A channel which can't be discounted

James Russell, Commercial Director, Rowan.

The supply chain industry shoulders a lot of responsibility – being central not only to businesses achieving efficiency and environmental targets, but also essential in achieving profitability goals.

It's no surprise then that many businesses invest hundreds of millions of pounds in new technologies, such as RFID, to improve supply chain visibility and inventory management. Nor should it be a surprise that brands are increasingly interested in a sector that allows them to minimise the environmental and bottom-line impact of supply chain inaccuracy and actually convert this into profits – the discount retail channel.

The logistics industry is continually rising to the challenges posed by limited edition products, featuring redesigned packaging or special on-pack promotions or competitions. Supply chain professionals know that accurate stock ordering is highly important for items such as these, which have a limited shelf life in traditional retail.

Underestimate how much stock is required and there's a risk of items becoming unavailable for consumers. In the first instance that means the loss of a potential sale, but the damage extends beyond this, because out-of-stocks also influence future behaviour, prompting shoppers to switch loyalties.

While many consumers are driven by a shopping list, people who find what they want will often stay in a store and make additional impulse purchases. On the other hand, if the item they're looking for is out-of-stock, it's likely they will simply leave the shop in frustration.

The damage this does to profits is underlined by the Retail Feedback Group's 2012 Supermarket Experience, which found that 50 per cent of shoppers who are unable to find an item in stock go to another store to buy it.

Furthermore, retailers risk losing future custom as a result of out-of-stocks. If shoppers are forced to visit an alternative store to make a purchase, they might switch their loyalties – taking future custom to the retailer that more reliably stocks the items they want to buy.

Of course, simply avoiding out-of-stocks by overestimating stock requirements is equally unsatisfactory – resulting in potential cash flow issues or wasted money. Additionally, companies sending excess stock to landfill risk harming their environmental credentials as well as their bottom line.

It's here where the discount channel – which includes retailers such as Home Bargains, 99p Stores and other high street pound stores – is proving so valuable. Crucially, the discount sector offers real value when utilised by forward-thinking companies as more than an insurance policy to mitigate the effects of supply chain error, but instead as a powerful way to recruit new consumers and generate additional profits.

By ensuring items that might otherwise go to landfill appear on store shelves, discount plays a role in minimising losses. However, research underlines the role it can play in boosting profits – the emphasis for companies harnessing the power of discount retail is not on making the best of a bad situation, but seizing a valuable opportunity.

Studies underlining the role discount can play in boosting profits, as opposed to mitigating losses, include Procter & Gamble research showing that 15 per cent of people who try a brand at a discount retailer go on to purchase the same brand at full price in the future.

This can perhaps be attributed in part to the changing profile of the typical discount shopper. A Rowan/IGD report conducted earlier this year found that 77 per cent of discount shoppers come from ABC1 demographic groups – they don't visit discount stores out of sheer financial necessity, but because they are savvy enough to realise these stores offer quality brands for less.

For brand owners, the discount channel allows them to reach this increasingly affluent market and to do so simply by minimising the results of supply chain error and potential damage to brand equity. For brand owners and supply chain professionals, those are benefits that simply can't be discounted.

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