Is omnichannel cannibalization retail’s biggest challenge?
Retailers are focused on crafting omnichannel shopping experiences. To do this requires investing in developing and integrating different channels. So their expectation is rightly that sales performance will improve, or at least holds the line. And yet, for most this doesn’t appear to be happening.
As reported January 6, 2017 on eMarketer, “Despite efforts to increase their online sales and beef up their omnichannel strategy to meet the needs of smartphone-toting and social-media addicted consumers, these retailers are burdened by their physical stores, which still represent a majority of their sales.”
Commenting on Nordstrom’s results on December 19 of last year, CNBC’s Jim Cramer suggested a reason for the struggles: “The better Nordstrom’s website becomes, the less incentive you have to actually go to their stores. In other words, they are cannibalizing themselves.”
Mr. Cramer’s comments raise an overlooked challenge faced by retailers in many sectors. On one hand, the right thing to do for your customer is to serve them at any time they desire. On the other, you must invest in the capabilities to make that happen.
To recover their investments, retailers must increase their share of customer walletshare. This requires taking business from competitors, including Amazon, who are also investing in omnichannel capabilities.
Mr. Cramer suggests that, in at least Nordstrom’s case, the strategy of “selling more” (i.e. increasing the pie slice) with greater convenience and better service is not working.
This failure implies more must be done to understand customer purchase occasions to win unique online and offline sales opportunities. Drastically improving customer insight is one solution; paint a broader picture of individual customers beyond transaction histories and social media sentiments.
It’s an analytical problem with implications for the way a retailer markets, sells and services individual customers. But retailers today do have an opportunity to make use of historical, predictive, prescribed and real-time insights to orchestrate a customer experience that “lifts all ships” and creates incremental sales.
- The #1 question every retailer needs to answer in 2017 – LinkedIn
- Watch Customer Insights Grow with Big Data – YouTube
- Holiday Sales Trends Heighten Brick-and-Mortar Woes – eMarketer
- Cramer chronicles the decline of department stores, and how Nordstrom is ‘cannibalizing itself’ – CNBC/Yahoo! Finance
- Digital cannibalizing bricks-and-mortar sales, earnings: report – Luxury Daily
- Nordstrom’s E-Commerce Strategy: Failure or Success? – National Real Estate Investor
DISCUSSION QUESTIONS: Do you think the answer to “omnichannel cannibalization” is to focus greater attention on understanding unique online and offline customer purchase occasions? Do retailers possess the technology, skills and organization to accomplish this degree of insight? What do you think are some of the data dependencies to paint a more complete and real time picture of individual customers?
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23 Comments on "Is omnichannel cannibalization retail’s biggest challenge?"
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Cofounder and President, StorePower
Aaaahhhh! That is me screaming in frustration at the concept of a retail brand cannibalizing itself across channels. That fear is silly and naive. Customers want the best experience both offline and online, and they will go to the brand that offers it. If Nordstrom does not offer a fantastic online experience, it’s foolish of them to think that those customer dollars that would have been spent online would instead go to their brick-and-mortar stores. That’s just wrong. Those dollars would go to a competitor’s online store offering a better experience. Retailers should worry about their customers getting lost to competition, not getting lost from one of their channels to another one of their channels.
Consultant, Strategist, Tech Innovator, UX Evangelist
Jon — you might want to investigate Target CEO Brian Cornell’s statements before drawing conclusions. I suggest Barbara Thau’s article on the subject.
Cofounder and President, StorePower
Thanks, Ken. I will go do so. My point, though, is not that cross-channel cannibalization is not happening; it is. My point is that such cannibalization should not be the big concern of retailers. Their bigger concern should be losing a customer to a competitor. If the metrics or economics of a given channel aren’t working for a retailer, my suggestion is to fix that channel, not hope that customers don’t shop it.
Vice President of Marketing, OrderDynamics
Completely agree with you Jon. Retailers need to focus on the competition. If you don’t offer omnichannel then you are being left behind. Your competition will offer it and they will cannibalize YOUR business. Don’t worry about whether it is your retail sales going online, returns coming into the store, etc. These are important issues on which to create new processes … BUT focus on making sure YOUR sales are growing as a business overall.
