Blame Amazon. Multi-channel retail is often seen as a product of the internet era, but in fact it’s nothing new. Sears was a catalog retailer more than 30 years before it opened its first store, and European companies such as hardware and household goods favorite Clas Ohlson started out in mail order. What’s changed is that a certain behemoth from Seattle rewrote all the rules of retail.
“Although the underlying secular trend is clearly toward more online activity of all kinds for almost all consumers, the real push toward multi-channel is coming from Amazon,” says Kevin O’Marah, a Senior Research Fellow at Stanford Business School who specializes in the supply chain. “It is innovating rapidly in both fulfilment and demand capture. Its investments in distribution centers, packaging design and automation are pushing the rest of retail to follow.”
Even away from areas such as music and books, “range authority” often lies with online operators. Online companies can pare prices to the bone, but they can also offer vast selections of goods that exceed even the best physical stores. Consumer electronics have already been tackled by online merchants, but they are also making inroads into fashion, and even groceries. Asos, an online-only fashion outlet, has posted strong financial results in a period when several of its high street competitors have struggled.
Online “flash sales” of surplus stock have changed the apparel business model and propelled start-ups such as Gilt Groupe and HauteLook onto the business pages. US online grocery retailer Peapod has been consistently profitable by partnering with local bricks-and-mortar stores to create its own nascent supply chain.
“There are a number of reasons consumers are asking for multi-channel retail and in-store pickup,” says Bolette Andersen, a Partner in the Information Technology and Services Practice at KPMG in the US. “Perhaps they want to pay in cash, or they don’t want to wait for things to be dropped off. Retailers are adapting to what customers want.”
For traditional retailers, this can be an opportunity. “Multi-channel is a wake-up call. They can leverage their visibility to customers across channels,” says Martin Schofield, Operations Director at retail software company Itim, and a former Head of Logistics at Harvey Nichols. “They have to do something, and many of them are doing so already.”
“The big push is coming from the millennials – people who want everything to look like Facebook, and when it does not, it can alienate people from the retail relationship,” says Elizabeth Ebert, a Director in the Information Technology and Service Practice at KPMG.
Convenience, rather than price, often lies behind the attractiveness of multi-channel operations, she says. “If you think of the footwear market, there is an inventory cost of having those items in the supply chain, but consumers are now more willing to buy online. US shoe retailer Zappos offers free returns. And it is changing consumer behavior.”
However, putting in place an effective multi-channel strategy is neither simple nor quick. UK retailer Marks & Spencer, for example, is halfway through a four-year strategy to double its multi-channel sales to US$1.6bn, and claims 3.4m visits to its website each week – but that has to be set against group revenue for the 2012 financial year of US$16bn.
Infrastructure is the main reason retailers fail to make multi-channel a reality. Being genuinely multi-channel means investment in technology, logistics, marketing and people: the latter two are easy, but the former can be beyond existing companies with non-scalable CRM and ERP systems. Nimbler online rivals have an immediate advantage here.
“Most retailers have cobbled together a solution,” says Schofield. “They do not have a real-time infrastructure, their stock position is not quite up to date. They are dealing with legacy technologies.” Smart companies, however, have fought back – and here are three ways they’re staying ahead of the start-ups.
“Customer service is the only real defence store-based retail has against e-commerce.” says O’Marah. The retailers who understand the importance of good service – which includes a strong and consumer-friendly returns policy as well as good pre-sales advice and convenient delivery or collection – are likely to thrive in a multi-channel environment.
“One finding of a Stanford University study [carried out with JDA, a supply chain software vendor] was that store associates in a multi-channel world will be fewer but more highly skilled and more highly paid,” says O’Marah. “The reason or this is an urgent need for expert support in the shopping process with instore kiosks, smartphone or tablet access to help find the right item and complete the sale, even if fulfilment happens later.”
If the retailer can create the right multi-channel strategy, and if they can ensure good customer service, a consistent experience across channels, helpful delivery or collection options, and extend their ranges to meet the “long tail” of consumer requirements, there is every chance they can defend themselves against the online-only merchants.
