Retail's New Imperative: Supply Chain Optimization as a Growth Strategy

Contents
Introduction......................................................................................................................................2
Key Insights.......................................................................................................................................3
Global Outlook: How Prepared Are CEOs for the Pace of Change?..............................................5
Mission Critical: Staying Competitive..............................................................................................8
The Profit Paradox: The Role of the Supply Chain.......................................................................11
Brand Reputation: Retail’s New Currency ...................................................................................13
The Age of the Informed Customer: How to Keep Them Coming Back.....................................15
Preparing for Change......................................................................................................................18
Conclusion......................................................................................................................................19
Survey Methodology......................................................................................................................20
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2 | Retail’s new imperative
“Yesterday supply chain was important. Tomorrow it will be mission critical.”
—Thomas Storck, Chief Merchandising and Multichannel Officer, Galeria Kaufhof
Introduction
Disruption is now the new normal in retail. The massive
convergence of technology and channels being driven
by digitally-savvy consumers has helped turn traditional
retail models upside down. This unprecedented wave
of change is forcing retail industry CEOs to reevaluate
their entire enterprise—their people, processes and
partners, and the technologies that support them—and
dramatically alter their business models to drive top- and
bottom-line growth.
To keep from falling behind in the new marketplace,
today’s leading retail CEOs are realizing that they must
move beyond plugging leaks and take a more strategic
approach to building a sustainable and profitable oper-
ating model. This requires a shift in capital investments
and business priorities as well as new ways of applying
innovations, and recognizing the role that a strategically
aligned supply chain plays is key not just to survival, but
to the growth of the business.
The need to navigate through relentless disruptions to
grow market share and profit makes the road ahead a dif-
ficult one. To gain deeper insights into how visionary
CEOs are preparing to manage and grow their enterprises
in an increasingly complex omni-channel world, JDA
Software commissioned PricewaterhouseCoopers (PwC)
to conduct a global CEO survey titled “CEO Viewpoint:
Supply Chain’s Critical Role in an All-Channel World.”
The information gathered from this global survey
included feedback from 409 retail chief executives across
eight markets, and more than a dozen one-on-one
follow-up interviews conducted by Forbes Insights. The
research raises interesting questions, and a few worrying
signs, that some CEOs don’t seem to grasp the magnitude
and nature of the challenges ahead. Among the highlights
from the findings:
• A majority of CEOs surveyed agree that the market is
drastically changing, and align on the current state of
affairs and the key issues that they must address.
• There is a fairly equal balance in numbers between
CEOs who are optimistic about the near future and
CEOs who are not.
• In many cases, there appears to be a disconnect
between the actions required for true transformation
and what companies are currently doing.

Copyright © 2014 Forbes Insights | 3
H O W P R E P A R E D A R E C E O s F OR T H E P A C E O F C H A N G E ?
Many industry experts agree that there will be more changes in the retail market in the next five years than there
were in the last 50 years combined. This accelerated rate of change means the CEO’s role of managing this change is more
important than ever. For companies to grow profitably, CEOs have to substantially evolve their operating models to thrive
in this challenging environment. A cautious, incremental approach to widespread, rapid market disruption can be deadly.
One major change that is forcing retailers to not just rethink but reinvent their operating models is the death of chan-
nelization. This term refers to the artificial boundaries that incremental thinking has put in place, as the line between
online and physical space has increasingly blurred.
As mobile commerce comes of age, shoppers are no longer just going shopping episodically—they are always shopping.
Problems arise when the customer experience does not keep up with the demands of increasingly demanding shoppers.
However, many CEOs seem to be perhaps underestimating the impact of this new “omni-channel” environment. Indeed,
only 34% of the CEOs surveyed considered the rise of omni-channel shopping to be an external threat, while only 22%
said it would impact their organization. This seems to be a cause for concern—as many predict that the rise of omni-
channel shopping is one of the most fundamental shifts that has occurred in the industry in recent times. CEOs who don’t
understand omni-channel’s potential impact are in danger of missing the mark when it comes to future strategic planning for
their enterprises.
M I S S I ON CR I T I C A L : S TAY I N G CO M P E T I T I V E AT
T H E I N F L E CT I ON P O I NT O F R E TA I L’ S E V O L UT I ON
Charles Darwin once said, “It is not the strongest species that survive, nor the most intelligent, but the ones most
responsive to change.” For the retail industry, responding to change means businesses must adapt to mobile shopping,
multiple channels, digitally-savvy customers, globalization, political upheavals and the rise of emerging markets.
The survey revealed that some companies may be underestimating opportunities to increase their competitiveness
through innovative strategies that meet customers’ expectations across all channels or technological advancements. The top
three priorities the retail chiefs listed were:
• Expansion into new regions and markets (48%)
• Expansion by opening new stores (40%)
• Expansion through mergers and acquisitions (32%)
These priorities demonstrate that there is still a very traditional way of thinking when it comes to growth, high-
lighting potential missed opportunities for the more than two-thirds of CEOs who are failing to consider enhancing their
distribution capacity and supply chain as a key way to increase competitiveness.
With speed and agility as a competitive differentiator, the focus on accelerating time-to-market and responsiveness
through an agile, connected supply chain must closely align with growth priorities. The two-thirds of respondents who
are not thinking beyond traditional growth areas would be well served to consider the words of Thomas Storck, chief
merchandising and multichannel officer at Galeria Kaufhof, a German department store chain that’s part of Metro Group,
who mused, “Yesterday supply chain was important. Tomorrow it will be mission critical.” That “tomorrow” he spoke of
has now arrived.
KEY INSIGHTS

