Fulfilling the Omnichannel Imperative

On December 28th, Zumiez filed an 8-K with the SEC. I don’t think they were required to file it because the amount of money involved ($1.3 million in the 4th quarter) wasn’t really “significant” as defined by the SEC for a company the size of Zumiez. But they filed it anyway. How come?

I’m sure their lawyers said something like, “Well, okay, we guess you don’t really need to file it but, you know, just to be on the safe side, why don’t you?” That’s what lawyers do. But I’m guessing that the management team looked at what Zumiez was doing and decided that it was such a fundamental change in their business model and potentially so impactful on how they run things that an 8-K was appropriate. I agree with that.

The press release incorporated into the filing was only half a page long, but I want to take it apart line by line to make sure you all know what is going on. Here’s how it starts.

“To help better position Zumiez to provide its customers with the ideal brand experience of trend right and unique products—how, where, and when they want it—Zumiez will move to full localization of its web fulfillment operations from Edwardsville, Kansas to primarily store fulfillment of on-line customer orders.”

Zumiez is not going to have a big, central location for online fulfillment anymore. It’s going to cost them $1.3 million to get out from under the facility (they only got into it in 2012), but forget about the money. They go on.

“Localization is a key part of Zumiez’ omni-channel strategy that it believes will drive long term market share by leveraging the strengths of its store sales team, providing better and faster service to its customers, improving product margins, and providing additional selling opportunities.”

Zumiez has been talking about localization and the systems required to achieve it for a long time. They and other retailers as well, have been working for years to improve their capabilities in this area. Zumiez has said they have a head start and I tend to agree with them if only because they started before others.

This is a gradual process and it’s never “done.” I’m sure there will be bumps in the road, but this announcement seems like the watershed moment where being part of the omnichannel can now be front and center and the traditional model of brick and mortar starts to change fundamentally.

What’s making it possible for Zumiez to undertake this now?

“…as part of the strategy to provide its customers with a seamless brand experience across all channels, Zumiez is excited to announce that during 2016 it will be rolling out the Starmount Customer Engagement Suite focused on integrating our on-line and in-store point of sale (POS) systems, order management system (OMS), and transportation management system (TMS). Developed in collaboration with Starmount, Zumiez is the launch partner for the Customer Engagement Suite that will help better facilitate the omni-channel experience and will roll out to the Zumiez network of stores in North America in a phased in approach throughout 2016.”

Oh God, they’re the beta test for new software. Bumps in the road indeed. But if it really, really integrates the functions mentioned above (which it has to do or they couldn’t get rid of the Kansas facility) and the software does what I think it has to do, Zumiez will have a first movers advantage here.

I assume Starmount will also be selling this software to other retailers, but I imagine Zumiez got a pretty good deal and some influence on how the product was structured in return for serving as a lab rat.

Zumiez’s willingness to be a lab rat probably had something to do with their confidence in the quality of their store managers and associates as well as the training the company provides. Even perfectly programmed software (there is no such thing) is only as good as the people using it and, in this case, the people using it may be called on not just to use it right, but to think creatively about how it impacts their business. Let’s talk about what some of the changes might be, recognizing that I’m speculating based on a two paragraph press release.

First, Zumiez’s internet orders will “primarily” be filled by the stores. So when a customer comes in and wants to order something that a store doesn’t have, it will have to come from the inventory of another store or the distribution center in Corona, California because Kansas is going bye bye. That means that each store should have access to inventory in all other stores. And that access will need to be by store- not just cumulatively. My guess is that if at all possible, the order will be filled from a store’s inventory and as required, inventory can be replenished from Corona which, according to the last 10K, ships to stores on average of five times a week. You’ve just gotten rid of a fulfillment center. You don’t want the Corona warehouse to become the new one.

What this means is that the interaction between Zumiez and the customer will be in the hands of an associate in a store. Consider the potential relationship building power of that, especially if they come into the store to pick product up.

This is an interesting inventory management issue. It’s also an interesting training issue. Also a compensation issue, since an employee at one store may be selling a product in another. And I note that part of this new software is a “transportation management system.” Transportation of what? Beer for the 100K? They’ll need a big truck.

No, I assume that what they will be tracking is inventory. From suppliers to Corona I’m sure. From the Corona warehouse to stores obviously. Among stores in a single area? Certainly to some extent as individual stores become the fulcrum of online orders.

If this new software does what I think Zumiez expects, the quality of the data it generates will get better and better the more transactions flow through it allowing better and better purchasing, stocking, and write down decisions.

Remember, inventorying individual stores should get easier if this software knows its stuff. Meanwhile, depending on which store is selling which product from which other store, how it was ordered, and how the customer wants to receive it, more merchandise is going to have to be moved around.

Will each store pack and ship product themselves? Maybe each group of stores will have one large store with an area for breaking down and shipping some product to individual stores and for collecting and shipping product from local stores that needs to go out by UPS or FedEx. I don’t know how Zumiez breaks down all its stores right now (districts and regions maybe?), but I’ll be shocked if the data generated through the new software doesn’t lead to some rethinking of which stores should be in which areas, not to mention how many stores they need and their configurations.

Now that I’m warming to my subject, it occurs to me that this new process/software might allow Zumiez to significantly reduce its total inventory. But it will require them to be more adroit in moving it all around. The cost and employee time would be significant. What might their choices be? How much do they spend on product shipping and will there be store groupings where it might make sense for them to have their own trucks? What else could they use those trucks for? Think about it.

It feels like this software is going to change just about everything in the Zumiez’s business model except the customer group they focus on. Not just in the ways I’ve mentioned but no doubt in some I haven’t even thought of. What’s most interesting is that they aren’t going to know just how it will change things until the software is up and running, because the data it generates will drive the changes.

This is Zumiez’s response to the imperative of the omnichannel. It puts some meat on the bones of the concept of giving each customer the ability to interface with a retailer when, where, and how they want. I’ve kind of gushed with excitement at the potential as I view it from the 10,000 foot level. But I don’t want to you to think I don’t see the risks. There are going to be lots of surprises- good and bad. Still, what choice do Zumiez and other retailers have? The biggest risk is always not doing anything when the market changes.