The Rise of Omnichannel Retail and What it Means for Your Supply Chain

Ecommerce has evolved drastically since the popularization of the internet in the early 90s. Over the past three decades, retailers have had to constantly reconfigure their strategies to adapt to emerging technology trends such as the shift to mobile and the rise of digital marketing and advertising. This technology has enabled traditional retailers to expand their reach far beyond their brick-and-mortar stores. However, integrating a digital and physical presence can be a tricky business for many traditional retailers.

Customers are accessing retailers from multiple channels and expect their experiences to be consistent no matter which way they choose to interact. There is no longer a line separating digital, physical and mobile; all channels need to operate as one fluid entity. As a result, the omnichannel experience was born.

Omnichannel vs. multichannel

The distinction between omnichannel and multichannel retail is an important one. Omnichannel retail can be defined as a strategy that brings your brick-and-mortar store together with your digital presence and any accompanying apps or channels to form a seamless customer experience. However, many retailers are stuck in the multichannel convention, offering various pathways for consumers to connect with them but having each path exist in its own world. Retailers that treat their channels independently are failing to recognize the importance of optimizing the customer experience, which could cause them to lose out on an extra 10% in revenue.

In short, omnichannel optimizes the multichannel experience. Here are a few reasons why customers prefer an omnichannel experience.

  • Customers want immediacy

Shoppers expect to view your digital and in-store inventory in real time to inform their purchasing decisions. If they can’t find what they need quickly and easily, they won’t hesitate to find what they want elsewhere. An estimated 25 percent of online shoppers will leave your site if it’s too complicated to use and if they can’t easily find what they’re looking for.

  • Customers value accessibility

Customers want to interact with your brand from multiple channels before completing their purchase. It’s also safe to assume that online shoppers are evaluating your competitors before they decide to buy, further solidifying the notion that optimized channels are necessary for remaining competitive. A survey conducted by the e-tailing group found that 94 percent of shoppers look for the lowest prices with 36 percent spending at least 30 minutes on comparison shopping.

  • Customers want a personalized shopping experience

Personalizing and unifying the shopping experience adds consistent value and encourages the customer to come back. For example, Saks Fifth Avenue partnered with Salesfloor to design software that gave sales associates the ability to create their own saks.com pages featuring customized looks. The associates shared these pages with customers, allowing shoppers to interact with them directly through the site and to make appointments. On average, Saks Fifth Avenue saw a 68 percent increase in year-over-year sales for the average user.

Omnichannel success stories

Many traditional retailers are focusing on the transition from a multichannel experience to an omnichannel experience. Neiman Marcus and Macy’s have both made significant investments in this area and have already benefited from its success.

Known for their in-store personalization and sophistication, Neiman Marcus focused on integrating their digital and physical stores to evoke this same signature white glove customer service across all channels. The retailer revamped their website to progressively learn about the preferences of the shopper the more they interact with it. For example, if a shopper often selects size seven when browsing for shoes, the site will recognize this and will only display shoes available in that size at nearby stores.

The luxury retailer enhanced the shopping experience further by introducing Memory Mirror. This technology records a 360-degree view of a customer after they’ve tried on different outfits in store and allows them to save the videos to the Neiman Marcus mobile app so they can compare the different looks and buy them online or in store at a later date.

Macy’s also shifted their efforts to omnichannel retail. The 150-year-old company introduced more technology throughout the buying process, including handheld point-of-sale devices that allow sales associates to quickly check the inventory online or at any location, mobile wallet application that delivers customized digital catalogs to shoppers.

Macy’s also rolled out radio-frequency identification (RFID) in 2012. The chip-based technology allows the company to accurately track the location of a product anywhere in the supply chain or inside stores in order to improve inventory management. This technology enhances the omnichannel experience because it allows shoppers sitting at home to find out which location has a specific item in stock, order it then pick it up in store.

The money and time these retailers have invested in integrating their channels has paid off. Neiman Marcus brought in $1.34 billion in online sales during 2015, nearly a 30 percent increase from 2013. Online sales from Macy’s reached $6.21 billion in 2015, an almost 50 percent increase from 2013, which was in addition to a 383 percent increase in brand value between 2013 and 2014.

Modernizing your supply chain

The collision of digital and physical retail is forcing retailers to reassess their supply chain strategies. Supply Chain Quarterly released four tips to help supply chain managers better position their company for success in ecommerce growth and omnichannel initiatives.

  1. Drive company growth through supply chain management (SCM)
    Your supply chain infrastructure and technology need to be invested in and updated to better forecast demand and stock shortages, similar to the way in which Macy’s adopted RFID. Customer expectations are going to become harder to meet as competitors’ supply chains advance, so retailers need a customer-focused strategy that can fulfill demand from any channel.
  2. Support effective SCM change management
    Rebuilding a supply chain for a omnichannel retail can be chaotic, so there needs to be frequent communication between the supply chain leaders and in-store operation leaders. This open communication will result in a collaborative and established store fulfillment strategy.
  3. Align inventory placement with demand
    It’s no longer sufficient to only know what products your customers are demanding. Instead, you need a more powerful order management system to know where and when to place the inventory before the demand even happens. Determining where to house your inventory is a key consideration because orders are coming from multiple channels and customers need their orders picked, packaged and shipped quickly and efficiently.
  4. Improve omnichannel velocity and value
    Omnichannel fulfillment requires having your product ready to ship quickly and easily without breaking the bank. To achieve this, many large retailers are opening dedicated ecommerce fulfillment centers while others are combining their distribution and fulfillment centers so inventory is more centralized. Another option is to use physical stores to fulfill online orders or accommodate in-store pickup.

Many retailers have already reconfigured their supply chain strategy to adapt to an omnichannel environment. Target is ditching their previous linear supply chain model – goods from the manufacturer go to one of the distribution centers then to one of their stores – and shipping products to customers using differing methods. The company is also returning to an in-house IT strategy, replacing third parties and investing in creating its own software designed to select the best fulfillment strategy for an order based on preset configurations.

Impacts on your company

Adjusting the way your supply chain operates and investing in new technology can be costly upfront but yield greater return in the long run. In a Retail Systems Research survey, 59 percent of U.S. retailers said they yielded greater profit from omnichannel customers than those who only shop via one channel. Macy’s also learned that their omnichannel customers are eight times more valuable than their single-channel customers.

Customers who interact with a company through more than one channel also spend more money. Business Insider reports that, compared to other customers, omnichannel shoppers visit a physical store 23 percent more often over six months, spend about 4 percent more during each visit and spend 10 percent more when shopping online. Companies that integrate their channels are not only creating more loyal customers but also encouraging customers to spend more.

When retailers are able to improve their supply chain and perfect their inventory systems to reflect real-time numbers, they are able to successfully launch in-store pickup programs, giving shoppers even more flexibility. This brings customers through your door, giving you the opportunity to showcase your other products. Kohl’s found that customers who opted for in-store pickup made additional purchases about 20 percent of the time. Additionally, Macy’s found that, on average, these customers spent about 125 percent more than originally intended.

The future of physical and digital commerce

As more retailers transition from a multichannel to an omnichannel presence, their supply chains will have to modernize to become more focused on the customer rather than revolving around physical stores. Physical stores will no longer be the end point of the supply chain but, instead, will become multipurpose hubs, incorporating fulfillment, pickup and return processing. To do this, retailers will need to integrate their inventory tracking systems into one seamless technology. The information you can gather from combining your systems will inform how you can further optimize the customer experience, leading to greater customer loyalty and greater transaction values.

Need help optimizing your fulfillment strategy? See how this online retailer was able to meet fluctuating demand with an agile workforce >