T H E P RO F I T P A R A DO X : The r o le o f t he s u pply c hai n
Are today’s retail operating models, and their supply chains, positioned to help organizations grow more profitably?
The answer has to be no. Only 17% of all CEOs claim that their supply chains are currently optimal. When looking at
just the top 250 retailers, this percentage grows to 33%. On average, the CEOs ranked supply chain investment near the
bottom of their investments, which suggests that CEOs are still not connecting supply chain optimization with the ability
to successfully grow profit margins.
When asked about their top risk concerns, retail chiefs named the following:
• Increasing competitive threats (41%)
• Margin erosion and cost reduction (39%)
• Data security threats (25%)
• Attracting and retaining customers (24%)
These answers reveal a sizable gap between recognizing risk and employing effective strategies to address it. Ironically,
despite the relatively low ranking they gave to supply chain investment, 50% of retail CEOs recognized that a supply chain
can be a strategic differentiator in succeeding as a low-cost provider.
B R A ND R E P UTAT I ON : R E TA I L’ S N E W CURR E NC Y
Advances in personal device technology and the spread of social media have put serious pressure on retailers to respond
to their customers’ demands fast and flawlessly, and their response times ultimately could enhance the brand experience or
put their brand reputation at risk. However, it’s surprising that retail CEOs seemed to downplay the risk these technologies
present to their reputation:
• *Only 14% of retail CEOs believed reputational damage is “likely to occur”
• *34% of CEOs believed that reputational damage will affect their organization
These findings are even more surprising considering that CEOs didn’t see their supply chain, which has a huge
potential to burnish or destroy a retailer’s reputation, as possessing iron-clad reliability. And only 15% of CEOs believed
their current supply chain was resilient enough to address the threat of external disruptions.
These data points reveal the mixed viewpoints retailers have when it comes to the role of the supply chain as it relates
to growth, costs and operational excellence. Some accept its importance but give it little focus, while others view it as a
core competency that can help move the business forward.

With the global economy still in recovery, CEOs are
cautiously focusing again on growth. The future out-
look to them looks positive overall, and more than 54%
expressed great confidence in their companies’ ability to
grow revenue over the next three years. However, the
outlook of CEOs varied from country to country, and
government policies, consumer spending patterns and
retail market maturities all influenced their perspectives.
In one example, German department store chain
Galeria Kaufhof’s Thomas Storck has a positive outlook on
growth. Germany is, after all, Europe’s economic power-
house. But even though the number of unemployed in
Germany has decreased over the last several years, the
consumption rate is increasing very slowly as a result of fis-
cal policies that encourage savings, as he explains: “Lack
of growth in private consumption is the biggest exter-
nal threat to our growth. That is making clear to me that
when we want to grow, we have to gain additional market
share. There is no natural growth in the market.”
GLOBAL OUTLOOK: HOW PREPARED ARE
CEOS FOR The PAce of CHANGE?
Figure 1. CONFIDENCE IN REVENUE GROWTH OVER THREE YEARS
3%
6%
34%
54%
Very confident
Somewhat confident
Not very confident
Not confident at all

