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ASCM Insights

Episode 34: How Party City Is Creating The Digital Store of The Future

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Bob Trebilcock: Welcome to The Rebound, where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post-COVID world. This podcast is hosted by Abe Eshkenazi, CEO of the Association for Supply Chain Management and Bob Trebilcock, Editorial Director of Supply Chain Management Review. Remember that Abe and Bob welcome your comments. Now to today's episode.

Welcome to today's episode of The Rebound. We're having a party or how Party City is creating the digital store of the future. I'm Bob Trebilcock.

Abe Eshkenazi: I'm Abe Eshkenazi.

Bob: Joining us today is David Levitt. David is the Vice President of Information Technology for Party City, one of the largest retailers of party-related products and services, or as Party City puts it, they're in the memory-creation business. David, welcome.

David Levitt: Thank you, Bob.

Bob: For nearly a decade, retailers have been turning to automation and technology to keep up with the steady drum beat of more and more e-commerce orders along with changes going on in their retail and wholesale chains. Then along came the pandemic, which not only led to a tsunami of more e-comm orders, but a focus on new strategies like buy online, pickup in-store, or curbside pickup, ship from store, and same-day delivery.

If you're a retailer like Party City, you're not only grappling with those, you're also still trying to fulfill your B2B channel. It's a daunting task, and that's what we're going to talk to David about. David, let's start by telling us briefly about your role at Party City and then a little bit about the go-to-market strategy for retailers. What's changing?

David: Sure. My role at Party City is Vice President of Information Technology for selling systems. That covers really our digital channels, our order management platforms, as well as our store systems. It's really anywhere where there's a touch point to our customers. From a market strategy standpoint, we continue to see a shift in transactions originating online, whether it's just for research or actually reserving the order online. We continue to see that the shift from just traditional store transactions to online.

Many of the complex omnichannel transactions, whether it's BOPUS (buy online pickup in store) or curbside or delivery, were developed over the last 5 or 10 years. They were developed on what I would call legacy systems these days. I would say that the trends that we're seeing in the retail landscape is really, number one, modernization across these platforms.

Folks are looking at their websites, their order management systems, their supply chain systems, their distribution systems, and really looking to modernize them.

That modernization is really-- the foundation is really in a very strong microservice layer. I think throughout the podcast, you'll hear me talk about how we leverage those microservices to help with our market strategy for omnichannel.

Another trend that we're seeing is real-time inventory. Now, Bob, that's not a new trend. We've all had real-time inventory for many years. I don't think real-time inventory is a binary-- It's not binary. You either have it or you don't. I think it's how real-time really is it? What traditional retailers might call real-time, they might be taking a batch in the interface every hour, every 30 minutes. I would say one of the strategies is really, just the never-ending quest to get to true real-time.

One more trend that we're seeing is really in AI. We started seeing it really in the order-fulfillment process. For years, in our order management systems, we have these rules-based systems that looks at labor and looks at speed-to-deliver orders and applies these rules to pick the right fulfillment. What we're seeing is with AI, it could actually do a lot better than these rules.

I'll just give you a quick example. If a customer wants to get an order, and our rules base said, "Well, the customer's close to this store and the store has a small labor model. Let's ship it from this store," and it seems like it was a good decision. What AI helps us with is other things like if the customer was ordering party favors and they were going to order 10 party favors, and it was only going to leave one or two favors at that store, which isn't a very good assortment, maybe that wasn't really the best store to pick. I think the introduction of AI into that store fulfillment process is another trend we're seeing.

Lastly, I would say the prolification of the same-day delivery networks, i.e, the gig networks, the DoorDashes, the Ubers, the Shipts. That really presents a lot of new opportunities from the omnichannel perspective. I would say from Party City, just specifically about our market strategy, we're looking to invest really in all four of those areas over the next couple years.

Abe: David, really interesting in terms of the various focus areas when you're talking about really, digital transformation for the organization. As you indicated, what is the customer seeing? Give me a sense when you're taking a look at the digital store of the future for retailers, does it look a whole lot different for the customer? Or what does that look like? How does that differ from what they're experiencing today?

David: Sure. Our strategy from a digital store is really building an ecosystem that's going to promote inspiration for our customers, completeness of assortment, and obviously convenience. I don't think those three are anything new. I just think the way we're addressing them is probably going to be a little bit new.

From an inspiration standpoint, I think not only are we putting a lot of inspirational content on our digital channels, our website, our social channels, we're also doing a lot of tooling for our store associates, so they learn the products better, they get training, they're getting curated experiences that they could share with our customers and then publishing a lot of those curated experiences on our social channels.

From a completeness perspective, I think one of the key trends that we're seeing out there is, although we have tens of thousands of SKUs in our catalog and in our stores, it's almost impossible to have everything. If you think about a party, all the stuff that needs to go into a party, it's not just the hard goods and the balloons. You want to have cable rentals and you want to reserve your entertainment, your DJs. I think marketplaces, and really the expansion of the whole marketplace strategy, something that we're seeing out there and we're going to be participating in as well.

