January 11, 2014
US has a pretty well-established retail industry. The retail industry has generated sales revenue of US$4.5 trillion from about 3.8 million retail establishments in 2013. Offline sales and online sales contribute to 94% and 6% of the total sales respectively. This 94% explains why Technology Sector is trying to disrupt physical retail now after building the Tech Jungle around Ecommerce.
Probably I should not be comparing these two in this post. This article is about how the above two and other developments in Social Media, Analytics, Cloud and Mobility can work in cohesion to solve the challenges. Until early 2000’s, the retail industry in the U.S. was primarily a brick and mortar system. The primary purpose of stores was to distribute products. Stores were in many cases the only means of distributing products to a specified market. And the only way to buy and consume products. Currently the brick and mortar sales are $4.25 trillion which grew at a CAGR of 2% over the last 5 years. The industry has undoubtedly witnessed slump in sales in the last five years with most of the growth taken away by commerce (14% CAGR in last 5 yrs). The new players like Amazon successfully made an impact and brick and mortar retailers also starting tapping Ecommerce to compete. In the last 8-9 years ecommerce has played an increasingly important role in the U.S. retail industry.
The primary driver for the ecommerce industry has been the change in consumer adoption and behavior. Today’s, consumers are increasingly embracing digital technologies and mobile devices at all stages of their buying journey. To overcome the drop in sales and to compete with the ecommerce industry; traditional retailers started launching their own online stores - the so called Multi-channel sales strategy. In this process, many retailers took a crack at online sales, by setting up online operations as standalone businesses with separate technology. The channels available to businesses were created through Internet and mobile. This drastically changed the retail landscape. For example, email, text messages, e-commerce services and technology have created new opportunities for business. These multiple channels have helped in creating a reliable distribution channel that concentrate on different demographic populations. Multichannel contributes to the rapid growth of revenue, branding, loyalty and positive word of mouth. But it was a reactionary approach. Some the building had cracks.
On the flip side server crashes, lack of inventory, data leakage and software updates played the role of a spoiler. Additionally, while shopping through those systems customers witnessed price anomaly between online portal and offline formats. There were also issues of stock out and payment failures. But retailers/merchants in US continue to face the issue of increased customer expectations across multiple channels of engagement in the face of increasingly fragmented customer systems, touchpoints and journeys. There is a need for seamless cohesive systems and Omni Channel seems to be the answer. The light at the end of the tech jungle. The poor experiences of the customer lead to decrease in sales and jeopardize the traditional retail’s brand image. The fear of failure still lingers in the minds of many retailers.
The present objective of retailers is to remove the drawbacks in multi channel (broken experience, difference in prices, etc.) and build a robust sales channel that is all pervasive. As a result, retailers are moving towards what is called Omni-Channel retailing'. In its most basic terms, Omni-channel retailing means connected customers can shop for and purchase the same items across different channels. It can be in a retail store, through computer, through smartphones at any place and time. Omni channel will be an integration of technology and retail where the customer experience will be same while shopping through online or offline system.
However, Omni Channel retailing is not easily achievable. Systems will become more complex with the expansion of technology, as a result of which retailers will have problem in managing. Moreover retailers today don’t have the workforce/skills to analyze the enormous amount of data generated through traditional POS, mobile POS, self-serving kiosks, and online shopping to name a few. Additionally, a common Omni Channel enabling system would be needed to overcome problems of supply chain, inventory management , contact center, etc. As a result, large numbers of technology companies have popped up to help retailers in building Omni-channel sales. In some cases, we have also seen retailers planning to acquire technology startups to overcome the challenges associated in building an Omni-channel.
Nordstrom is a very good example of a retailer who has achieved major milestone when it comes to Omni-channel retailing. Nordstrom is a leading specialty retailer offering clothes, shoes, and accessories for men, women and children. It has presence in 44 countries. Nordstrom has created a seamless experience for Nordstrom customers. Customers are able to buy in store, buy online - ship to home, buy online - pick up in stores and return through any channel. The retailer achieved this success through a drop ship process. Customers have started loving the experience and in this process, the company has increased its profitability. Ofcourse it needs to bring several other processes into the Omni Channel concept but this is a promising start.