficiencies through supplier consolidation and reducing stock levels. 

However, several retailers are taking a very different approach when it comes to the management of their online offer. Here it’s a contrasting strategy, where the focus is on competing with Amazon, eBay and Wayfair by offering the broadest range possible, often supported through a Drop-Ship service from an extended supplier base.

Range Consolidation & Efficiencies

The need to reduce in-store ranging and stock holding is not surprising when you consider the pressure being felt by retailer supply chains. Everywhere you look, established retailer DC’s are bursting at the seams, either to keep up with increased consumer demand or because of high stock levels that they are now sitting-on following over-ordering from the Far East.

You can understand the need to drive efficiencies with retailers such as John Lewis & Partners, recently announcing the startling fact that 60-70% of their total sales are now achieved online. 

John Lewis Reveals Online now accounts for 60-70% Of Sales (insightdiy.co.uk)

It’s fair to say that UK Lockdowns did contribute to this high number, which out of interest stood at just 40% pre pandemic. But that is still a staggering statistic, when you consider that the remaining 30-40% of their sales are now generated by their hugely costly, store portfolio. It is no surprise that they’ve been forced to close sixteen Department and Home stores in the last two years and unfortunately for the many people employed by the company, there are likely to be more closures to come.

Another retailer forced to look very closely at the range management in their stores is the stationery retailer Paperchase. Following their collapse into administration in January 2021 (after being forced to close their stores over their peak Christmas trading period), it was critical to drive efficiencies and make the business more profitable.

Penny Teale, appointed Trading Director in April 2021 and supported by the consulting firm 4C Associates, told me the approach they took: -

“A key focus of the range reduction was to reduce the amount of product duplication and improve the pricing structure of the range, to make it simpler for our customer to shop, and more efficient for our business to manage. Using 4C’s ‘4MARGIN’ data analytics tool, we built a strategy for each range with detailed proposals on range structure and supplier selection as well as recommendations for a pricing hierarchy by range type.

We worked closely with the buying and merchandising teams and through the process, we upskilled the buyers to become more commercial in their decision making while giving merchandisers the tools to make effective ranging and trading decisions. The result was well received by customers and it delivered to the bottom line through improved sales and margin across the entire range”.

Range Expansion 

Screwfix is a great example of a retailer set on a very different path, choosing to dramatically expand their offer, committing to add at least 30,000 new lines to its online range before the end of 2022. This approach is effectively opening the doors to a flood of new products and suppliers enabling them to solve more customer missions. 

For the reasons explained before, with DC’s bursting at the seams, it would be impossible to take a significant number of completely new suppliers and thousands of products into their existing supply chains, the admin’ burden alone for the supply management teams would make this objective impossible to achieve.

However, in recent months I’ve been introduced to Virtualstock, one of a new generation of supply chain and procurement solution providers, with a HQ in Reading. In simple terms, invited suppliers provide their product range, sku and stock data to Virtualstock, who’s SaaS platforms then integrates seamlessly with the retailers’ own systems. This enables the retailer to offer a significantly increased online range, with all orders taken shared back through the platform to suppliers who drop-ship directly to consumers, with everything monitored and controlled on behalf of the retailer via a dashboard.

Virtualstock is used extensively in the retail sector to provide extended online range solutions via dropship and is the catalyst behind the range extension plans of Screwfix and B&Q. Other clients include Argos/Sainsbury’s, Curry’s, Harvey Norman Robert Dyas and yes, you guessed it, they have also played a key role in the online growth achieved by John Lewis.

Robert Dyas Partners With Virtualstock To Accelerate Online Business (insightdiy.co.uk)

In the health sector, Virtualstock is used by over 100 NHS trusts to source products from over 5,000 suppliers.

I’ve always accepted the adage that there are only two ways to grow a retail business – acquire new customers (which is costly and difficult) or sell more products to your existing customers, those who already visit your stores and websites and like your brand. A wider online range means more online customers and more sales and these are sales without any risk of stock management.

The Virtualstock platform even includes a module enabling retailers to search for new dropship suppliers and products. Selected suppliers can then efficiently induct their products and publish them to the individual retailers’ systems. This ensures data quality and consistency from supplier to website, and the ability for suppliers to get the data to the retailer in the correct format – significantly reducing time to market.

So What Happens Next?

With retailers adopting polarised strategies when it comes to management of their in-store ranges and their online offer, it begins to raise some very interesting questions. With different strategies and with ultimately different teams managing each side of the business, it becomes increasingly possible to run these channels as two entirely separate, stand-alone divisions and even businesses.

If that happens, then the opportunity for a retailer (particularly a business in distress) to sell off its online business becomes a distinct possibility. Can you imagine John Lewis stores and John Lewis.com being two entirely different businesses with the online channel/company being run on a separate basis, but maybe managed on a license basis with JLP?

Far-fetched? I don’t think so. It’s already happening in the US where Saks Fifth Avenue’s parent company Hudson’s Bay Co. split the retailer’s website and stores into two separate businesses in March last year.

More recently, the department store Macy’s is reviewing the option after the 163-year-old retailer said last month that it was reviewing its business structure after Jana Partners urged it to separate its e-commerce arm. The activist hedge fund said in October that the e-commerce business could be worth $14 billion on its own, more than Macy's entire current market capitalization of about $8 billion.

And it’s not only Macy’s and Hudson Bay considering the option with Nordstrom now being added to the list: -

Could Nordstrom Be the Next Retailer to Split Its Business in Two? (yahoo.com)

Sounds like an Interesting and potentially viable option for John Lewis and maybe even other retailers, let's watch this space closely.

About 4C Associates

4C Associates are a leading supply chain consultancy supporting retail clients to build resilient buying and supply chain strategies that deliver real bottom line margin improvement by helping them better understand their end-to-end cost to serve and margin performance. Their data driven approach enables trading teams to fully understand the key drivers of revenue and margin performance while their team of retail experts understand the practical operational dynamics to ensure ranging and trading decisions only positively impact the customer experience 

About Virtualstock

Virtualstock is a UK-based SaaS company providing marketplace and drop-ship solutions delivered through industry leading-technology and innovative partnerships. Virtualstock operates in three key verticals with a platform that allows clients to manage a large pool of suppliers through a single connection point. In Retail and Construction, Virtualstock's platform allows for speedy online product range expansion, turbo-charging sales while reducing operating costs and improving customer satisfaction. In Healthcare, Virtualstock provides a government-ready procurement marketplace for healthcare providers, connecting them with approved suppliers. With an impressive and ever-expanding client base including John Lewis & Partners, Argos Sainsbury's, Screwfix, B&Q and over 40 NHS Trusts, Virtualstock is leading the way in the dropship and marketplace space.

Source : Steve Collinge: International Speaker, Thought Leader, 2022 Top Retail Influencer, MD Insight Retail Group & Executive Editor Insight DIY.

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