Lastly on the convenience perspective, the old omnichannel mantra of making all inventory available everywhere any time, that hasn't changed, but again that's something we're just trying to slide the scale to make it available. We want more inventory available really in more places and really available all the time. I'm going to give you an example of something that Party City did, some great improvements we did for our customers on that last example there.

If you want to have a party on Saturday and you wanted your inflated balloons, historically, you would have to come to a Party City store earlier in the week, you pick out your balloons and you arrange to pick them up a few hours before your party on a Saturday, and then Saturday you come back and you come pick up your balloons. You made two trips to the store. Fast forward, currently, you can purchase your inflated balloons online. You have the full assortment that you would in the store. You have full capabilities to inflate them, whether you want to put helium in or regular air.

You could place that order, you could pay for it online. If you want, you could even choose a delivery service and you could have those balloons delivered to your house. What used to take two trips to the store now can take zero trips if that's what you would like to do.

Let me tell you, when you have a party, and I'm not sure if you place 30 or 60 or 80 balloons for your party, but when you do, and that DoorDash driver shows up in his Toyota Prius, it's very interesting - problems you need to solve when you're trying to deliver 80 balloons and most of the gig drivers are in very small vehicles. It wasn't easy, but it's something that we felt was really important for our customers from a convenience standpoint. It's something you could do in our stores today.

Bob: David, I have a question that I was going to ask you, and I will come back to it in a moment about different channels. You just hit on something twice, I think really interesting; the first time when you were talking about marketplaces with DJs and things like that and the second example that you just gave, which is really about customer experience.

I know in Supply Chain Management Review, we've had some articles and I've also had conversations with some chief supply chain officers where they talk about the experiential supply chain, or the supply chain built around the customer service. When you were talking about, for instance, the ability to connect with DJs and things like that, you probably don't have DJs on staff at Party City, you're connecting to outside services. How much does this idea of the supply chain enabling a customer’s experience play into what you're doing?

David: I would say that Party City really looks at all our decision making through the customer-centric lens. I wouldn't narrow down supply chain. I would really say we're a very customer-centric company. We really try to apply that to all our decision making. The way we approach that is, you start out with your traditional, your CRM platforms, and your order data, and you look at that and you learn a lot about your customers.

You can make some decisions off that, but I think what's really important is you have to extend that to social listening, so listening to your social channels, doing focus groups, and then what I call demand listing. I gave a little bit of an example of that previously, really looking at what your customers want, that you're not able to fulfill. The example I gave prior was we could have shipped it from one store because it was cheaper and faster for one customer, but that would've left three-party favors, which doesn't really work for other customers.

That's one area where we're making some types of customer-centric type-decisions. A great example would be same-day Delivery. Huge expansion of same-day delivery over the last couple of years, likely pandemic-driven there. You don't usually just have one delivery network. You could have a DoorDash that covers a certain area. You might have a Shipt that does something else. You could have filled it in with an Uber somewhere else.

When you have stores in almost every state, your delivery network is most likely going to be a pretty complex network. A customer, when they want to get something delivered, they go on the website, they put their zip code in, and we have a process that checks all our delivery networks. Hopefully, most of the time we're able to deliver to them, but the times we can't, that's very important data to us. It's not just about the customers that we're completing the sale. We are actually looking at the customers that we're disappointing.

We harvest that data and we use that data as we're looking to build out our delivery networks in other parts of the country. That data is really what drives us in our decisions of where to expand. We're really looking at where our customers want convenience and that we're not able to give to them and that's really driving our decisions.

Bob: It was that first example, when you talked about the decision about which store to ship it from that really caught my attention. Thanks for revisiting that. You're doing a bunch of different channels. We've been talking about the B2C channel, the brick and mortar, or the online orders. You also have a B2B, a wholesale channel. How is Party City, or what are you doing to accommodate all those different channels that you're serving in a time where everything's evolving and changing as it is.

David: We manufacture and distribute not just to our own retail stores, but we distribute to other retailers, thousands of other retailers, and wholesalers across the world. Historically, we looked at each one of those channels through very different lenses. We had our manufacturing channel, we had a distribution channel and we had our retail channel. Our inventory and our systems really followed that three-channel. Taking a widget available in one DC and trying to make it available across those channels was not something that was very possible.

I think as we modernize our distribution or supply chain systems, we can actually start looking through this through a single lens. Really, that single lens has some great benefits for our customers. Historically, if we had a widget available in one of our wholesale DCs, it would sit there waiting for a wholesale order to come in to be shipped out.

As you start modernizing and as you start getting better real-time inventory across all your channels, you're able to make that widget available to a wholesale customer, you're able to make that widget available to ship to one of your stores, if your store needs it, you're able to ship it directly to a customer, you're able to make it available on dozens of marketplaces, including Amazon, Google, Microsoft.

