Retailers are omni-channel laggards

According to SPS Commerce’s third annual Retail Insight industry benchmark report, only five percent of retailers believe they are "advanced" when it comes to omni-channel capabilities, and between 35 and 40 percent believe they’re lagging.

The market analysis was developed in partnership with Retail Systems Research (RSR), which surveyed hundreds of retail practitioners in August 2014. Across the board, the findings confirm the cross-functional challenges retailers, suppliers and logistics firms face as they build omnichannel capabilities into their operations. Also underscored was the critical role fulfillment plays in meeting consumer expectations for rapid delivery and flexible returns.

Other findings from the study:

  • Both retailers and suppliers feel significant pressure from rising consumer expectations, with 75 percent of retailers experiencing increased demand for more rapid fulfillment and 44 percent of suppliers reporting greater demand for more robust item information.
  • Very few companies (11 percent) are ready for cross-channel fulfillment, but retailers are more likely (18 percent) to report mobile commerce readiness.
  • More than half (52 percent) of retailers and suppliers are too distracted to prioritize and focus on their omni-channel strategies.
  • Forty-three percent of retailers report their legacy systems hold them back from omni-channel progress.
  • Fully a quarter of retailers have made the transition to store-based fulfillment of online orders but expect this to decline over the next three years to balance shipping costs.

"Retailers, suppliers and logistics providers need to move quickly to satisfy a consumer who has a seemingly endless array of choices and not a lot of patience," said Paula Rosenblum, managing partner at RSR, in a press release. "While everyone is heads-down, particularly in figuring out the supply chain side of the omni-channel equation, no one should lose sight of the consumer."

BrainTrust

Discussion Questions

What do you think are the most and least obvious cross-functional challenges retailers are facing in building omni-channel capabilities? Is the apparent slow-go approach warranted?

Poll

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Dick Seesel
Dick Seesel
9 years ago

The first issue I see is the definition of “omni-channel” itself. If retailers simply use it as a buzzword indicating that they operate both brick-and-mortar stores and e-commerce, then they really don’t get it. The idea behind omni-channel is to integrate all of the retailer’s shopping channels into a more holistic experience. (Sorry about more buzzwords.)

Investments in both systems and logistics are critical. Macy’s is probably the leading example of a store that has taken the lead on initiatives like BOPIS, order fulfillment from store inventories and so forth. So if a large number of stores describe themselves as “lagging,” that’s probably an accurate assessment.

Gib Bassett
Gib Bassett
9 years ago

Maybe an obvious one is not fixating on the term “omni-channel” and instead thinking about the customer experience and how each functional area affects it. It’s not just about channels, as in sales or interactions, but the whole experience that includes a lot of people who don’t necessarily line up with a sales or service channel. A less obvious challenge may be how to go about better leveraging supplier partners beyond the supply chain to include collaboration around consumer engagement inside and beyond the store. You would think the “whole” would be more effective than the sum of the parts, with retailers and suppliers working mostly independently to influence consumers.

Chris Petersen, PhD
Chris Petersen, PhD
9 years ago

In the eyes of today’s consumers, there is no “go slow.” Omni-channel options for consumers are increasing and getting better everyday.

To execute omni-channel in ways that fulfill consumer expectations requires substantial infrastructure and systems investment. The obvious challenge traditional retailers are facing is building the supply chain side of being able to manage virtual inventory, and fulfill a consumer purchase from anywhere, to anywhere.

The less obvious and most important challenge facing retailers is creating a “seamless” consumer experience. Consumers expect to start shopping online and then continue that experience in-store.

The greatest challenge for traditional brick-and-mortar retailers is that the consumer experience is not just about a sale of an item today, but is also about creating an on-going relationship with consumers across channels.

Dan Raftery
Dan Raftery
9 years ago

On the front-end of omni-channel there is a new world of marketing which no one has completely deciphered, and retailers have co-opted the bulk of their past marketing energies to suppliers. Retailers are the merchants, right? So, that is the big nut, in my opinion, but not just for retailers of course.

On the back-end of omni-channel, retailers have a distinct advantage with a catch-22. We enjoy one of the most efficient product distribution systems in the world. The current focus on rapid fulfillment to individual consumers runs counter to that model and is a bit confounding to distributors. I think the “slow-go approach” is smart, especially for grocers who operate with the lowest margins in the retail world. Everyone will always eat, but how many will make this behavior a habit in the long term?

Cathy Hotka
Cathy Hotka
9 years ago

I’m actually surprised that 11 percent of retailers say they can handle cross-channel fulfillment.

