In today’s omnichannel world, the distinction between brands and retailers is of little interest to consumers. They will buy from whoever is best able to “deliver the goods.” Branded manufacturers can take advantage of this unprecedented opportunity to get closer to the consumer, if they manage to acquire the requisite fulfillment and supply chain capabilities.

1. Enabling Direct-to-Consumer Growth for
Brands

2. 2Source: A.T. Kearney
TRANSACT
FOLLOWUP BROWSESTIMULUS
EVALUATE
Frictionless Consumer Journey
4
5
21
3
Digital stores and pop-ups
Curated, free home trials
One click buy on
social media
Amazon dash
button
Click & Collect
Locker Pickup
Time Definite Delivery
Real time promotions
Digital augmented
dressing rooms
Mobile, alternative payment
Online dressing room
24/7 customer care
Endless aisle
marketplace
Automated
stores
Crowd
sourced same
day delivery
Chat-bots and
shopping assistant
Smart device
replenishment
Digital redefining How, What and When consumers buy

3. 3
Expectations are rising
50% all consumers and >60% of Gen Z already shop
cross channel
Consumers facing a negative fulfillment experience are
3X more likely to switch to a competitor for the next
purchase under omnichannel
Gen Z is 3X as likely to select delivery speed as the most
important fulfillment metric vs. older generations
same / next day delivery is 5X more important for Gen Z
Source: A.T. Kearney

4. 4
0%
5%
10%
15%
20%
25%
30%
35%
-2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
Luxury Leather Goods
Fine Wines/Champagne and Spirits
Luxury Jewellery
Luxury Eyewear
Super Premium Beauty and Personal Care
Designer Apparel and Footwear (Ready-to-Wear)
Luxury Goods
Fragrances
Diapers
Offline Growth
Online Growth
Hair Care
Footwear
OTC
Oral Care
Color Cosmetics
Sportswear
Men’s Grooming
Dishwashing
Apparel
Skin Care
Baby & Child Personal Care
Vitamins
Bath & Shower
Laundry Care
Surface Care
Online vs. Offline Growth by Category
(Retail Value, 2013-2015 CAGR)
Size of bubble indicates online penetration, ranging from 0% to 15% for categories shown
Baby Care Luxury GoodsApparel & FootwearHome CareConsumer HealthBeauty and Personal Care
1. Diapers online growth based on estimate for online baby products growth
Source: Euromonitor; Morgan Stanley, IBISWorld, Nielsen, Internet Retailer, A.T. Kearney analysis
In many categories, online is the only “growth story in town”

5. 5
Depth of Offering
Omni-Channel Value Chain Integration Curve
Level 1 Level 2 Level 3 Level 4 Level 5
Research
Shop
Service /
Omni
• Online/mobile product search
• Side by side feature comparisons
• Online memberships
• High resolution specs/photos (3D)
• Product narration
• User feedbacks and reviews
• Smart recommend
• User communities
• Buy online for
direct delivery
• 1-click and/or
mobile-
payment
• Store pick-up
• Global shipping
• Store fulfill with
last mile delivery
Buy / Fulfill
• Subscriptions
• Segmented assortment by channel
• Product sampling for VIP customers
• Online customization
• Retail location recommend
• Customized order management
• No hassle
returns
• One click live
customer service
• Omni-channel
integration
Brands are increasingly pursuing direct to consumer
Source: A.T. Kearney

6. 6
DTC rapidly becoming a top C-suite agenda

7. 7
Companies pursuing Direct-to-Consumer often neglect supply
chain and fulfillment capabilities
Digital/Front-EndSupplyChain
Shop anywhere
Order and fulfill from
anywhere
Smart Phone /
Social Media
Customer
Service
Website
Digital
Stores
CRM
Digital Wall
Retailer /
eRetail
Ecom fulfillment
centers
DSD / Drop
Ship
Right Inventory
@ Right
Location
B&M stores
Ship from store / store
pick-up
Home Delivery

8. 8
Effectively fulfilling consumer promise is much more critical in
Direct-to-Consumer vs. traditional brick & mortar
DTC Has Direct Impact
on Top Line
Long lead time =
increased
likelihood of Out of
Stock, which may
impact consumer
conversion
Delayed fulfillment
for an online order
leads directly to
an unhappy
customer
experience
Brick &
Mortar
DTC
DTC Efficiency Has
Higher Impact on Profit
Source: A.T. Kearney; GfK FutureBuy
Consumers More Willing
to Switch under DTC

