An NRF 2015 Reflection: Retailers and Omni-Channel, a Love Story

Having recently returned from an exciting NRF 2015, and reflecting on what I saw there, it struck me that retailers are progressing through their relationship with omni-channel much the way a love story plays out. Stick with me here; this isn’t a fairytale. It’s about the real-life ups and downs from that magical first meeting to true love—that is, profits. Most retailers aren’t there yet, but they’ve moved beyond the blind infatuation with ecommerce to a more pragmatic look at what is needed for long-term success and profitability in an omni-channel world.

Years ago when I was young and single, I read a book about the phases all dating relationships go through. As I look back over the changes I have seen at NRF in recent years, as well as across the retail industry, it struck me there are many parallels to that cycle. It starts with infatuation. The other person seems so wonderful and perfect that you blindly rush ahead pursuing the relationship, willfully ignoring any potential problems or warning signs. It all seems magical.

The early days of ecommerce were like that. Retailers and entrepreneurs rushed blindly into building fancy online sites to attract shoppers and transact with them, willfully ignoring the more difficult issues of how to fulfill these orders and make a profit. It was just the magic of, ‘build a website and they will come.’

As infatuation is peaking, there is a phase of rising expectations where you begin thinking this person could be ‘the one’ and start considering a long-term relationship. For retailers, this phase occurred when they began to think about how to incorporate their ecommerce sites into their everyday business. Many set up separate operations to handle this channel or outsourced it to third parties.

At some point reality always sets in. Infatuation runs its course and expectations are no longer rising. What were once charming eccentricities are now annoying habits. The excitement of her clothes hanging over the shower rod turns into the annoyance of them getting in the way of closing the shower curtain. The wonderful fact he has such great friends turns into the annoyance that he seems to spend more time with them than with you. Unfortunately, this is when many relationships fall apart.

It’s the same with ecommerce. The excitement of those online sales coming in turns into the annoyance that fulfilling those orders is much more difficult and expensive than stocking store shelves. The shoppers who loved your site become disillusioned when their orders arrive late or inaccurate. Shareholders start to wonder why profits are down when sales are up. Suddenly the pot of gold at the end of the ecommerce rainbow starts to look more like quicksand. This is when the dot.com boom turned into the dot.com bust. Many pure-play ecommerce retailers went belly-up because the cost of fulfillment way surpassed the revenue coming in. Many brick-and-mortar retailers took down their ecommerce sites until they could figure out how to run them more profitably.

Yet not all relationships end. Love may not conquer all, but it does sustain many relationships through the difficult times. For retail, it was the love of shoppers for the ease and convenience of ecommerce, and the love of retailers for those ecommerce dollars, that sustained the ecommerce industry. You start to look for ways to deal with the problems and find solutions. She agrees to put away her clothes once they’re dry and he agrees one night a week out with the guys is enough. Retailers start incorporating ecommerce fulfillment into their distribution operations and add more advanced technology and automation, or work with their third party fulfillment partners to increase efficiency.

Then there are always the side issues that threaten to derail everything, like going home to meet the parents. Her dad doesn’t think you’re good enough for his daughter. His mother resents another woman in his life. For retail, this issue was the explosion of mobile. What mobile did was permanently blur the lines between ecommerce and brick-and-mortar. You could no longer have separate ecommerce and store channels because for the customer there are no channels—it’s just shopping. This is when ecommerce morphed into omni-channel. To succeed, retailers must morph their operations into omni-channel as well.

If you survive the reality checks and deal with the side issues, you have the foundation for a long-term relationship. You begin to accentuate the positives rather than dwell on the negatives. You ignore her dad’s occasional barbs because you love her so much. You placate his mom because he is the guy you always dreamed of. For retailers, you realize that your brick-and-mortar stores are still the heart of the omni-channel path to purchase and you start leveraging them to create the best possible shopping experience.

This is the stage of the relationship where I found retailers at NRF 2015. They are beginning to reorient their operations to support profitable omni-channel fulfillment. They are learning to deal with the problems of mobile commerce and big data by employing advanced analytics. They are starting to implement integrated planning and execution systems to better understand and serve the omni-channel shopper.

But it is not true love yet. Few retailers are making a profit on their omni-channel business. To do that, they must pull all of the pieces of the omni-channel puzzle together into one seamless, smooth-running and profitable operation. This will require re-imaging the store to best fill its role in the customer’s path to purchase, and equipping store associates with the tools to better serve today’s hyper-connected shopper. It will require integrating technology to provide visibility to all inventory across the value chain and then be able to intelligently make decisions on where to source this inventory to profitably fulfill customer orders. And it will require merging fulfillment operations to provide the buy anywhere/pick-up anywhere/return anywhere convenience consumers want—profitably. When all of that comes together, you’ll have true love.

 

  1 Comment   Comment

  1. Shantanu Roy

    Hi Razat,
    Global Inventory Visibility has been the single biggest challenge in my opinion, for scaling omni-channel operations. But, the successful ones (retailers who have been able to scale their omni-channel operations) have been able to work around it using simple heuristics. A perfect global inventory visibility system is a very costly proposition but one need not chase that illusion for a workable solution.

    Reply

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