Why Is Everybody Talking About Omni-Channel Retailing?

Store Purchase

July 17, 2017

The subject of omni-channel retailing has been one of the most discussed topics in the business media over the last year. It’s no surprise. With the rapidly changing attitudes of consumers as they embrace the advantages of online shopping, retailers are looking for ways to continue to attract shoppers, get them to purchase more, and at the same time stay loyal to the brand. No small task when you consider the choices shoppers have today in terms of where and how they buy.

As I was thinking about this topic, two recently published articles came to mind. The first was published in diginomic and written by Stuart Lauchlan. It discusses the impact of omni-channel within the context of the recent Amazon news to purchase Whole Foods. The second article was published in Forbes and written by Tom McGee. In this article the topic of omni-channel is discussed in a more sobering way as the author suggests there is still a long way to go.

Amazon And Whole Foods: Prime Time For Omni-Channel Commerce

Today’s news about Amazon’s purchase of Whole Foods is validation of what has been evolving for years: Online shopping sites and physical stores are converging to create a better offering for all shoppers. For too long, we were told that the growth of online purchasing was coming at the expense of physical retailers.

The real story is that physical stores are just as valuable as ever, and that’s only becoming clearer in the digital age. Stores give consumers a personal experience, as well as solve the “last mile” of distribution.

Without addressing the last mile, online-only retailers will always struggle to be profitable – the costs of shipping won’t go away, no matter how much technology is deployed to solve it. And as physical store chains constantly upgrade their online offerings, they can better deploy an omni-channel experience, responding to what consumers are demanding.

Amazon has been a major disruptor and has in many ways defined the online shopping experience, but even Amazon recognizes the importance of having a physical retail presence.  The company has already opened a handful of bookstores and has a growing list of locations for customers to browse the aisles and leaf through titles for sale. The Whole Foods announcement gets the company into the grocery market in a big way and comes after test concepts for physical stores and click-and-collect grocery locations.

It also goes the other way, as physical retailers expand their offerings by partnering with online sellers. We saw it with Casper, the mattress maker, which teamed up with furniture chain West Elm to give shoppers a physical space to test its products. And there’s today’s announcement that Walmart purchased men’s apparel company Bonobos, which had already stepped into physical stores with its “guideshops.” Walmart will tap the Bonobos founder to oversee the retailer’s “digitally-native brands” –demonstrating the high stakes in the omni-channel environment.

What do these developments mean for shopping centers and other major retail real estate properties? The same things that always contributed to the value of physical retail space still apply – strong brands, great value for shoppers, convenience and customer-focus still matters.

Having a strong online presence is part of all those things, but it doesn’t replace those things. The physical store is where retailers can validate and strengthen their relationships with customers, communicate their brand value in a full way, and make the types of personal connections that can’t happen online. It’s also where retailers can put technology, distribution and location to use to better serve their customers. Increasingly, the online shopping experience is supported by physical stores, and vice versa. It’s not either/or. It’s both.

Bed, Bath & Beyond – Understanding Omni-Channel Retail, It’s Complicated

One of the less obvious themes emerging from retailers in pursuit of omni-channel credentials is actually a very important question – how do you quantify the success or otherwise of your investment?

I mean, all retailers have to have an omni-channel strategy, right? That’s a given. So they have to spend money on cloud and mobile and apps and all that cool digital stuff because, well, they just do. So, let’s just get on with it and work out the practical implications later once we can see things more clearly.

Except that in a lot of cases, things don’t seem that much clearer. And while retailers remain convinced that the omni-channel spend is essential and will defend it to shareholders to their last breath, it’s best not to ask too many difficult questions.

Take this from Susan Lattmann, CFO at Bed, Bath & Beyond. This is a company that has set out a very clear digital direction for itself and seen some enthusiasm for its efforts from its customer base. So it knows something is working here, just not quite what it is perhaps. It is, as Lattmann puts it, not that simple to talk in terms of online and offline as the boundaries become increasingly blurred:

“As we often say, we believe in an integrated and seamless customer experience, and although we cannot tell you through which channel a sale was initiated, we can provide information based on where the sale was consummated. Sales consummated on a mobile device while the customer is physically in store location are referred to as customer facing digital channel sale. Customer orders taken in store by an associate through the Beyond Store our proprietary web based platform are referred to as in-store sales. Customer orders reserved online and picked up in a store are also referred to as in-store sales, while purchases made online that are subsequently returned to a store are referred to as a reduction in-store sales.”

It is, as the saying goes, complicated. So it is that CEO Steven Tamares talks in terms of “the challenges presented by declining foot traffic in stores and the opportunities presented by omni-channel retailing”, but admits:

“It’s hard to explain the dynamic. As we get better, we are losing foot traffic and that’s the lion share of our business. So even though we’ve been able to sustain very healthy growth in the digital world, when the big base [of foot traffic] deteriorates, that’s a big hit for us.”

But there’s no easy way to force customers back into the stores, he concedes:

“We don’t want to take them to a place they don’t want to be. We are not going to win at that…the reality is that we are historically a brick-and-mortar operation that is seeing less foot traffic and that’s a hard thing to make up. I can’t say that we can do short term things to try buy the customer to come into the store, but we are just fooling ourselves, that’s not way they wanted to be over time.”

Balance

The immediate challenge then is to get the appropriate omni-channel environment in place that provides the new digital platforms and openings, but also exploits the existing offline infrastructure of the stores, including services for reserving an item online and picking it up in store, returning an online purchase to store or scheduling an appointment online to meet with one of the registry consultants in store. The stores are also use to ship online orders to customers, with an increasing number of branches providing same day delivery.

So there is a function for the stores. That said, Tamares acknowledges that opening new outlets isn’t something that you should expect to see more of in the near future:

“The pace of our store opening has slowed and we’ve increased the number of store closing over the past several years. As leases come up renewal, if we cannot reach acceptable terms with our landlord, we would expect the pace of store closings to increase as a result of our assumptions regarding brick-and-mortar store traffic in future years, as well as the continuation of our market optimization strategy. At the same time, we are making investment to evolve and improve existing store formats, enhance omni-channel services, integrate technology tools and create a more experiential shopping environment in our stores.”

As for the digital channels, that’s where investment will be seen, he adds:

“Our digital channels, both web and mobile, they continue to grow at a very healthy pace, driven in part by a customer experience that keeps getting better. Some of the improvements that we’ve made include adding to an online product assortment and service offering; improving our content to be more inspirational; making enhancements to search-and-navigation; and creating a more frictionless checkout experience. Specific examples include the piloting of enhanced type-ahead search capabilities which improve the overall online experience by making a much easier and faster through use of images to find items on the Bed Bath & Beyond website.

In search, we continue to implement machine learning capability to further improve the relevancy of results. We’ve simplified the navigation of our site, now introducing a new mover tab to make it easier for these customers to find relevant content and products. In addition, we’ve also launched a simple coupon code in checkout to allow customers to apply their favorite big blue coupon to their online order.

In our mobile channel, we’ve improved the speed of our Bed Bath & Beyond and buybuy BABY mobile app by optimizing some of the experiences for Apple and Android operating systems. In the past few months we’ve transitioned to our My Offers, which is our coupon wallet and our registry led new pages on our app to native experiences which have greatly upgraded the speed and overall experience on the app. While these improvements are generating great feedback and reviews from our customers, we continue to monitor the ongoing changes in technology to further our customer experiences.”

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