9. 9
We see several priorities of focus
Define a clear,
segmented
fulfillment promise
Evolve the right
supply chain
partnerships
Redefine the role
of the store
(owned or retail
partners)
Creating a Winning Direct-to-Consumer Supply Chain
31 2
Set up the right enabling systems

10. 10
Brands must define a clear consumer promise based on their
brand and basket dynamics
Premium
Mass
SmallBasketSize
LargeBasketSize
Customer Promise: Beauty Industry Example Illustrative – Beauty
Brands
Commitment to
providing a large
range of SKUs at an
affordable price
Typically operate
through an
integrator/retailer
Commitment to
providing quick, easy
access to multi-brand
products
Choice drives large
basket size
Commitment to high
quality products and
customer service
Increasing “need
now” expectations
driving need for
creative supply chain
solutions
Commitment to
provide reliable
access to quality
products
Catered to “loyalist”
customers, access to
right products is key
differentiator
Consumer Promise1

11. 11
We see a clear differentiation in consumer promise across
omnichannel leaders
Choice
Assortment
Order Modification
Order
Personalization
Convenience
Delivery / Pickup
Delivery Cost
Returns
Capability
Service
Order Tracking
Interaction Quality
CRM / CCC
Personalized service
OMS
Cross Selling
Reliability
On Time in Full
(OTIF)
First Contact
Resolution
Speed
Order to Delivery
Speed to Answer
Supply Chain Promise variables
Customer Care Promise variables
Hours of Operation
IVR
Fulfillment Focus
• Broad assortment and
exclusive SKUs
• Customer centric
service experience
• Free shipping and
returns
• Customer care &
convenient tracking
• Delivery speed
• Replenishment model
• Endless aisle
assortment
• Leverages large store
footprint for customer
convenience
• Marketplace allows
larger assortment
• Free shipping and
returns (700+ stores)
• Efficient customer
service
Subscription Model
One package
Source: A.T. Kearney benchmarking
Consumer Promise for Omnichannel Leaders
Illustrative
Consumer Promise1

12. 12
A clear consumer promise informs future supply chain design
Fill Rate
Key Dimensions of
Consumer Promise
(eaches supply chain)
Order to Delivery Time
Partner Store Pick-up
Assortment / Product Range
Home Delivery Time Window
…
Informs Supply
Chain(s) Design
• Product Cube Profile
• Peak Profile
• SKU Count
Warehouse
• Item volume
• Service / SLA
Network / Flow
• SKU Velocity
• SKU Cycle
• Assortment
Inventory
• Size/format
• INV level / breadth
• Fulfillment roles
(Ship, pick-up)
volume
Store
…
Key Dimensions of
Customer Promise
(case supply chain)
Prepaid %
Lead Time
Order Frequency
OTIF
Inventory Days
…
Illustrative
Consumer Promise
Segments
Product
categories
Sales
Channel
Store
Online
Mail
Direct to
Consumer
Geography
Urban Metro
Suburb
Small City
Rural
1

13. 13
Getting the right balance of future store capabilities will be key
Consumer Experience Hub Local Fulfillment Hub
Product Trial
Allow shoppers to touch and
feel products
Treasure Hunt
Incubate exclusive or little
known brands exclusively
Merchantainment
Provide an exciting environment
to engage consumers in-store
Personalized Service
Enhanced level of personalized
service
Click and Collect
Dark Store Pick and Ship
On-Shelf Pick and Ship
Returns
Getting the right balance will be key for retailers
Role of Stores2

14. 14
Brands are aggressively testing different store solutions
Emerging Omnichannel Store Concepts
Customer
Experience
Focus
High
Low
Supply Chain and Fulfillment Focus
HighLow
Experience Hub
• Sales $ per
square foot
• Customer
experience
• Digital
capabilities
• Location
• Square footage
• Cost
• Proximity to demand
• Pick and pack
capabilities in-store
Enhanced Hybrid
Traditional Store Fulfillment Hub
Some beauty and
vertical specialty
retailers are
pushing towards
enhanced hybrid
concept
Hybrid of Experience and
Fulfillment Hub
+
Store as Fulfillment Hub
Role of Stores2

