The omnichannel race
Written by Stuart Higgins, retail partner, LCP Consulting
Black Friday reveals the challenges and the rewards in getting omnichannel retail right, says Stuart Higgins, retail partner at LCP Consulting
Although never easy, e-commerce was once manageable for retailers: build a website, find a carrier and sell your goods. But retailers are now finding keeping consumers loyalty and attention while turning a profit is a very challenging proposition. Black Friday is a case in point. Last week saw Asda back off from the seasonal discount bonanza. It follows US retailer REI, which has more than $2 billion in annual sales and is set to close all its 140 stores on Black Friday.
Some firms are exercising caution with good reason. Although it is now main stream in the UK, Black Friday is unsustainable and unprofitable according to a third of UK retailers, LCP Consulting’s new report, The Omnichannel Journey, finds. However, other retailers see it as an opportunity to drive sales and market share.
The problem with such events is they create surging, unpredictable demand at a time when customer expectations on delivery times and options for returns seems to be ever increasing. The event amplifies the challenges and opportunities that are presented by the move to omnichannel retail. Look at the big picture. The shift from multi-channel to omnichannel retail is being driven by consumers permanently connected to the internet, who still want to browse in-store and speak to call centre agents. Meanwhile, customers say returns are very important to their purchasing decision, but unfortunately the LCP report finds that many retailers are falling short, taking a retail-centric rather than customer centric view on managing returns.
With more links in the chain there is greater propensity for things to go wrong for the customer. This in turn can generate a higher proportion of complaints and, if issues are not resolved quickly, consumers are likely to vent their frustration using social media. Meeting these expectations is a massive challenge for retailers. Building a truly omnichannel operation is expensive. Consumers should be able to move between online, in-store and call centre services in a seamless, coherent fashion, and at each point, the retailer should know who they are and what their recent experience with the brand has been.
Adopting an omnichannel strategy to deliver on this broader customer service proposition means significantly increasing the number of choices of service offerings available to customers. Legacy systems and capabilities are generally unable to cope. This means that comprehensive transformation of the operational backbone of the business is mandatory for sustainable success.
It is no longer sufficient to create an appealing online sales front end and check-out. Back end ERP, stock management, warehouse management and supply chain systems also need to be connected to offer visibility of stock and intelligent oversight of performance. The LCP study notes differences between the US and the UK in this regard. Technology is a priority in the US: 61 per cent of retailers see this as a key element in omnichannel success, a greater proportion than in the UK. The US has had an earlier realisation that they need to integrate front and back end in a new retail operating model, with systems being the critical enabler.
The LCP report shows that leading retailers admit there have been challenges in replicating this approach. “I don’t think it has moved as quickly as I would have hoped. That said none of these moves are easy or cheap, they require very costly systems, implementations and process changes and there are increases in operating costs so you really do need to be confident that you understand what is required if you are prepared to invest,” says Dino Rocos, operations director, John Lewis.
Ultimately, the winners on Black Friday, and omnichannel more generally, will be those who can leverage the whole infrastructure and integrate their online offers with this insight. They will understand the impact discounting has on demand. They will know how many customers will take up next day delivery, and if they can support it. They will be able to flex the offer to account for the capacity in the system, so they don’t fail to meet the customer promise. They will be the ones who understand what the proposition to the customer will cost, and be able to deliver on it.
The race towards onmichannel retail started years ago, but it is longer and more challenging than many anticipated. Those with the stamina to see it through will be rewarded with loyal customers who engage with the brand and become its best advocates.
Read The Omnichannel Journey in full at: www.lcpconsulting.com/omni-channel-study-2015