Executives clearly underrate
the impact of the rise of the
omni-channel environment:
only 22% think it will have a
big effect on their company.
22%
34%
In China, Frederic Seiller, CEO of Luxottica Retail
in Greater China, sees a bright future for the company
based on that country’s high demand for luxury products.
A luxury eyewear maker, Luxottica should benefit not
only from the pace of growth of the Chinese economy as a
whole but also from some market deficiencies. For exam-
ple, while a high proportion of Asian people need vision
correction, seeking out consistent eye care, including reg-
ulations and annual checkups, is a practice that is still in its
infancy. “The approach for this market was never to make
quick wins when you come in and pay for that later. We’re
here for the next 20, 30, 40, 50 years or more, and we need
the business model to be extremely solid and the founda-
tion to be solid,” he says.
In the United States, Ken C. Hicks, president and CEO
of Foot Locker, may represent the best approach when he
says, “I don’t worry about the economy because I can’t do
anything about it.” In fact, many of the external factors
that CEOs see as influencing their growth—such as energy
or raw material costs, stability in capital markets and
regulatory environments—stem from economic trends or
politics that lie beyond their control. This underlines the
necessity for CEOs to act on those factors that are within
their control.
Clearly, the most important of the trends shaping the
industry is the rise of the omni-channel environment.
And while only 34% of CEOs surveyed saw this
development as a threat which is likely to occur, less
than a quarter of them believe it will have a big effect on
the organization.
That is an alarming finding, considering that the
competition in retail is not to conquer online or physical
locations, but to win the greatest share of the customer’s
wallet no matter where the purchase may occur.
However, there were a handful of examples of some
retail leaders who were putting “tackling omni-channel”
at the core of their future strategy.
Figure 2. EXTERNAL THREATS MOST LIKELY TO OCCUR | MOST LIKELY TO HAVE AN EFFECT ON AN
ORGANIZATION IF IT OCCURRED
43% 36%
41% 27%
34% 22%
28% 21%
27% 32%
25% 29%
53% 31%
56% 26%
57%
Soaring energy or raw material costs
Increasing competitiveness with emerging markets
Lack of stability in capital markets
Increases in unexpected regulatory requirements
The rise of the multichannel environment
Military tensions affecting access to natural resources
Business continuity issues with trading partners
Natural disasters disrupting trading or manufacturing
Reputational damage to our brand
Exchange rate volatility
35%
34%14%

At Foot Locker, multichannel business is the fastest-
growing sector, according to Hicks. To make the experi-
ence seamless, the company offers a matrix of options for
customers. Physical stores often, in effect, serve as custom-
ers’ personal distribution centers, as they choose the type
of transaction that suits them: buy online and reserve in
store, go to a store to order an item that’s not in stock and
have it shipped to you, buy online and pay cash in store,
buy online and ship to the store, return goods purchased
from online to the store. Hicks notes that when utilized
this way, physical stores offer a leg up over purely online
competition.
“The biggest change within the company is multichan-
nel,” says Galeria Kaufhof’s Storck. “That does not start
and stop with the online shop, but goes through the whole
supply chain.” He is prepared to handle the challenges.
“The first priority,” he says, “is customer orientation, not
only with the multichannel approach but with everything
we do.” To this end, Galeria Kaufhof relies heavily on cus-
tomer data analytics to target customers, segmenting the
market by promotion, price, people, place and product.
One chief executive who is transforming his compa-
ny’s business model to satisfy all customers is Igor Dolezel,
CEO of Eldorado, the largest retailer of consumer elec-
tronics and household appliances in Russia, with revenues
of $3.7 billion (2012) and a presence in more than 450
Russian cities.
“Our main priority is the development of an omni-
channel strategy. We aim to bring together the traditional
retail and online retail client to get the same high level
of service, regardless of where [the customer] prefers to
shop,” says Dolezel.
Executives may be dangerously
complacent about omni-channel:
only cite failure to meet
customer expectations across all
channels as a likely challenge.
19%
Figure 3. HOW LIKELY ARE THE FOLLOWING INTERNAL CHALLENGES TO OCCUR IN YOUR ORGANIZATION?
24%
23%
21%
20%
19%
18%
17%
25%
39%
41%
Competitive threats
Cost reduction and margin control
Declining customer base or losing market share
Human capital (management or shortages)
Operational capacity
Failing to keep pace with technological advancements
Failing to meet customer expectations across all channels
Lagging RD and innovation
Inability to finance growth
Data security threats