15. 15
Brands also need to consider leveraging their retailer partner
store networks
Example of Joint Value Creation Opportunities
Role of Stores
Manufacturer /
Brand
Retailer
Levi’s studies
customer location
and partner
inventories to offer
delivery or in-store
pickup from nearby
Macy’s fulfillment
hubs
Customer orders on
Levi’s.com or at
Levi’s experience
hub
Levi’s and Macy’s
joint systems
track inventory
levels
Customer picks up
order and pays at
Macy’s, Macy’s
system updates
Levi’s and completes
transaction
Customer opts to
pickup at a
Macy’s store
A true omni-channel supply chain will require the creation of
seamless integration of brand and retailer supply chains
1
2
3
4
5
Illustrative
2
Next
day
delivery
Source: A.T. Kearney

16. 16
The right fulfillment partnerships is critical for enabling flexibility
and capabilities
Design &
Manufacturing
Ware-
housing
Delivery
Customer
Care
Capabilities Needed to Build Omnichannel Supply Chain
Case picking
Store operations
Direct to
Consumer
Website
Management
Last Mile
Delivery
Mobile AppIntegrated CRM
Facility
management
Raw Material
Inventory
Manufacturing
lines
Distribution
Center Mgmt.
Finished Goods
Inventory
Facility
Management
Store-as-a-
warehouse
Retailer Delivery
Exiting
Capabilities
New
Capabilities
Value added
services
Cross-docking
Eaches picking
Returns
management
Analytics
Brands need to leverage external partnerships to quickly build these capabilities
Partnerships3
Sales
Chat/Video Chat
Call Center
Traditional CRM
Phone Call
Center

17. 17
Best of Breed Market-
places
…
Partnerships
There is a rapidly developing, segmented supply market for
fulfillment
End to End Omnichannel Vendors
Best of Breed DC
Vendors
…
…
Best of Breed CCC
Vendors
…
Best of Breed Last
Mile Delivery
…
Segmentation of End-to-End vs. Best of Breed Fulfillment Vendors (US)
Warehousing Delivery Customer Care
3
Sales
End to End Marketplace
…
Non-exhaustive

18. 18
Partnerships
Brands need to systematically design and evolve fulfillment
partnerships as they grow
Strategic
Focus on
Fulfillment
Volume – Online Sales
$50-300MM $300M - $700M >700M
‒ Fulfillment /
Customer Care is
key source of
differentiation?
‒ Need to optimize a
multi-DC network?
‒ Limited
uncertainty?
‒ Strong legacy in
fulfillment / CCC /
IT?
Higher
Lower
End to End Outsourced Best of Breed Outsourced Mostly In-House
Omnichannel Fulfillment Partnerships Evolution
3
Source: A.T. Kearney

19. 19
Amazon and other marketplace also needs to be part of the
solution
51% of US e-commerce
growth in 2015 (and 24%
of total retail growth)
Top US E-Commerce Companies
(2015 US internet retail sales, USD million)
3,437
3,719
3,849
4,407
4,516
5,565
8,244
Home Depot
Sears
Best Buy
Liberty
Interactive
13,456
Macy’s
26,486
84,300Amazon
Wal-Mart
Valve
Apple
eBay
Amazon Case Study
Maximize profitability
Develop platform-unique
assortment
Collaborate on new
product innovations
Advertise and launch
new products through
platform
• Increase volume to drive
profitable sales while
accounting for dynamic
pricing
• Tailor product assortment to
different business models
(e.g. large sizes for
Amazon’s Subscribe &
Save)
• First movers enjoy high
market share on Amazon’s
Dash button sales
• Launching new products on
Amazon provides a quick
path to market with valuable
consumer insight (e.g.
Pepsi’s launch of True)
Partnerships3
Brands need to manage Amazon as a platform, channel and customer

20. 20
Please reach out to continue the dialog
Michael Hu
michael.hu@atkearney.com
www.linkedin.com/in/mhuspace
@mhu_snowcrash
Andrea Szasz
andrea.szasz@atkearney.com

21. 21
Check out the companion article
Creating an Omnichannel Supply Chain
for Branded Manufacturers – The
Untapped Potential for Growth
In today’s omnichannel world, the distinction
between brands and retailers is of little interest to
consumers. They will buy from whoever is best
able to “deliver the goods.” Branded
manufacturers can take advantage of this
unprecedented opportunity to get closer to the
consumer, if they manage to acquire the
requisite fulfillment and supply chain capabilities
Read full article here

22. 22
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