The first step is being where your customers are. Metro Group – one of the world’s largest retailers, which operates a range of outlets, from cash-and-carry to city centre department stores – has rolled out multi-channel ordering for its Media Markt and Saturn electronics brands as rivals dithered, and has ensured customer service is consistent. Saturn’s mobile store is customized to operate on smartphones, while joined-up internal reporting systems mean customers can take online queries to local shops and be met with genuine insight rather than quizzical looks.
Being joined-up pays off both in customer retention and acquisition. The French retailer Groupe Casino has rolled out a multi-channel strategy, bringing together its online arm, Cdiscount, a specialist in media, electronics and white goods, and its stores. Online orders of up to 30kg can be delivered to the retailer’s Franprix convenience stores, and larger products to Géant Casino out-of-town outlets. In 2011, Casino handled 1m multi-channel transactions, and expects this to double in 2012. The company found that 43% of customers using the pick-up service had not visited the pick-up store before, opening up potential new markets.
The fundamental challenge of building a multi-channel retail operation is knowing where your products will end up. Demand forecasting in retail is often viewed more as an art than a science. Trying to work out whether a customer will order an item online, by phone, from a mobile device, in a store or a catalogue, and whether they will want it delivered to their home, to a store, or even a third party collection point, might be closer to astrology.
“When companies first started to move towards multichannel, there was little consistency between the different ways of interacting with the customer,” says Ebert. “Now we have an omni-channel concept, and retailers are also looking to interact with customers before a sale happens, by building a community and establishing a relationship. It is more experiential. And they want the store and the website experience to be integrated.”
That lack of consistency affects the back office and distribution center. According to Tom Beston, head of the Truesource program at supply chain standards body GS1, this can cause problems when it comes to ensuring consumers receive the item they have ordered.
“Often data is collected multiple times by multiple departments. The brand owner may enter information for a new line. The buyer might enter information that is accurate in terms of the number of items per case and price, but might not be interested in physical dimensions. The distributor, though, is.”
For experts on multi-channel retailing such nuances they are important. Anticipating the needs of customers, and ensuring they are provided with strong pre-sales information and advice, as well as timely and efficient fulfillment, is what makes for a strong retail performer. The ability to offer more in-depth advice – and even to “sell” a product more effectively – is what sets the multi-channel player apart from the online-only operation.
Some of the answers lie in innovations such as the creative use of technology, ranging from QR codes to in-store catalogues or kiosks based on iPads. Others include increasing the skills, and quite possibly incentives, of store staff, even if some technical innovations make it possible to reduce their number.
“The only real answer is better technology,” warns O’Marah. “Retail has long underinvested in traditional software for managing inventories and supply chains. The visibility problem starts with poor technology and the complexity of making the right decisions with pricing, free shipping or special services, all of which can kill margins without strong systems to track cost-to-serve.” Handled wrongly, multi-channel retail might appeal to the consumer, but it can also frustrate them, and erode profits.
Some of the technical and physical challenges can be addressed through strong relationships with manufacturers and brand owners willing to take on the task of direct-to-customer fulfilment, and by building strong partnerships with 3PL and delivery companies.
Investing in infrastructure can also help: as O’Marah points out, Marks & Spencer uses one integrated distribution centre for its online orders, international business and stocking its stores in the local area. This helps the retailer control costs, but also ensures it has the flexibility to always locate stock where it is needed.
Some retailers might also take out retail floor space, and reduce the number of lines on display, in favor of a direct fulfilment or delivery model. “They might have a mini-distribution centre in the back for web and mobile orders,” says KPMG’s Andersen. “Shoppers, in turn, are looking for more of an experience, as we’ve seen with bookstores setting up coffee bars.”
“We are seeing retailers pursue integration through middleware, and cloud-computing-based systems, including cloud-based point-of-sale (POS) and web systems,” says Ebert. “Some of this is emerging technology, but that is what retailers need to become omni-channel.”
And if retailers need any incentive to explore the multi-channel world, it’s coming from their suppliers. Research in 2012 from the Economist Intelligence Unit found that 24% of consumer goods companies surveyed were already selling directly to consumers. A further 17% were planning to start in the next 12 months. Nike’s NikeiD range of customized shoes (ordered through the sports giant’s website and utilizing all the tools and tricks e-commerce experts promised the channel would deliver) brought in revenues of US$100m in their first year. You don’t have to be the CEO of a major bricks-and-mortar sports retailer to see that as a trend with the potential to seriously disrupt the status quo.