Omnichannel Operations are the New Normal

This past holiday season was a paradox. Consumer spending was up; nevertheless, thousands of retail stores are shuttering their doors forever. The paradox is explained by the fact that sales in brick-and-mortar stores rose 2.7% while online sales rose 11%. It would be wrong to conclude that traditional stores are dying altogether. Apple, thanks in part to its stores, was the fastest growing retailer last holiday season, and Amazon is opening brick-and-mortar stores. The bottom line is omnichannel operations are the new normal. Thousands of store closures point to the fact that omnichannel operations are not easy to master.

The Customer is King

“Traditional retailers are feeling the heat,” according to Emma Sopadjieva (@Sopasita), a research and analytics manager at Medallia, and her colleagues, Utpal M. Dholakia (@ud), George R. Brown Professor of Marketing at Rice University’s Jesse H. Jones Graduate School of Business, and Beth Benjamin, senior director of research at Medallia. “Online retail, on the other hand, is thriving. Retail sales through digital channels (including mobile sales) increased by a massive 23% in 2015. Much of these gains have gone to online retailers.”[1] Larry Lewis, a product marketing manager at Kewill, writes, “Behind all of these changes is the consumer-driven market, where retailers must cater to shopper expectations more than ever. This demand directly impacts the full supply chain by introducing complexities for retailers who must stay on top of every touch-point — from those that trickle down to shoppers to the ones that work up to suppliers. The best way for retailers to take charge of an industry driven by the insatiable expectations of shoppers is to gain accurate visibility into the supply chain.”[2]

Consumers want (and expect) to find what they want, when they want it, and, at some point in their path to purchase, will likely use a digital platform to help them. Sopadjieva, Dholakia, and Benjamin explain, “Under these hostile conditions, traditional retailers have staked their futures on omnichannel retailing. The omnichannel strategy hinges on the idea that providing a seamless shopping experience in brick-and-mortar stores and through a variety of digital channels not only differentiates retailers from their peers, but also gives them a competitive edge over online-only retailers by leveraging their store assets.” When they polled 46,000 consumers to determine their shopping habits, Sopadjieva, Dholakia, and Benjamin found, “Only 7% were online-only shoppers and 20% were store-only shoppers. The remaining majority, or 73%, used multiple channels during their shopping journey. We call them omnichannel customers.”

The Supply Chain is Key

One of the reasons so many retailers have struggled to survive in the omnichannel world is that order fulfillment is difficult. EY analysts conclude, “In the era of omni-channel shopping, supply chain capability is a key differentiator with the power to determine the ultimate shopper’s experience. Yet traditional supply chains can’t meet 21st century service expectations. Companies know this: 81% of senior supply chain executives say their supply chain is not fit for purpose for omni-channel.”[3] A supply chain fit for omnichannel operations is one that focuses on demand sensing and superb response. EY analysts call it a “demand response network.” They explain:

omnichannel-clear-01“The digital world has shattered two fundamental assumptions of the traditional supply chain: unknown demand and limited capacity. Connected shoppers, devices and objects reveal real-time demand, while a web of connected carriers, contractors, service providers and suppliers make capacity almost infinite. To succeed in these new conditions, companies need to evolve their supply chains into demand response networks (DRNs) that are built to motivate, sense, modify and respond to demand in real time and in an agile, efficient and sustainable way.”

Eric Lamphier, Senior Director for Product Management at Manhattan Associates, insists omnichannel operations have blurred the lines between traditional retail and eCommerce. “Traditionally,” he writes, “brick-and-mortar retail has functioned separately from the ecommerce channel — they were two distinct silos. However, in today’s omnichannel world, with the myriad of ship-from-store, ship-to-store, and buy online/pick up in-store options, the old approach is simply no longer viable. Staying competitive means operating as one unified enterprise, across channels. This means embracing initiatives to leverage all of the inventory in a network and enabling all associates to sell the network, no matter where the inventory is located and how the customer would like to take delivery.”

Steps to a Successful Omnichannel Strategy

As noted above, mastering omnichannel operations is difficult. Sopadjieva, Dholakia, and Benjamin insist, however, the effort to master omnichannel sales is worth it. “Retailer’s omnichannel customers are more valuable on multiple counts,” they explain. “After controlling for shopping experience, they spent an average of 4% more on every shopping occasion in the store and 10% more online than single-channel customers. Even more compelling, with every additional channel they used, the shoppers spent more money in the store.” There are several things retailers can do to improve their omnichannel operations.

  1. Improve visibility. Lewis explains, “End-to-end visibility across the supply chain — encompassing suppliers, logistics partners and the end customer — is the only way for retailers to gain a complete picture. In fact, real-time visibility can give retailers the power to make better-informed decisions, faster.”
  2. Improve communications with customers. Jennifer McKevitt (@mckvt) writes, “The immediate availability of detailed product information is no longer a luxury for retailers; failure to provide this information will drive away potential customers.”[5] McKevitt reports a study published in CSCMP’s Supply Chain Quarterly found, “The presence of detailed information was cited by a majority of consumers as the single most important component in the buying process, and the lack thereof a major reason why those consumers would abandon a retailer completely.” Analysts from UPS conclude, “Too often, omnichannel offerings focus on the technological details of reaching and serving the customer rather than on the customer himself.”[6]
  3. Be consistent. “Whether shopping online from a desktop or mobile device or in a brick-and-mortar store, the goal is to provide the customer with a seamless shopping experience,” says Alicia Hatch, CMO of Deloitte Digital. “The basis of an omnichannel strategy is to make sure all the pieces are working together on the back end, so interoperability is important in making sure you are successful.”[7] UPS analysts add, “Branding, messaging, support, and other elements that cross channels need to be coherent from a customer perspective.”
  4. Focus on customer experience. UPS analysts write, “In today’s retail environment, it’s the customer experience, not products or price points, that often differentiates companies. Nearly 90 percent of customers say they have stopped doing business with a brand because of a bad customer experience. Understanding how your customers discover, research, and purchase is essential for a successful omnichannel strategy.”
  5. Personalize your outreach. “Customers expect brands to address their individual needs and experiences,” write the UPS analysts. “An effective omnichannel strategy will show your customers you know them by name, preferred channels and devices, and the kinds of products they’ve browsed and purchased. Leverage data insights to tailor marketing campaigns, curate product suggestions, and personalize interactions with your company at every touch point. … Some of the best omnichannel retailers are bringing the personalized experience to the store setting as well as online by providing sales associates with easy access to customer data. This requires additional training, but really pays off in delivering a seamless experience that leverages all channels.”

Footnotes
[1] Emma Sopadjieva, Utpal M. Dholakia, and Beth Benjamin, “A Study of 46,000 Shoppers Shows That Omnichannel Retailing Works,” Harvard Business Review, 7 January 2017.
[2] Larry Lewis, “Managing a Global Supply Chain in an Omnichannel World,” Chain Store Age, 26 October 2015.
[3] Staff, “When on-demand is the norm, can your supply chain respond?” EY, November 2016
[4] Eric Lamphier, “Blurring the Lines Between Retail and Ecommerce,” Multichannel Merchant, 16 November 2015.
[5] Jennifer McKevitt, “Supply chain communication is critical for meeting omnichannel demands,” Supply Chain Dive, 12 December 2016.
[6] UPS, “3 Defining Traits of a Successful Omnichannel Retailer,” The Wall Street Journal, 9 January 2017.
[7] Ibid.

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