Omni-channel is the burning platform facing nearly every retail company, particularly those who carry commodity merchandise. Whatever you call it, frictionless commerce across channels is a must, and the most compelling threat to some retailers’ existence. Let’s hope that executives get the budget they need to make this happen.

Kenneth Leung
Kenneth Leung
9 years ago

Traditional brick-and-mortar retailers built their business processes, supply chains, etc., towards optimized product and service delivery. When they add channels and then merge them, it goes outside of their culture and what made them successful as retailers. Inertia is something all retailers face, and more so for traditional retailers versus the ones born of e-commerce’s first age. Most obvious challenge? Communicating with shoppers across all the channels proactively rather than waiting for them to hit the stores/websites/social media sites.

Gajendra Ratnavel
Gajendra Ratnavel
9 years ago

Absolutely no surprise! The more concerning part about this is that there seems to be very little movement to change this. Upgrades to their legacy back-end systems should have happened a decade ago, at which time retailers should have put a more flexible system in place capable of changing easily over time.

The task is so massive that it will interrupt retail operations and require process changes and training.

Vahe Katros
Vahe Katros
9 years ago

The NRF needs an omni-channel czar.

Ed Stevens
Ed Stevens
9 years ago

Every day, I encounter retailers who struggle to build omni-channel fulfillment capabilities. The enormous gap between what retailers do and say they need to do has not shrunk.

The reason?

It’s NOT that retailers are not smart. They know they need to do this. That’s why the surveys always show their awareness.

It’s NOT that retailers are not hard-working. Retail is tough, and anyone in the business works super hard.

It’s because of money. Retailers are always under margin pressures, and they only have so much money to invest in technology. Until very recently, distributed-order management solutions have been expensive and complicated. Only tier one retail has been able to deploy them.

For the rest of retail, the only way out is to adopt lighter, less-expensive technologies. Cloud-based. Low up-front costs. Aligned to provide value for the long haul.

With the lighter, less-expensive distributed-order management solutions available today, retailers have no excuse to go slow anymore.

The gap will close rapidly in the next one to two years.

Ed Dennis
Ed Dennis
9 years ago

The biggest challenge retailers face is paying too much attention to hype and not enough attention to: 1.) Hiring and training correctly and 2.) Competitive activity. Every grocer in the U.S. seems to put out a weekly flyer saying, “look at me and see what I am doing for you.” When I get five of these in the mail and I compare one to the other I often find huge price swings. Why? If my retailer is intent on doing his best for me then why so much difference in pricing for the very same item? That is the challenge retailers face!

You don’t need omni-channel or any other hyphenated word to correct this problem. You need to know what is going on in the marketplace in addition to knowing what is going on in your store. I mostly see retailers who don’t know what is going on in their stores and have even less of an idea as to what is going on in the marketplace. What I have observed is that the really good retailers don’t pay a whole lot of attention to “buzzwords” and do pay a lot of attention to their customers. In general this is called “work,” and it is amazing how many retailers won’t come near that word!

Ralph Jacobson
Ralph Jacobson
9 years ago

Today’s consumers have significant influence over one another. Retailers must learn how they can capitalize upon this to impact consumer loyalty and deepen their relationships with the brand.

We have seen merchants create a consistent and trustworthy brand experience in which consumers can research, buy, track, receive and return purchases wherever, whenever and however they please. Using e-commerce and mobile commerce capabilities, retailers can enable seamless consumer interactions across all channels. Then they can overcome cross-functional obstacles to implement order management processes to ensure that each consumer order is fulfilled via the most efficient and cost-effective path.

Finally, when they use advanced web analytics to monitor how consumers are responding to personalized targeting so retailers can continually improve e-commerce processes. Benefits include: reduced consumer acquisition cost, greater order accuracy and profitability, and improved consumer satisfaction. I have seen consolidation of web infrastructure resulting in a 55% improvement in page load times and implementation of more targeted marketing to increase conversion rates, retention and revenue.

The current industry apprehension need not be so prevalent, in my view. There are proven tools to leverage to improve omni-channel processes.

Martin Mehalchin
Martin Mehalchin
9 years ago

I’ve met with quite a few retailers who have built a nice eCommerce business and also have a legacy (brick and mortar) business that is still comping up, but I have met very few who have done anything substantive to connect the two and deliver omnichannel.

Two challenges I’m hearing that are not emphasized in the article:

1. Incentives and behavior of front line employees – Mall-based specialty and other retailers with a heavy reliance on commissioned sales people have a front line that is not incented to redirect business to eCommerce when a particular item that the customer wants is not on the shop floor. This is a surmountable challenge, but it requires a cross functional project involving incentive design, IT, and change management with the staff. Hard to do if you are one of the retailers who answered “yes” to being “too distracted to prioritize and focus.”