Retailers’ revenue growth will no longer come only
from adding brick-and-mortar stores or from interna-
tional expansion—it will also require redefining the role
of the store and morphing multichannel operations to
allow for a more seamless shopping experience.
For proof of the enormity of this business model
transformation, you have only to witness the sparring of
two retail giants: Amazon and Walmart, both of which
are changing their business models to better compete.
Amazon has long been successful because of its well-
oiled, technology-based supply chain. Walmart is now
boosting its technology. “The country’s largest retailer,
which for years didn’t blink at would-be competitors, is
now under such a threat from Amazon that it is frantically
playing catch-up by learning the technology business,”
says the New York Times.
This metamorphosis in retail is not a one-way street—
away from brick-and-mortar toward online—but rather a
blending of the two avenues. The New York Times arti-
cle describes the competition: “They want to control not
just Internet shopping, but all shopping. Even as Walmart
pours money into technology, Amazon is building a
physical presence across the nation, adding warehouses
and pickup locations. Both companies’ moves indicate
that they believe the future of commerce is not just stores
and not just online, but a combination of the two.”
And yet, despite the example coming from America’s
two largest retailers, the top priorities of chief executives
show that some may not be fully incorporating the new
growth imperative into their strategic initiatives. They
still put traditional actions, such as expansion through
adding new stores, at the top of the business priorities
pyramid. This type of thinking may be missing the mark,
as the new imperative—powered by online shopping—
goes beyond just adding stores. And priorities related to
the new retail model, such as accelerating time to market
and improving the supply chain’s responsiveness, wind up
at the bottom of the pyramid.
Some forward-thinking CEOs, however, do not
underestimate the value of their supply chain. “Our Foot
Locker supply chain is changing in the face of multi-
channel shopping,” says Hicks. “We’re making it more
responsive and faster. We are looking at new ideas and
new ways to distribute goods, to get them not just to the
store, but also to the customer.”
MISSION CRITICAL: STAYING COMPETITIVE
Expansion into new regions and markets
Expansion by opening new stores
Expansion through MA, JVs and strategic alliances
Investing in new product technology
Up-skilling employees, attracting and retaining talent
Spending capital on creating new customer experiences
Decreasing our market footprint to focus on core offerings
Accelerating time to market and responsiveness
Building manufacturing and distribution capacity and supply chain
Figure 4. Business priorities
(Ranked in descending order)

Cy Fenton, senior vice president of IT for retailer Books-
A-Million and the president of Booksamillion.com,
recognizes the focus Amazon has put on the supply
chain. “Pushing the supply chain all the way out to the
very end—to the local guy who’s going to have one
thing to sell—has put a lot of pressure on us to be able
to deliver that kind of customer experience and that level
of selection and price inside the context of our brand,”
says Fenton.
There is proof that CEOs who recognize the impor-
tance of the supply chain get it right.
According to the survey, confidence about revenue
growth correlates with the level of supply chain maturity.
That confidence level is higher among the respondents
with the most mature supply chain, at 97%, and lower for
companies with less mature supply chains.
Respondents who consider their supply chain a top
priority also are more confident about their revenue
growth than those for whom the supply chain is a high,
medium or low priority. Of those for whom supply chain
is a top priority, 65% said that they are very confident
about revenue growth over the next three years, com-
pared with just 43% of those for whom supply chain is a
low priority.
It should not come as a surprise that retailers who
have a more advanced supply chain structure and those
who consider it a top priority are more confident about
revenue growth. “The competitive edge comes from
tying all the pieces—operations, marketing and IT—
together,” sums up Eduardo Conrado, senior vice
president of marketing and IT at Motorola Solutions,
a technology company.
Further proof of the disconnect in CEOs’ think-
ing about the supply chain is the discrepancy in how
they perceive it as a business versus a strategic priority.
While the majority of CEOs rank the supply chain as a
low business priority, 74% of retail companies surveyed
consider their supply chain a top or high strategic priority.
*Respondents who answered “very confident” or “somewhat confident.”
Figure 5. LEVELS OF SUPPLY CHAIN MATURITY AND CORRELATION WITH CONFIDENCE ABOUT REVENUE
GROWTH OVER THREE YEARS*
Level Four 17% cross-enterprise collaboration and optimization
We have technology-enabled solutions that support a collaborative supply chain strategy,
resulting in real-time planning, decision making and execution of our supply chain in a
manner that responds to customer needs.
97% CONFIDENT ABOUT
REVENUE GROWTH
Level THREE 13% external integration
We have strategic partners throughout the global supply chain who collaborate on an
action plan, enforce common processes and data sharing, and manage performance. 86% CONFIDENT ABOUT
REVENUE GROWTH
Level TWO 37% internal integration
We have a company-wide process and data model, which we continuously measure
at the company, process and diagnostic levels. 86% CONFIDENT ABOUT
REVENUE GROWTH
Level ONE 23% functional focus
We have discrete supply chain processes and data flows. We manage resources
at the department level and performance at the functional level. 86% CONFIDENT ABOUT
REVENUE GROWTH
Which of the following best describes your organization in relation to its supply chain management today?
(Ranked in descending order of maturity)

