2009 has been a very difficult year for all of business. However, as the year comes to a close, it’s evident to me that the most challenging sector has been the retail sector.

I mean, WOW! My thoughts on the most challenging sector are based on the timing of the macro economic recovery and 4th quarter figures. Talk about uncertainty and challenges in predicting the short term requirements – 4th quarter 2009 has been impossible.  

I started writing this blog post in early December, after a lackluster Black Friday and a better than expected Cyber Monday. How will this year fare compared to other years? Recently there were articles in the Wall Street Journal forecasting great results for retail in the 4th quarter and contradicting predictions that the 4th quarter would be well below 2008 figures.

To be perfectly honest, I think I have about as much of a chance of predicting Holiday 2009 as I do predicting the Super Bowl of 2010. Nevertheless, let me tell you what I do know about the retail supply chain that will be true the day you read this:

1. Inventories have been cut based upon financial mandates and not upon a business process of inventory optimization. It is absolutely critical that retail supply chain executives design their Sales & Operations Planning process to allow for the synchronization of supply and demand. By not doing this during the holiday season, retailers will be leaving money on the table. As early as November, some retailers were out of stock on key items with no plans on replenishing their stores.

2. The objective of sustainability efforts is not some environmental utopia, but rather the reality of profitability. The reality of profitability is a result of cost reductions resulting from sustainability efforts and the enhanced revenue growth and goodwill that result from the customers who relate to and appreciate your organization’s stance on sustainability. Sustainability is not a fad. It is a leading business practice and a key ingredient for success in retail.

3. The big picture of the supply chain cannot be over-emphasized. The reality is if all elements of Plan-Buy-Make-Move-Store-Sell are not done in unison, there is little opportunity for the supply chain to truly deliver a competitive advantage. Excellence in the global end-to-end supply chain is required if organizations are to prosper.

4. A real challenge for all retail supply chains is reverse logistics. Reverse logistics is not as simple as "reversing" the supply chain. It is much more complex and sophisticated and involves the 5 R’s of sustainability: reduce, replace, reuse, recycle, and reinvent. Leading retailers have changed the way we think about returns, and are looking at it from a sustainability perspective. Many retailers have reinvented their returns processes and are using returns as an opportunity to create customer loyalty and as a revenue generating source by recycling, refurbishing, and reusing items and selling the items on secondary markets.

5. And finally, what could possibly be the greatest opportunity I see for retail supply chains going forward is the challenge of assuring that the overall business strategy is consistent with the supply chain strategy. For example, if your business model is based on a high level of promotions, does your supply chain support this strategy? Similarly, if the business model is "Every Day Low Prices," how does your supply chain strategy mirror this business strategy? It is critical that your supply chain operation of people, process and technology match your business strategy and that we are in lockstep to make the supply chain a competitive weapon.

So, the retail sector is experiencing the worst timing possible. The economic recovery is precisely overlaid with the 4th quarter of 2009. Whether this plays to your advantage or your detriment depends upon your ability to address the above five issues of inventory management, sustainability, supply chain, reverse logistics, and business supply chain strategy.

What are your thoughts on how this quarter will pan out in retail? Will you dare to make a prediction or would you rather bet on the Super Bowl?

Go!Go!Go!

Jim