You know my standard answer, it all comes right back to the right retail technology … like your order management system to provide the real-time inventory visibility, routing for click and collect and returns management.
President, Integrated Marketing Solutions
Omnichannel is the new normal for consumers. They don’t see or even think in terms of channels. Unfortunately, many retailers still interpret “omnichannel” as gaining or regaining sales by beefing up “online.”
The number one challenge for retailers to transform to omni-retail is to transition from the heritage of selling things at places. Omnichannel customers are the new POS — Point of Sale. They decide when, where and how they want to shop and make a purchase. The new hybrid models of click and collect are great examples of designing a seamless, customer-centric experience that transcends both time and place of purchase.
The very successful omnichannel retailers like John Lewis in the UK have transformed their business … and their metrics. It is not about where a sale was made today, but about acquiring and managing customer relationships that are loyal and generate substantially greater lifetime value and profitability.
President/CEO, The Retail Doctor
Sorry, I don’t ascribe to the theory that “retailers are burdened by their physical stores.” A vast majority of profitable sales are still made in stores. One-third of online purchases are returned. Add in free shipping both ways and it’s hard to say omnichannel is the way forward. With Target, Walmart, Macy’s and Nordstrom trimming back the gusher of money thrown at this idea one has to ask why.
If it weren’t for those physical stores paying the bills, none of the boutique experiences like basketball courts, full immersive video, etc. — for a few people to experience — nor the reams of money in technology to try to beat Amazon would be possible.
Maybe that’s why this was my most shared post last week, How to Find Strength In Being A Brick and Mortar Retail Store. How about embracing the strengths of brick-and-mortar instead of deriding them at every turn?
Content Marketing Manager, Surefront
The modern customer will hoof it to a brick-and-mortar store for one of these four reasons:
Are these four things achievable for retailers? Definitely, but it takes a paradigm shift. The biggest obstacle is clinging to old ideas — they’re the anchor that’s sinking our most beloved heritage stores.
Consultant, Strategist, Tech Innovator, UX Evangelist
The omnichannel dilemma can be summed up in three words: “capacity” and “market share.” Creating more consumer channels doesn’t change that.
GDP is only so big and grows at very modest rates while technology has increased the potential for consumer sales at massive rates. Something has to give. Part of it has been cannibalization of the existing retail market by digital-only upstarts (including you-know-who) and part of it obviously is from cannibalization of a brand’s own physical stores. So if the capacity for consumer purchases is only so big and a brand only has so much market share, increasing purchasing channels can only mean one thing: some channel will suffer and, for traditional retailers, it more and more is their physical stores.
The only two true solutions here are:
President, Max Goldberg & Associates
Consumers look at a retailer as a whole — stores and online are one. It’s up to the retailer to figure out how to service the whole. Just because a retailer has an online presence and a physical store does not mean that its sales will increase. It has to have the right message for consumers and the right positioning among its competition. Big data will provide some of this information, but consumer tastes are changing so quickly that a retailer must also be nimble enough to anticipate the products consumers want before they want them. It’s not easy to succeed in this environment. Nordstrom, Target and many others have failed to do this, and their sales have not kept pace with the market.
Global Retail & CPG Sales Strategist, IBM
We all worried about cannibalization more than a decade ago. It’s really not happening to any degree. The overall market is growing. More tonnage is moving across channels. Is the revenue growing at the pace we’d like? Nope. However with consumer pricing product value deflation, you have to also look at the item movement across the channels.
The issue, as Gib describes, is to assess your enterprise technology systems and see what is actually being utilized today. You may be surprised at the low level of leverage your team is extracting from the applications you already have. Beyond that, there are very cost-effective (and even free!) apps to augment shopper insights capabilities that also unite cross-functional practitioner roles, like merchandising, e-commerce, marketing and fulfillment. All of these people using the same apps.
Principal, Retail Technology Group
I agree with Ken. There is only one pie and it’s only so big. And what a retailer gains of that pie in one channel that retailer will lose in another channel. In the best of cases, it will eat some other retailer’s slice. We have to be prepared for the fact that the scales are tipping, with more weight going to online and social shopping, resulting in too much square footage that needs to be trimmed, or in to much shelf space that needs to be replaced with other product.