I G NOR I N G CO M P E T I T I V E T H R E A T S ?
Only 25% of survey respondents strongly agreed with this statement:
“Our supply chain operation is a competitive differentiator.”
Only 24% of survey respondents strongly agreed with this statement:
“Investing heavily in supply chain management solutions is a
critical area of our financial investment for the next five years.”
The question thus remains whether enough companies recognize not only the
importance of the supply chain but also the key requirements and investments
necessary to evolve their current model.
*Respondents who answered “very confident” or “somewhat confident.”
Figure 6. Correlation between supply chain as strategic priority and confidence about
revenue growth over three years*
6% 78%
19% 79%
51% 90%
23%
Top priority Confident
High priority Confident
Low priority Confident
Medium priority Confident
93%
Where does supply chain management sit on your agenda?

THE PROFIT PARADOX:
THE ROLE OF THE SUPPLY CHAIN
Top business priorities among the CEOs surveyed
revolved around the growth agenda—expansion via
geography, new stores, or mergers and acquisitions. They
rank the expansion of manufacturing and distribution
capacity and supply chain capabilities as the lowest busi-
ness priority, closely followed by accelerating time to
market and responsiveness. The CEOs are focusing on
current capability investments in people and technology
improvements to achieve growth aspirations.
However, growth and efficiency need to go hand in
hand, especially these days. The supply chain’s role has
become much more important now that profits are no
longer about simply opening new stores. “Supply chain
and the execution at the supply chain level has been the
key to profitability from the dawn of retailing,” says
Books-A-Million’s Fenton.
Profitability now is about how retailers rethink the
design of the store, the size, the experience and how to
use it as a fulfillment center to deliver the overall expe-
rience. The future of the store will require retailers to
tailor every aspect of the experience to the customer—
and have the ability to source and fulfill products,
regardless of channels: for example, allowing shoppers to
buy online and pick up in store.
Creating such a shopping continuum puts a strain on
margins.
The following survey findings illustrate this profit paradox:
• Cost reduction and margin control was the
internal challenge cited as second most likely to
occur, with 39% of retail CEOs pointing to it.
• Just 17% of retail CEOs reported that they have tech-
nology-enabled solutions that support a collaborative
supply chain strategy.
• Only half of retail CEOs said that supply chain is a
strategic capability for a low-cost provider.
• Only one-quarter of CEOs stated that they will
be investing heavily in supply chain management
solutions in the next five years.
The CEOs that Forbes Insights spoke with agreed that
the role of the supply chain in keeping costs low cannot
be overestimated. “The supply chain is one of the most
crucial elements of our business—we quickly respond to
our customers’ expectations,” says Jacek Roszyk, CEO
of Zabka Polska, a chain of convenience stores serving
800,000 customers. The company currently realizes syn-
ergy between its online and offline components, has its
own logistics system and can execute orders in less than
24 hours.
John Donigian, divisional vice president of inventory
management at True Value Company, a retailer-owned
hardware cooperative, says, “The supply chain is abso-
lutely essential in positioning our company for profitable
growth. And that is linked to our view that the supply
chain is a competitive advantage that can drive growth
for any company. The supply chain can then be opti-
mized to execute against long-term growth strategies at
the lowest cost and highest levels of efficiency, to ulti-
mately deliver products at the lowest price possible to all
our customers—consumers and retailers alike.”
The supply chain is central to achieving prof-
itable growth, agrees Carl Robie, vice president of
strategic sourcing and brand licensing at the TGI Friday’s
restaurant chain: “If the supply chain organization is
engaged and aligned with the plans and strategies of a
company, they will be able to source, negotiate and con-
tract products and services in a timely manner, and to
put into place programs that will provide cost savings,
avoidance or overall price certainty to support the sales
and revenue goals. The earlier a supply chain team can
be engaged, the better, since they will be able to put in
place the right supply base to meet the financial require-
ments, quality, safety and services needed for a company
to achieve its financial goals—margins, revenue, cash
flow, EBITDA, COGS.”
.

According to Joseph Roussel and Shoshanah Cohen, authors of Strategic Supply Chain
Management,1
industry leaders look at their supply chains from their customers’ perspective.
That’s why these companies recognize that the supply chain must support key value
propositions such as breakthrough products, distinctive services and unique customer
experiences.Their supply chain systems, processes, organization and, above all, mindset mean
they can create top-line growth while improving bottom-line performance.
The results are clear in their business outcome, as according to Roussel and Cohen, leaders
see a 20% higher profitability than others in their industry.
Using the supply chain for innovation and differentiation need not stand in the way of
achieving efficiencies. Metrics show that, compared with their competitors, leaders:
• Enjoyed 15% lower supply chain management costs
• Cut inventory levels in half
• Achieved three times shorter cash-to-cash cycle times
HOW TO IMPROVE PROFITABILITY
1
Strategic Supply Chain Management: The Five Core Disciplines for Top Performance, McGraw-Hill, 2nd edition, May 2013.