I would really say the key is really trying to look at all your fulfillment channels and really make your inventory available to all of them. I think our stories keep colliding with each other, but really, the modern platforms with a microservice layer and the never-ending journey for real-time inventory is really what enables all that to happen.

Abe: Really interesting changes that you're driving, David. Give me a sense, oftentimes organizations are now using the pandemic as an inflection point saying, "Okay, this is what we did prior to the pandemic. This is what we're now doing because of the pandemic." Give me a sense when you're talking about the modernization and the digital transformation, were those already in play prior to the pandemic and now accelerated? Or from your perspective, has it fundamentally changed some of the digital transformations that you guys are undertaking?

David: I would call the supply change transformation is nothing new. It's been occurring since omnichannel, really the introduction of omnichannel 10 or 15 years ago. There's certain things with the pandemic that were expedited, i.e, curbside pickup obviously became very big, same-day delivery enabled a lot of new omnichannel-type transactions. I would just say, looking at the larger retailers out there, the Walmarts and the Targets and stuff, really just to stay competitive you really need to keep up with those guys and look at the types of omnichannel transactions that they're doing.

Probably the biggest change from the pandemic is really the introduction of the gig delivery network, so the DoorDashes and the Ubers and the Shipts of the world. There's been a lot of private equity funding in that area, and huge expansions in that area. Just to bring an example, a very recent example is the Omicron variant that we see out there. We see it's causing some pockets of labor issues around the world and around the country. I think the retailers that have a strong ship-from-store capability is really able to pivot and be nimble with those types of changes.

Bob: David, you've hit on a lot of really interesting issues as we've been discussing. Inventory allocation, trying to get better real-time inventory or visibility, understanding demand, meeting customer expectations, you've hit on them all. If you think about your to-do list, what are the one or two that are most critical to you and your organization? Then think about, what are the tools that are going to enable them? Is it software? Is it automation? Is it better data collection? Is it all of the above? How are we going to get there?

David: It's obviously all of the above. You need to do all of them to have a good strategy. I will say, I think real-time inventory is king. I'm going to focus on real-time inventory for a second. There's a lot of real-time inventory platforms, all the big order management systems have them, most of the major web platforms, and then there's some independence that that's all they do, that's their core function.

I've spent a lot of time looking at all of them, I can say. Each one has its strengths and has its weaknesses, but what really has resulted from that difference in feature sets between all of them is that many retailers have needed to have multiple real-time inventory services. If you think of a retailer with tens of thousands of SKUs, a thousand-plus locations, you're talking 25 million to 50 million to 100 million records in some of those real-time inventory systems. When you have multiple systems, having that amount of data, trying to keep them in sync is always a challenge.

I would say two trends in the marketplace. The cloud has obviously helped that a lot. The cloud has given us the ability to process these mass amounts of data and make that data very accessible to a lot of different systems that need to consume it. Then really the modern architecture, the microservices have given us the ability to get to that data very, very, very quickly.

I do have to say one thing here. I don't think any of the real-time inventory platforms out there can fulfill-- they can't fulfill my needs. I know that, and I'm guessing they can't fulfill other retailers' needs out there. I really think that some of the big players out there in the software place, they really need to start listening to their customer. I've been telling them this for years and I still don't see those features becoming available. I think they need to start listening to their customer. Frankly, I think they have some catching up to do.

Abe: David, let me follow on for the last question about customer-centricity because you're hitting on that in a number of different areas. I really appreciate that focus because as we all know, customers do drive supply chains. You don't design your supply chain and then say to your customer, "Well, this is the way that we produce and distribute. This is where you can find it." You're listening to where the customers are taking you.

As you are putting customer-centricity forward, what does that mean in terms of changing your organization to respond quicker, whether it's visibility with your partners or, as you indicated, more rapid delivery? Customers are expecting just-in-time, low cost, high variety, and rapid delivery. How do you meet those expectations in this new frontier?

David: Well, let's just face it, Amazon has set the bar for all of us. I think for us trying to get to a more customer-centric supply chain model, really the cornerstone of that is having the data. Without the data, you can't really do anything. Focus, at Party City is understanding our- customer better and there's a lot of tentacles to that. I think I spoke about CRM and social listening and demand listening. The cornerstone is really data.

I would say really the second piece of that is this is science that you put on top of that, so the data science and how you're going to understand that data, and then once you have that data science, deciding what to do with it. I'd say it's really a three-pillar approach. In Party City, we're focused on all three of those pillars as are most retailers out there.

Abe: David, really interesting changes and looking forward to seeing how Party City and the organization really does change the face of retail. Thank you so much. That's all the time we have today. Special thanks to our guest, David Levitt. Finally, a special thanks to you for joining us on this episode of The Rebound. We hope you'll be back for the next episode. For The Rebound, I'm Abe Eshkenazi.

Bob: I'm Bob Trebilcock.

Abe: All the best. Thank you.

Bob: The Rebound is a joint production of the Association for Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com. We hope you'll join us again.

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