Omnichannel Retailing

As noted at the beginning of this chapter, a retail firm relies on single-channel retailing if it sells to consumers through one format such as the Web or a store. In multichannel retailing, a firm has separate channels such as a store and the Web. In a traditional multichannel retail environment, consumers may not be able to view store inventories online, can be charged different prices in each channel, cannot arrange for store pickup on a Web order, or return Web-ordered purchases to a local store. With multichannel retailing, the Web site and store customer databases are separate.

In contrast, omnichannel retailing delivers a consistent, uninterrupted, and seamless experi­ence regardless of channel or devices. Omnichannel retailing assumes customers go through the shopping journey very differently by using different combinations of mobile, PC, tablet, and store activities. As an example, product discovery can be Web or social media-based, consumers can receive product information via the Web or through in-store observation, and consumers can buy an item via a mobile device but seek to pick it up and return it to a store (if unhappy). This appen­dix focuses on omnichannel retailing because so many firms are combining store and nonstore retailing—as well as using multiple store formats.

Planning and maintaining a well-integrated omnichannel strategy is not easy. At a minimum, it requires setting up an infrastructure that can effectively link multiple channels. A retailer that accepts a Web purchase for exchange at a retail store needs an information system to verify the purchase, the price paid, the payment method, and the transaction date. That firm also needs a mechanism for delivering goods regardless of which channel is used by a customer to purchase.

A December 2015 study of North American retailers sheds some light on the progress these firms have made in adopting omnichannel strategies. When asked about the effectiveness of their “buy online, pickup in the store” strategy, only 18 percent of respondents stated that this was available and working, whereas 24 percent stated that it was available but needed improvement. Similarly, 16 percent of the respondents reported that returns were accepted across channels, with 46 percent of respondents stating that this service was available but needed improvement.¹

Home Depot, which annually generates billions of dollars in online sales, is a retailer that has been increasing its omnichannel presence. “We not only offered more spring season products online, but also leveraged digital media channels to highlight local in-store assortments,” CEO Craig Menear told investors and analysts on a conference call, referring to Home Depot’s mobile app’s in-store product location capabilities.²

These are some strategic and operational issues for omnichannel retailers to address:

• What omnichannel cross-selling opportunities exist? A firm could list its Web site on business cards, store invoices, and shopping bags. It could also list the nearest store locations when a consumer inputs a ZIP code at the Web site.
• How should the product assortment/variety strategy be adapted to each channel? How much merchandise overlap should exist across channels?
• How well can a distribution center handle direct-to-store and direct-to-consumer shipping?
• Should prices be consistent across channels (except for shipping and handling, as well as closeouts)?
• How can a consistent image be devised and sustained across all channels?
• What is the role of each channel? Some consumers prefer to search the Web to determine pricing and product information, and then they purchase in a store due to their desire to see the product, try it on, and gain the immediacy that accompanies an in-store transaction.
• What are the best opportunities for leveraging a firm’s assets with an omnichannel strategy? Many catalog retailers have logistics systems that can be easily adapted to Web-based sales.
• Do relationships with current suppliers prevent the firm from expanding into new channels?

1. Advantages of Omnichannel Retail Strategies

There are several advantages to a retailer’s enacting an omnichannel approach, including the selection of specific channels based on their unique strengths, opportunities to leverage assets, and opportunities for increased sales and profits by appealing to omnichannel shoppers.

1.1. Selecting Among Channels Based on Their Unique Strengths

A retailer with an omnichannel strategy can use the most appropriate channels to sell particular goods or services or to reach different target markets. Because each channel has a unique com­bination of strengths, an omnichannel retailer has the best opportunities to fulfill its customers’ shopping desires.

Store-based shopping enables customers to see an item, feel it, smell it (e.g., candles or per­fumes), try it out, and then pick it up and take it home on the same shopping trip without incur­ring shipping and handling costs. Catalogs offer high visual impact, a high-quality image, and portability (they can be taken anywhere by the shopper). The Web offers high-quality video and audio capabilities, an interactive format, a personalized customer interface, virtually unlimited space, the ability for a customer to verify in-stock position and order status, and, in some cases, tax-free shopping. Mobile marketing devices are always on, always connected, and always with the customer; they can be easily personalized and can generate location-sensitive offers.³

In-store kiosks are helpful for shoppers not having Web access. They can lead to less inven­tory in the store (and reduce the need to stock low-turnover items in each store), can facilitate self-service by providing information, and can offer high video/audio quality.

To plan an appropriate channel mix and the role of each channel, retailers must recognize how different channels complement one another. Best Buy (www.bestbuy.com), Costco (www.costco .com), Staples (www.staples.com), Home Depot (www.homedepot.com), and Walmart (www .walmart.com) are just a few of the retailers that have a broader selection of items on the Web to encourage consumers to shop online.

1.2. Opportunities to Leverage Assets

Omnichannel retailing presents opportunities for firms to leverage both tangible and intangible assets. A store-based retailer can leverage tangible assets by using excess capacity in its warehouse to service catalog or Web sales; that same firm can leverage its well-known brand name (an intan­gible asset) by selling online in geographic areas where it has no stores. Store-based retailers can also arrange to ship goods ordered online or through mobile devices from closely located stores rather than a centralized distribution center.