BRAND REPUTATION:
RETAIL’S NEW CURRENCY
“Reputation” is a brand’s most precious currency, yet
it has fast become unstable since it has entered the hands
of digital customers. Today’s shoppers are connected
24/7, and that makes the stakes higher for companies
when they make any miscalculations. Customers will
instantly review online or retweet complaints about a
product defect or decline in quality, delay in delivery,
high price, stringent return policy or an ad campaign
they construe as offensive, and the digital echoes often
reverberate around the world. Retail executives them-
selves can suffer consequences.
Since the breach in reputation can happen at so many
different touch points, retailers must be on the alert. That
means they need to create a customer experience based
on trust that will keep the customer coming back to shop
rather than writing negative comments about the com-
pany and its products.
Meanwhile, none of the top business priorities
selected in the CEO survey reflect the factors that could
prevent reputational damage, such as accelerating time
to market or responsiveness, up-skilling employees or
revamping the supply chain.
Also, as has been discussed before, retail CEOs did
not rank factors connected to customer experience—
such as multichannel environment, which may include
the ability to compare prices, product quality or shopping
experiences with those of competitors—as very likely to
occur or as important.
Overall, retail CEOs ranked reputational damage to
the brand as the least likely issue to occur. However, as
the callout below shows, roughly two and a half times
more respondents view reputational damage as having a
great impact than see it as likely to happen.
There are, however, significant geographical dif-
ferences. The biggest group of respondents who feel
vulnerable to reputational damage comes from China.
Company size doesn’t make a substantial difference; the
top 250 companies by size are in line with the averages.
R E P UTAT I ON A L D A M A G E TO OUR B R A ND
I S L I K E LY TO OCCUR : 1 4 %
R E P UTAT I ON A L D A M A G E W OU L D A F F E CT OUR
OR G A N I Z AT I ON TO A G R E AT E X T E NT I F I T
OCCURR E D : 3 6 %
At the same time, retail chiefs were clearly aware that more dangers lurk. For example,
85% of CEOs believed their supply chain is not sufficiently resilient to survive any
possible external disruptions. Such disruptions, often stemming from the weakest links
in the supply chain, can lead to problems with quality and availability. In the digital age,
news about these problems can instantly reach very large audiences. There is no
hiding from consumers who not only shop anytime or anywhere, but also may be
privy to damaging information in real-time.

1 5 % S TRON G LY A G R E E T H AT OUR S U P P LY C H A I N
I S S U F F I C I E NT LY R E S I L I E NT TO H A ND L E A N Y
P O S S I B L E E X T E RN A L D I S RU P T I ON S
PwC research also confirms that disruptive events,
which can have a hugely damaging effect on reputations,
occur much more often than executives think. In a sur-
vey conducted by PwC and the MIT Forum for Supply
Chain Innovation, “Making the Right Risk Decisions
to Strengthen Operations Performance,” 60% of respon-
dents said that their performance indicators, such as
delivery lead times and inventory levels, had dropped
3% or more as a result of supply chain disruptions in the
past year.
Forbes Insights’ interview with Jean-Marc Plisson,
CEO of LVMH’s Fresh Inc., highlights the big role that
social media plays in driving traffic—to the stores or to
buy online—and in defining a company’s reputation.
“There is more communication about my brand from
YouTube user to YouTube user than from me to them
and them to me,” says Plisson. “Beauty is an industry
where customers get very engaged. They love to share
information about the last product they found and how
much they like it. Bloggers are another example of cus-
tomer-to-customer communication. They’re replacing
the newspaper-to-customer channel, in a way.”
To ensure consistency and quality, the company
develops all of its skin care products in house and man-
ufactures them in France. Fresh also relies on very
carefully vetted and proven ingredient suppliers.
This perfectionism about the supply chain has another
added benefit on top of ensuring integrity, says Plisson:
“Ownership of your entire supply chain can save you
time because of its reliability.”
2
PwC and MIT Forum for Supply Chain Innovation, “Making the Right Risk Decisions to Strengthen Operations Performance,” August 2013.

