ONE-DIMENSIONAL SHOPPING EXPERIENCES ARE DEAD


Gone are the days when consumers walked into a mall, perused the aisles, picked out their desired items and left. Today, shoppers are armed with smartphones that enable them to make purchases directly from their devices, conduct price checks, snag discounts and read reviews —all before stepping foot in a store.

Omnichannel, or the integration of shopping for goods from your laptop, smartphone or in-store, has revolutionized the way retailers connect with customers and generate sales. For retailers, this new frontier yields countless benefits while the setbacks can present new ways to learn, leverage and grow.

From gaining unmatched consumer access to overcoming logistical barriers, here, we consider key opportunities and roadblocks that e-commerce introduces to retailers. Acknowledging the pros and cons associated with embarking upon this new territory is crucial for building a solid omnichannel business model. Armed with proper planning and a positive outlook, a strategic plan will best position retailers to thrive in an ever-evolving industry landscape.

OPPORTUNITIES


Touchpoints, touchpoints, touchpoints
Due to today’s widespread use of smartphones, retailers are investing in ways to engage with customers digitally, like online ads and product reviews. By engaging with consumers across various media channels, retail brands have unprecedented access to new customers and can build closer relationships with existing patrons.

Room to focus on customer experience

As transactions shift to e-commerce, omnichannel retailers can subsequently shift their focus from stocking shelves to driving cutting-edge experiences in their physical stores. With less space needed to accommodate inventory, retailers are free to come up with creative new uses for real estate. They can also develop brick-and-mortar brand experiences like the “magic mirrors” at Neiman Marcus that allow shoppers to digitally try on products, or convenience features like the automated and mobile check-outs found at Zara and Nordstrom.

Growing traffic and sales
Both research and case studies confirm that adding e-commerce channels to brick-and-mortar retailers can help brands grow their customer base and drive revenues. A 2017 study by the Harvard Business Review found that omnichannel customers (those who shop across multiple channels) spend 4 percent more in-store and 10 percent more online than single-channel shoppers.

Data and customer insights

Data offers the most strategic benefit for retailers through the increased digitization of shopping. As digital channels increase device interaction and customer touchpoints like direct emails, large amounts of data are available on how, when and why consumers shop. This data may be obtained from third parties at a high level, or provided by consumers themselves through signing up for promotional emails or downloading apps for access to exclusive offers and insider deals. From measuring conversion rates to predictive analytics and targeted promotions to tracking customer movement through physical stores, digital analytics are a key tool for shaping retailer strategy.

CHALLENGES


New consumer expectations
From health care to banking to retail, the growth of digital channels across nearly all aspects of our lives raises expectations for retailers in four key areas: time, location, convenience and choice.

Consumers expect access to goods, services and information faster than ever. Thanks to smartphones, shoppers now have instant access to goods, services and information at their fingertips. They expect to make a purchase or research a product at any time and in any place, placing significant burden on retailers to provide fully digitally enabled platforms and 24/7 support. Consumers carry their expectations for convenience into the store, demanding efficiency and ease in finding, testing and purchasing products. Plus, the “endless aisle” of goods accessible on the internet has raised consumer expectations of how much choice and variety they should have when shopping for a product. To compete in this omnichannel setting, retailers must acknowledge these expectations and meet consumers’ new needs while adjusting back-end operations to deliver in a cost-efficient manner.

Increased costs

New demands to offer online shopping platforms and free or inexpensive shipping costs to consumers have placed significant financial burden on traditional retailers. A 2017 survey of 350 major retailers conducted by JDA and PwC found that only 10 percent can fulfill omnichannel demand profitably. The survey also found that 75 percent of respondents have seen “some” or a “significant” increase in online operating costs in the past 12 months.

Many of these new costs are unavoidable, as retailers must meet rapidly rising consumer expectations. However, brands must prioritize adapting their back-end operations to meet demand on the front end. Without these adjustments to cost and operational structures, profit margins will suffer.

Returns and distribution disruption
Online delivery is expensive, but returns are by far the greatest logistics challenge for retailers. On average, returns for in-store purchases average 8 percent, while online return rates are as high as 40 percent in peak shopping periods. Traditional retailer supply chain and logistics structures built to deliver goods on a regular schedule to a relatively fixed number of retail stores are often ill-equipped to manage a large flow of merchandise coming back through the supply chain (reverse logistics). Customer returns are forcing retailers to restructure their distribution and supply chains, which is a costly undertaking.

Omnichannel has completely transformed how retailers interact with customers to entice them to buy. Like any other new technology designed to drive sales, these innovative digital channels come with pros and cons that equally bear consideration. That is why it’s so important for retailers to arm themselves with the facts about omnichannel. The result? Getting off to the right start when implementing it, and ideally, seeing returns on investment sooner.

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