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How An Online Dollar Store Can Use Supply Chain Control

Visit any city and you’ll find, alongside pharmacies and big box chains and retail stores that specialize in a particular niche, the ubiquitous dollar store, selling seemingly every item under the sun for incredibly low prices. It’s one of the staples of the local and national economy.  Now it's also an example of how to manage your supply chain expertly.  While it’s convenient and even fun to visit a dollar store to pick up things you need (and sometimes things you don’t), these types of businesses aren’t flashy or hip. That may be part of the reason why we haven’t seen a dollar store equivalent in the e-commerce space. Another reason, of course, is cost but if dollar stores can afford to sell sunglasses, phone chargers, toys and lipgloss for only a few bucks apiece, why can’t a website? We’re seeing the emergence of a true online dollar store -- at least in terms of the way it markets itself and its ridiculously low prices -- in Hollar, which launched in late 2015. It’s Hollar, rather than Dollar General (the most recognizable name in the dollar store industry nationwide) that is making a big dollar store push not only into e-commerce but mobile shopping as well. [Tweet "We’re seeing the emergence of a true online dollar store."] Hollar was created by several entrepreneurs who had their hands in several sites most internet users have probably heard of. David Yeom, the co-founder and CEO, previously worked at Jessica Alba’s The Honest Company; co-founder Brian Lee also had a hand in ShoeDazzle.com and LegalZoom.com. In an interview with Fox Business, Yeom showed that he had identified one of the most important factors in ecommerce success: control over the supply chain. Hollar is expanding and getting into manufacturing its own products. Yeom cites that the margins are much better when you own all of the supply chain. Manufacturing for Hollar branded products will start out with partners in China. Currently, many non-Hollar products are made both in the U.S. and overseas, according to the company.

Supply chain management is the oversight of all the information and materials that go from the supplier to the consumer. As raw materials become goods, are ordered and assigned to a customer and are shipped out to their doorstep, companies can track the movement of all the disparate parts that make this possible. The job becomes much bigger and more complex when the company decides to take a more active role in the supply chain, rather than trusting certain actions to distributors, wholesalers, warehouses and other supply chain mainstays. While the dollar store industry already caters to millions to people and sells billions in merchandise every year, Hollar recognizes that companies like Amazon can pad their profit margins  -- or, as Amazon founder/CEO Jeff Bezos is more likely to do, lower prices in order to boost market share and hurt competitors -- by doing things themselves. This involves taking on the very companies that once helped you create a supply chain, but for behemoths like Amazon, this just seems like the next logical step.

Related Article: 7 SUPPLY CHAIN PREDICTIONS FOR 2015

For example, Amazon has already started their own private-label electronic accessories and office supplies, but is reportedly moving into selling Amazon-brand groceries and other packaged goods such as diapers and detergent for their Prime customers. Amazon already dominates the online arena, and if they’re able to properly produce, store and ship their own products without having to rely on a third-party to supply the goods, they’re going to reap massive rewards. Their ownership of the supply chain reportedly won’t stop there. Amazon primarily uses shipping companies like UPS to complete orders, but that reliance has hurt them in the past: During the 2013 holiday season, UPS failed to fulfill nearly 2 million orders, which was a major blow to the online retailer during the most important time of the year. Since then, Amazon has looked to build its own global delivery network, complete with planes and ocean freighters. This will create an international supply chain less reliant on outside forces and more reliant on Amazon creating its own system that they can monitor anywhere, anytime. Of course, a new company like Hollar is miles away from building a shipping fleet and competing with Amazon on that level. But Hollar is on the right track, offering low prices on items that people can buy seamlessly on their mobile devices (with free shipping on orders over $25) as well as their stated goal of manufacturing their own merchandise. Their control over their supply chain, and their ability to afford the low prices they pass on to their growing customer base, begins in the same place it does for most successful online retailers: an automated inventory management system. Many successful retailers, large and small, with an online component now use an inventory management system that lets them locate any item within their warehouse or somewhere along the supply chain, usually one based on barcodes. Though barcodes have been around for decades, they’ve proven to be a reliable pillar in an era dominated by seemingly much more complicated devices such as bluetooth barcode scanners, mobile computers and smartphones with applications. There are several notable benefits to utilizing an barcode-based inventory management system. Some small businesses still use manual processes to track the status of their inventory, and their CEOs are likely overlooking the following:

• It minimizes inventory shrinkage that results from administrative errors, employee theft and misplacement. In 2014, shrinkage cost retailers over $44 billion.
• You can be more creative with your inventory. Amazon uses a “chaotic inventory management system,” where items are placed at random on shelves, to more efficiently fulfill orders. This would be impossible to keep organized without barcodes.
• No more inventory uncertainty: Nothing disappoints a customer more than ordering an item, only be told that the item they were promised is actually unavailable. Make promises you can keep with always accurate inventory levels.
• Better inventory forecasting: Some businesses have an out-of-whack inventory turnover ratio, and choose to order a ton of product to meet perceived traditional demand. This results in unnecessary stores of inventory that costs too much to hold on to; but is that worse than not having enough inventory to meet a rush of demand? Forecast more accurately with a system that accounts for dips and surges in buying patterns.

Hollar is trying to import a very successful offline business model, dollar stores are one of the only retail categories not struggling to stay afloat at the moment, to the world of online shopping. While there are some significant departures (for example, most items are priced between $2 and $5, rather than the traditional single dollar), there are also some of the mainstays of the dollar buying culture, i.e. inspiring people to buy a myriad of items they had no intention of purchasing when they entered the store. In order to continue stocking all these items and keeping them at crazy low prices, expect Hollar to continue down the path forged by Amazon: Increased control over their inventory and supply chain, resulting in global retail dominance aspirations.