THE AGE OF THE INFORMED CUSTOMER:
HOW TO KEEP THEM COMING BACK
Today’s customers are often all-knowing about avail-
able assortment or pricing and intolerant of a retailer
who cannot deliver the product they want, how and
where they want it. Successful transactions are no longer
about thinking in channels, but about looking at every
interaction touch point—synchronizing a consistent,
end-to-end experience.
“Today the customer gets everything, everywhere, at
every time. There is radical transparency in the market
also pricewise. We have to comply with that, and we do,”
says Storck of Galeria Kaufhof.
The CEO survey showed a disconnect between
current business priorities and the investments needed
to meet multichannel demands. On one hand, retailers
recognized that their greatest threats are losing customers
and failing to meet customer demands across all chan-
nels. On the other hand, they seemed to underestimate
the importance of their workforce—the people who keep
their customers happy (Fig. 7).
Figure 7. WOULD AFFECT OUR ORGANIZATION TO A GREAT EXTENT IF IT OCCURRED
29%
28%
27%
27%
26%
25%
25%
32%
32%
37%
Declining customer base or losing market share
Competitive threats
Failing to meet customer expectations across all channels
Cost reduction and margin control
Operational capacity
Data security threats
Lagging research, development and innovation
Failing to keep pace with technological advancements
Human capital strategy
Inability to finance growth

One retail executive who’s putting human capi-
tal front and center is Thomas Storck. He stresses the
importance of ensuring that employees, those on the
floor space and in other areas, stay ahead of the customer.
“The customer today is better informed than some of
our employees, and we have to make sure—with train-
ing and other incentives—that our employees use the
same technology as our customers and are still ahead of
the customer with information and product knowledge,”
adds Storck.
Motorola Solutions’ Conrado points out that there
are generational differences in how customers expect
to receive this information. Members of Gen X and
Gen Y tend to look for information independently on
their mobile devices. However, the baby boomers and
earlier generations expect the store associate to provide
that information.
With the younger generations in mind, Books-A-
Million has created a mobile site where customers can
look up a particular title on the page and click a but-
ton labeled “Find this in my local store.” The GPS can
then locate the closest store that carries the book, as well
as where the book is in the store. The site also displays
information about pricing, both in the store and online.
“The customer is king” is the prevalent motto of
the executives that Forbes Insights spoke with for this
report. “We have a saying that we will do anything for a
customer,” says Monte Wiese, senior vice president of
supply chain at grocer Hy-Vee. “The supply chain at
Hy-Vee plays a key role in driving our growth strategy
by being excellent at the fundamentals of balancing high
fill rates and high inventory turns. We strive to be first to
market with new items and have a very good track record
with this. We need to be responsive to our customer’s
needs and procure various regional products that may be
popular in our eight-state territory.”
Fumio Takashima is the president and CEO of BALS
Corporation in Japan, a furniture and sundry goods
chain, which aims to appeal to “people who feel like they
are 25.”
In the case of BALS, branding is the most important
factor to appeal to customers, says Takashima. The com-
pany does not have its own factories, but uses outside
partners for discrete manufacturing.
Figure 8. Top actions to stay competitive
(Ranked in descending order)
Maximizing product availability
Improving how we use merchandising and positioning
Increasing consumer choice through combined in-store and online selling
Offering different prices to different customer segments
Effectively leveraging promotions to maximize margins
Customizing and personalizing the shopping experience

Takashima is fully cognizant of his reliance on the
supply chain for quality and timeliness. “We are always
trying to perfect our supply chain system to better meet
our customer demands,” he says. “Using our supply chain
management system to weigh the time lag of the sales
and production lead time is supported by our experience.
We consider it to be our unique strength. It can also be
the risk factor if we fail to manage and miscalculate the
lead time.”
Satisfying the customer also means having the right
product. Maximizing product availability is the top-
ranked action required to gain a competitive advantage
in dynamic sourcing and fulfillment.
Customers have—and expect—access to online
information about product offerings, so businesses have
no choice but to provide that information. The digital
era has enforced customer equality in terms of prod-
uct offerings. “I have a store here on 34th Street [in
New York City],” says Hicks, “and it has one of my
largest assortments in the company, but I also have a
store in a small mall in St. Louis, and it has basically the
same assortment.”
And product availability means nothing without
visibility. That means putting a focus on a single view
of the inventory across all channels, and then ultimately
creating links to the supply chain to allow delivery, either
at home or in the store. The visibility of each link of the
supply chain has become a must for all-channel shopping
and for the informed consumer.
Sums up Hicks: “The biggest challenges are staying
current with what’s happening and having the informa-
tion and systems to support that.”

