The Pros and Cons of a Frenemy Supply Chain for Retailers

Mid-sized U.S. retailers have faced a tumultuous past couple of years, with inflationary pressures and escalating supply chain costs impacting their growth and profitability. To help overcome these stumbling blocks, they have been seeking innovative solutions.

A fresh strategy that has caught the attention of mid-sized retailers is the formation of frenemy networks – collaborative initiatives between competitors to share supply chain infrastructure, improving operational efficiencies and cost savings.

The concept of frenemy networks is not new – it highlights the advantages of leveraging collaborative efforts to tackle challenges that extend beyond the competitive landscape.

However, it is vital to assess both the risks and rewards before choosing to join hands and form a frenemy network. Employing this strategy in the retail domain comes with a unique set of challenges. Collaboration may not come as naturally to retailers, given the inherently competitive nature of the industry and the focus on proprietary products and branding.

Also read: Janet Yellen Has Called For ‘Friend-Shoring’ Supply Chains. What Does It Mean?

Retail Titans vs. The Frenemy Coalition

While frenemy networks help mid-sized retailers share costs and increase efficiencies, they face an immense challenge when competing against retail juggernauts like Amazon and Walmart, who have deep pockets and economies of scale that can dwarf most collaborations.

A frenemy network between mid-sized retailers may help level the playing field to some extent, but it will likely still fall short of the operational efficiencies and cost savings that the retail giants achieve. Mid-sized retailers would need to invest significantly in infrastructure and technology to match the titans’ capabilities. Even with pooled resources, the gap may still be substantial.

Retailers also must carefully consider the potential distraction from their core focus if they get into a frenemy network.

American Eagle, for example, has built its success on a unique value offering – trendy seasonal apparel that resonates with their customer profiles. In a frenemy network, the company can wade into unfamiliar territory. Diving into a new business area such as logistics may result in a diluted focus on its core competencies, potentially impacting the overall customer experience and brand loyalty.

Balancing the Scales: Risks and Rewards

The potential advantages of a frenemy network are clear.

Shared logistics with other retailers would mean reduced shipping costs, especially for last-mile delivery, which is traditionally the most expensive part of the delivery chain. Additionally, the opportunity to gather and monetize cross-shopping or cross-fulfilled customer data is an enticing prospect, allowing retailers to refine their marketing efforts and better understand their customers' preferences.

However, these rewards must be balanced against the risks.

The distraction from core business areas, the challenge of competing with retail titans and the necessity of developing new capabilities are all significant considerations. In addition, the data-sharing aspect introduces its own set of challenges around data privacy and customer trust, which could potentially harm the retailers' reputation.

Conclusion

Implementing a frenemy network strategy requires careful balance and a clear view of the end goal. It's a strategy that demands retailers to step out of their comfort zones and collaborate with those they typically compete against. It may be a lifeline for mid-sized retailers grappling with the current economic landscape, but it's not a one-size-fits-all solution. Retailers must carefully consider the potential risks and rewards and evaluate whether this strategy aligns with their business model and long-term objectives.

To know more about the topic, download our bulletin Frenemy Supply Chain Network: 3 Things to Consider Before You Decide to Build One