The Christmas Season: A Logistical Nightmare for Retailers?

Standing out in an increasingly crowded online marketplace appears to be a challenge for even the most seasoned retailers. Without the ability to connect with shoppers face-to-face, online retailers must therefore find different ways to draw shoppers to their online offering and remain on-message at the same time, writes Charles Maurice (pictured below), senior associate at Stevens & Bolton LLP, exclusively for RetailTechNews.

This can be a difficult task. Replacing a personal experience with an online offer may not cut it with the discerning shopper – 10% off a next purchase just feels, well, less cool than listening to a live DJ and watching an in-store capoeira display or drinking a complimentary glass of champagne whilst your friend tries on their dress.

Of course, this comes into sharper focus at this time of year, especially with reports suggesting that more transactions were completed online during the 2016 Black Friday to Cyber Monday period than were made via the traditional bricks-and-mortar shopping experience. Given the volumes involved, it is not surprising then that during seasonal demand spikes retailers can struggle to keep their online customers in the manner to which they may have become accustomed (readers may, for example, recall recent high-profile issues faced by both Argos and Marks & Spencer). The associated damage suffered by the retailer can be very real – reputational damage and product liability claims (to name but a few) loom for the unwary.

Charles Maurice, Senior Associate, Stevens & Bolton LLP

In many cases, the high-profile issues so publicly suffered by retailers during these periods appear to stem, at least in part, from an outsourced element somewhere in the retail supply chain. This is not reported favourably in the press either, with at least one media source last year publishing a list of online stores least likely to crash during the Black Friday period. Which is potentially rather unfair when one considers that seasonal spikes in demand can mark the success (or otherwise) of a particular trading year, and retailers rightly seek to make the most of the fine margins available.

Creating economies through use of specialist third-party solutions has, therefore, become something of a given in this process. However, lower overheads achieved through outsourcing can be offset by the corresponding lack of control that can also occur. This is particularly the case in more specialised areas such as logistics and warehousing, where issues can arise on a number of fronts without sufficient oversight, including late or missing delivery to consumers and counterfeit issues through unchecked co-mingling of stock (for example, you may have seen internet chatter on the relative demerits of co-mingling in programmes like Fulfilment by Amazon). Which is why, when one understands the importance of these types of arrangements in the context of overall sales, it may come as some surprise to find out that (bar certain exceptions) this is a remarkably unregulated area.

In these scenarios, the contractual terms become king, and whilst it may be business as usual during normal periods of demand, it may be the case that the contractual remedies available to a retailer are found wanting in the event that stress is placed on the supply chain. To mitigate against this, retailers may wish to consider in advance how they will deal contractually with any problems they may face. Late or missed delivery, for example, could become the subject of a service level (with associated credit if missed). Repeated failure to perform could lead to a remedial plan, a payment holiday, or termination. Co-mingling of stock could be expressly forbidden. Audit rights could be granted. Loss suffered could be the subject of an indemnity. The list continues, and the real point is this – if retailers cede control over an element of their supply chain, then they are likely to be best served through a workable combination of effective operational oversight (to help avoid disaster in the first place) and clear contractual remedies to help mitigate and recover losses suffered. This might not help ‘put the toothpaste back in the tube’, from a reputational perspective, but it could assist in keeping a retailer afloat at a crucial point in the year.