1.3. Opportunities for Increased Sales and Profits by Appealing to Omnichannel Shoppers

Omnichannel consumers, on average, spend more and have a higher lifetime value to retailers than single-channel consumers. For example, Macy’s found that its omnichannel customers are eight times as valuable as customers who confine their shopping experience to a single channel. Similarly, Target found that its omnichannel customers are its most valuable, as they spend three times more as those who shop in a single channel.⁴

2. Developing a Well-Integrated Omnichannel Strategy

A well-integrated omnichannel strategy requires linkages among all the channels. Customers should be able to easily make the transition from looking up products on the Web or in a catalog to picking up the products in a retail store. If these linkages are not properly established, sales can be lost. There should be a good deal of commonality in the description and appearance of each item regardless of channel. For example, in-store personnel should be able to verify a Web or catalog purchase and arrange for returns or exchanges.

Characteristics common to superior omnichannel strategies include the following: integrated promotions across channels; product consistency across channels; an integrated information sys­tem that shares customer, pricing, and inventory data across multiple channels; a store pickup process for items purchased on the Web or through a catalog; and the search for omnichannel opportunities with appropriate partners.

2.1. Integrating Promotions across Channels

Cross-promotion enables consumers to use each promotional forum in its best light. Following is a list of some cross-promotion tactics:

• Include the Web site address on shopping bags, in catalogs, and in newspaper ads.
• Provide in-store kiosks so customers can order out-of-stock merchandise without a shipping fee.
• Include store addresses, phone numbers, hours, and directions on the Web site and in catalogs.
• Make it possible for customers to shop for items on the Web using the catalog order numbers.
• Distribute store coupons by direct mail, online. and mobile sources; offer catalogs in stores and at the Web site.
• Encourage in-store shoppers to use their smartphones to scan barcodes and get more product information.
• Target single-channel customers with promotions from other channels.
• Send store-based shoppers targeted E-mails on their mobile device (on an opt-in basis) for selected goods and services.
• Have a strong social media presence.

2.2. Ensuring Product Consistency across Channels

Too little product overlap across channels may result in an inconsistent image. However, too much overlap may result in a loss of sales opportunities. Omnichannel retailers often use the Web to offer very specialized merchandise that cannot be profitably offered in stores. This maximizes store space while, at the same time, fulfills specialized needs of niche market segments.

2.3. Having an Information System That Effectively Shares Data across Channels

To best manage an omnichannel system, a retailer needs an information system that shares cus­tomer, pricing, and inventory information across channels:

• After a customer creates an online bridal registry account at Crate & Barrel, he or she can visit any of the chain’s stores and seamlessly synchronize the store’s scanners with their online accounts. This makes it easy for customers to add new items to their registry while in the store. Customers can also use an in-store computer to modify their product choices.⁵
• Rebecca Minkoff—a chain specializing in accessible luxury handbags, accessories, footwear, and apparel—utilizes apps to create user profiles that link what customers view online with what the customers try on and purchase in stores.⁶
• Macy’s recently combined its online and offline marketing operations to create one inventory system across channels. This system displays sales data, stock-on-hand, and on-order data.⁷

2.4. Enacting a Store-Pickup Process for Items Purchased on the Web or through a Catalog

In-store pickup requires that a retailer’s inventory database be integrated and that the firm has a logistics infrastructure that can select and route merchandise to customers. Increasingly, shoppers are ordering big-ticket items such as digital cameras, computers, and appliances online but picking them up at nearby stores. Consumers favor this approach to avoid shipping and handling charges, to reduce their having to navigate through a big-box store, and to avoid wasting time looking for items that may be out of stock.

Store pickup often enables shoppers to get items on the same day they make a purchase. Many customers also favor in-store pickup so that they can more easily return goods that do not meet their expectations.

2.5. Searching for Omnichannel Opportunities with Appropriate Partners

The retailer needs to understand that in almost all cases an omnichannel strategy requires added resources and competencies that are significantly greater than those demanded by a single-channel strategy. Some retailers may conclude that they do not have these competencies or resources; others look for strategic partnerships with firms having complementary resources.

3. Special Challenges

An omnichannel strategy is not right for every retailer. Not all retailers possess the financial and managerial resources to do pursue omnichannel opportunities. A big challenge for many retailers, particularly small- to middle-size ones, is the consolidation of their disparate retail management systems into one customer-focused system. A 2015 study of retail CEOs found that 75 percent of the respondents did not restructure operations to provide customers with seamless shopping.⁸

Many of today’s leading retailers began with one channel—typically bricks-and-mortar— and then added phone sales, Web sales, and mobile sales. As a result, these retailers usually devised separate information systems for each channel. Thus, each channel had a distinct infor­mation system with its own set of customer, product, sales, and inventory data. With a move to an omnichannel strategy, these retailers’ overall information centers had to be unified. In this way, they could determine whether a large Web site or catalog user base exists within the trading area of a proposed retail location.

Omnichannel retailers need to maintain the same branding identity for their products across diverse channels. Graphic designers need to establish specific guidelines and templates so that type fonts, colors, and key design elements are shared across channels. To complicate matters, products often look different in a catalog versus on a computer screen due to Web sites and smart­phones having lower resolutions than print. The same can be said for variations in colors. This may especially affect the purchase of apparel or furniture.

A final potential difficulty is the management of a retailer’s distribution center. Such a center requires efficient procedures for handling both large orders that are shipped directly to stores and small shipments that are made to thousands or tens of thousands of customers. The system for handling large store-based retail purchase orders (which are often full caseloads) is quite different from shipping individual items to a customer’s home.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.