VP & GM, Business Development, Precima
Retailers need to pursue omnichannel with as much enthusiasm as they can. Shopper needs have to be met wherever the shopper is shopping and retailers who do not realize this will soon be facing declining customer counts and sales. If sales are declining, retailers need to analyze the situation to determine why that is and address those root causes. If retailers are losing sales to online, they either need to develop a compelling e-commerce offering or they need to ask why it is that shoppers are not purchasing from their online store. In addition, retailers need to alter their thinking about the role of their stores. Stores will play a role in the omnichannel future — it will, however, require retailers to correctly determine what that role is for their target customers.
Founding Partner, Merchandising Metrics
At any given moment there is X amount of demand for a given product or brand. If part of that demand is satisfied through the Internet then there is that much less being satisfied through brick-and-mortar. It’s classic competition, it’s a battle for market share now made all the more complicated with multi-channel battle fronts. Brands don’t cannibalize by performing well in omnichannel. Omnichannel is a simple recognition of a new shopping model in today’s market. It is not cannibalizing. It’s competing. If a brick-and-mortar retailer lost business to another retailer’s website, you wouldn’t call that cannibalizing. You’d call it a failure to recognize a new shopping paradigm.
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Mr. Retailer: now hear this. It doesn’t matter what industry you are in. When disruption comes you have a choice. Either cannibalize yourself or let someone else do it. The history of retail gives us great examples of not reacting to disruption.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Omnichannel is about customers, not channels. Retailers need to focus less on cannibalization and more on providing a differential advantage. Yes, there will be some cannibalization. The question is, would you rather eat your own lunch or have someone else eat it for you?
President and Managing Partner, Sixth Star Consulting
If this was the case I don’t think those that started out online would be opening brick-and-mortar stores like they are. People don’t shop online or in stores. They shop online AND in stores. So yes you’re going to move sales from one channel to another. But that same customer will move the other direction as well. We definitely know that many retailers need to reduce the number of stores they have, but that’s cannibalization. That’s called making it more profitable.
Managing Partner Cambridge Retail Advisors
CFO, Weisner Steel
“…The right thing to do for your customer is to serve them at any time they desire…” Let’s just leave it at that.
VP Planning, TPN Retail
Omnichannel is table stakes for retailers. About cannibalization, it’s the same as it ever was: optimize the basket of offerings for greatest profitability. These are new (forms of) revenue streams, so they need to analyzed for optimal performance.
What happened to share of wallet? I never understood the up and comers constantly berating bricks as if all were to crumble as superior online shopping became manifest and replaced stores.
The retailers’ challenge is to build relevant and delighting experiences at all points of contact This is no different than Sears catalogs or L.L.Bean phone centers. Granted tech has changed the purchase path, and it’s up to retailers’ advantage to understand the changes in what now delights their shoppers and deliver it.
The investment conundrum remains. How to allocate resources on what apps/technologies that are preferred. Until the impact upon category and shopper is understood, all are bright shiny objects.
Data: its capture, storage, analysis, and activation are now crucial in a world of desired personalization. How to activate the long tail of experiences and make money at it? Therein lies the rub.
Founder | CEO, Female Brain Ai & Prefeye - Preference Science Technologies Inc.
For stores, the goal is not to understand customer purchase occasions or weather conditions or what day a specific shopper likes to receive an email offer. The goal is to understand the individual customer’s preferences backed by inventory available both online or in-store that matches the individual customer’s preferences.
Just as technologists do not understand retail, retailers do not fully understand technologies as possible business applications and solutions. This retail/technology gap is holding back seamlessly integrating shopping anytime, anywhere, for an individual consumer. 21st Century shopping, not cannibalization.
Retailers hold the key to vast amounts of individual customer preference data. But because of a lack of affinity for technology, retailers have yet to bridge the gap mentally to at least consider technology[s] that provide the “key” to translate retail data sitting in data silos into specific customer preference intelligence. And technologists have yet to understand how to bridge the gap of a linear technical solution to an emotional decision to purchase on behalf of a human.