2. Customer experience – Multi-channel returns and buy online, pick up in store are just the beginning here. The long-term opportunity is to develop the seamless omnichannel experience that Chris references above. Make it easy for the consumer to browse online and convert in store or vice-versa and recognize who they are and their history as a customer with you at every point along the way. Smart use of mobile is the key here, as we discussed in this webinar last year.

Ed Dunn
Ed Dunn
9 years ago

Minimum wage. Cannot have it both ways of having a minimum wage labor force and trying to implement an omni-channel experience that involves employees with a knack for technology and multitasking.

The point of sale and ordering system are outdated and rely on vendors who yet to build bridge solutions or rollout new POS systems that can accommodate omni-channel. Using a second screen such as a tablet to view BOPIS orders is fine for a small business, but not an enterprise rollout. That is the major roadblock right now in terms of infrastructure.

McDonald’s is the perfect example—they cannot rely on the minimum wage labor and their 20th century outdated order fulfillment system to compete with gourmet burger establishments that allow customers to order from their mobile phone and the burgers are nearly the same price.

Bill Bittner
Bill Bittner
9 years ago

The number one obstacle to omni-channel support is having an accurate electronic inventory. Until either serial number tracking is in place or fulfillment is segregated from customer in-store sales, the veracity of the inventory in the computer will always be suspect.

I had the classic experience when I went skiing in Utah a couple years ago. The canyons required snow tires or chains, so we bought a set of chains for the rental car in the local Walmart. Fortunately we didn’t have to use them so we returned them at the end of the week. I can’t believe we were the first to do this.

I really think the best answer is to separate the consumer fulfillment process from the retail store consumer sales. It might make sense for retailers to embrace showrooming by putting into place a business model that allows consumers to have items delivered directly to their homes. By acknowledging the store is really just a showroom, the only dynamic inventory is in the fulfillment center.

Paul McFarren
Paul McFarren
9 years ago

Companies attempting to implement omni-channel competencies now find that re-balancing across channels and the necessary coordination of customer touch points (assortment, pricing, promotions) is complicated by the fact that the different channel applications that support these features do not always have the same capabilities. In some cases, entire business processes are still replicated and customized in the individual channels.

At the same time, the Information Technology teams for the applications supporting these retail channels are struggling to maintain the independent, and sometimes competing, support models for their respective application sets and architectures. Particularly in the mid-sized retail market where resources are already at a premium, the challenge of maintaining technology currency across multiple platforms can be daunting.

The resulting infrastructure supporting multi-channel retailing has become a hodge-podge of middleware components patched together to create the illusion of integration. Software and service components have been implemented (sometimes independently) to ensure that each channel “appears” to have a full set of information.

While the software industry has been unable to resolve these issues at an architectural level, the technology service industry has provided at least one viable mechanism to relieve the impact of these complexities through a Fully Managed Hosting Services Model. In this model, the burden for integration and data management can cost effectively be shifted out of the retail enterprise (IT) and into the cloud, assisted by external, technology-focused (usually ERP platform-specific), infrastructure and application management organizations; an entirely new wave of service providers poised to capitalize on this market need.

The face of the retail technology landscape has changed. In the past, isolated channel solutions specifically tailored to the retailers were required to meet consumer and operational demands. Customer expectations have historically been determined by the technologies that could be applied in this environment and infrastructure was often the limiting factor.

We are now experiencing a reversal in this trend. Connectivity (in the home, in the store and everywhere in between) has become a commodity and gone from being an obstacle to a shopping enabler. Consequently, pervasive connectivity now plays a much larger role in the shopping experience. In addition to making possible additional shopping channels for the customer, pervasive connectivity facilitates the pre-shopping experience at the store. Price, quality and feature/function comparisons are at the fingertips of virtually every consumer. Finally, broadband connectivity at the store has enabled real-time connectivity to the enterprise; a critical link to information that has been historically unavailable.

This progress has dramatically raised customer expectations for their shopping experience. For most customers, having options becomes the key to excellent customer service. Instantaneous customer recognition, complete historical shopping visibility, seamless inventory availability and the capacity to ship from anywhere to anywhere have now become the standards by which customer serviceability is measured.

Retailers must continue to get creative in resolving the effects of historical channel autonomy. Outsourcing of disparate, non-critical IT components in an effort to focus IT organizations on more strategic, business-critical support is crucial to set the stage for omni-channel integration. Only when this has been achieved can strategic and operational alignment of channel business executives occur throughout the enterprise. And only then will retailers be able to create at least the perception of omni-channel integration to their customers.