PREPARING FOR CHANGE
When asked why they do not give priority to the
supply chain, respondents to the survey say that their sup-
ply chain operations are in better shape than other areas.
That may be the case, but the survey revealed that just
17% of companies have their supply chains operating at
the highest level of maturity, which means much work
still remains.
For executives wary of change, good advice comes
from Michael Hoffmann, CEO of Lekkerland, a logistics
expert company: “It’s a problem if you are not prepared
to develop yourself further, if you lose that sense of
urgency and the willingness to review constantly what
you do and how you can do things better.
“Creating the right sense of urgency in our orga-
nization—to continuously see how we can serve our
customers better—that’s a management job. It starts with
me, and it requires all of the management to be always on
alert and not to rest on our laurels.”
Figure 9. SUPPLY CHAIN NOT A TOP PRIORITY BECAUSE (TOP THREE REASONS)
14%
18%
30%
It’s in better shape than other areas of our business
It would require too much change across our business (retraining staff and/or upgrading technology)
It’s too tactical

CONCLUSION
Unprecedented technological advances driven by an empowered consumer will
continue to shake the foundations of today’s retail business model. Embattled CEOs
who are thinking tactically will continue to play catch-up, while forward-thinking
CEOs will drive a new wave of change.
With the new disruptive era of retail upon us, retail chief executives must adopt a
new operating model with the supply chain at its heart in order to be responsive and
agile enough to deliver a multidimensional shopping experience. Can you promise the
product in a time frame that will secure the sale, and what’s the impact on the margin
when you deliver what the customer wants?
The transformation of the retail environment along the excitement of preparing
for a new, more complex world order brings with it a complete reevaluation of growth
strategies, aligned to the right investment priorities and taking account of where supply
chain fits into the agenda.
CEOs must rethink their strategies to address the challenges of today’s retail market
and the key success factors for the customer-centric omni-channel retail environment.
This means reassessing the viability of their models, determining whether they have
the right people and processes and tools, and looking beyond the traditional means of
growth to become more competitive and exceed shoppers’ demands.
To explore this topic further, click here.

67%
JDA Software commissioned PwC’s International Survey Unit to
conduct an online global survey of 409 retail chief executives. Of the
companies, 76 had revenues of $1 billion or more, 139 companies were
between $250 million and $1 billion, and the remaining companies
had revenues between $5 million and $250 million. The executives
represented all major subsectors of the retail industry, with the big-
gest groups coming from category specialists (86) and non-store retail
(53). The survey targeted the following countries: Australia, Canada,
China, Germany, Russia, South Africa, the United Kingdom and the
United States.
SURVEY METHODOLOGY
ACKNOWLEDGMENTS
.
JDA and Forbes Insights would like to thank the following executives
for sharing their time and expertise:
Eduardo Conrado, SVP of Marketing and IT, Motorola Solutions, USA
Igor Dolezel, CEO, Eldorado, Russia
Jack Donigian, Divisional Vice President of Inventory Management, True Value Company, USA
Cy Fenton, SVP of IT, Books-A-Million, and President, Booksamillion.com, USA
Ken C. Hicks, President and CEO, Foot Locker, USA
Michael Hoffmann, CEO, Lekkerland, Germany
Jean-Marc Plisson, CEO, LVMH’s Fresh Inc., France
Carl Robie, VP of Strategic Sourcing and Brand Licensing, TGI Friday’s, USA
Jacyk Roszyk, CEO, Zabka Polska, Poland
Fredric Seiller, CEO, Luxottica Retail in Greater China, China
Thomas Storck, Chief Merchandising and Multichannel Officer, Galeria Kaufhof, Germany
Fumio Takashima, President and CEO, BALS Corporation, Japan
Monte Wiese, SVP of Supply Chain, Hy-Vee, USA
.

ABOUT FORBES INSIGHTS
Forbes Insights is the strategic research and thought leadership practice of Forbes
Media, publisher of Forbes magazine and Forbes.com, whose combined media
properties reach nearly 50 million business decision makers worldwide on a monthly
basis. Taking advantage of a proprietary database of senior-level executives in the
Forbes community, Forbes Insights conducts research on a host of topics of interest
to C-level executives, senior marketing professionals, small business owners and
those who aspire to positions of leadership, as well as providing deep insights into
issues and trends surrounding wealth creation and wealth management.
Bruce Rogers
CHIEF INSIGHTS OFFICER
Brenna Sniderman
SENIOR DIRECTOR
Kasia Moreno
EDITORIAL DIRECTOR Report Author
Brian McLeod
Director
Matthew Muszala
MANAGER
Lawrence Bowden
MANAGER, EMEA
Dianne Athey
DESIGNER
60 Fifth Avenue, New York, NY 10011 | 212.366.8890 | www.forbes.com/forbesinsights

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