Retailers continue to face challenges integrating the physical shopping experience with the online shopping experience, according to a recent report from Retail Systems Research (RSR) and emarketer.com.
Companies are pushing a strategy referred to in the industry as "omnichannel retailing" to achieve this elusive goal. In theory, omnichannel means that customers are presented with a seamless shopping experience no matter whether they are in a physical store, on their smart phones or browsing on a desktop. In other words, for one retailer, a customer would have a variety of shopping choices between the stores and online, such as ordering online and picking up merchandise in person.
Omnichannel strategies might entail increasing focus on a brick-an-mortar location with unique experiences or improving online ordering technologies. It's a focus on integrating all channels of buying.
Omnichannel's Role in Retail
Retailers are looking to achieve a balance between shopping strategies for their physical locations, where sales are increasingly sluggish, and strategies for digital channels, where sales are surging.
RSR’s research showed that about 30 percent of companies surveyed in 2016 believed omnichannel retailing will impact their business in the next five years, down from 39 percent in 2015. On the other hand, 74 percent of companies say consumer buying preferences will impact their business in the next five years. Those statistics, however, don’t mean that omnichannel strategies are waning.
“While it would appear that omnichannel is not having the same impact on business as it has in the past, as more and more consumers shop across channels, that concern has merely shifted from one focused on omnichannel to a larger perspective about consumer behavior overall,” Paula Rosenblum and Steve Rowen, managing partners in RSR, wrote in their report, Merchandising: The Real and The Unreal. "Omnichannel isn’t going away as a pressure, it’s just being considered as part of the general environment, rather than a specific case," they wrote.
Omnichannel Strategies in Practice
Retailers are taking a variety of measures to adapt to consumers' rapidly changing needs, such as relying on a powerful brand, differentiating customer service and increasing supply chain efficiency. Wal-Mart Stores Inc. (WMT) is among retailers stepping up for direct competition with e-commerce giant Amazon,com Inc. (AMZN). Wal-Mart has been integrating e-retailer Jet.com while also launching a two-day shipping option in order to compete head-to-head with Amazon’s Prime service. (See also: Wal-Mart to Consolidate Buying Operations.)
"Not long ago, retailers worried about the impact of Wal-Mart and how they could survive its onslaught,” Rosenblum and Rowen say. “Now that worry has shifted to Amazon.”
Other retailers are transforming their brick and mortar locations into a unique proposition for consumers that they can't get online. For example, Nike Inc. (NKE) is offering activity areas like basketball courts at which consumers can try out merchandise. Coach Inc. (COH) is rolling out monogramming services for customers who want personalized merchandise. (See also: Retailers Step Up Shopping Experience.)
Online retail sales are expected to increase between 8 percent and 12 percent in 2017 from 2016, according to the National Retail Federation. That’s more than twice the expected growth in the overall retail industry of between 3.7 percent and 4.2 percent this year. Retailers are well aware of the pressure from omnichannel, but about 75 percent of retailers are “ill-prepared” to adapt, Jeff Barnett, Sales Force Commerce Cloud CEO told attendees at the National Retail Federation’s 2017 conference, according to diginomics.com.
“Despite all the unprecedented investments they’ve made in retail over the last several years, [retailers] feel ill-prepared to handle and provide omnichannel capabilities,” Barnett said at the conference.
Filling the Innovation Gap
Macy’s Inc. (M) and Sears Holdings Corp. (SHLD) are among the retailers that have announced layoffs or stores closings for 2017 as they try to compete in a market increasingly driven by digital shopping trends. (See also: Macy’s vs. Sears: 2 Beleaguered Retailers.)
Meanwhile, Amazon is ramping up its brick and mortar strategy with a new model for its Amazon Go convenience store in Seattle. The sensor technologies running the 1,800 square foot store allow customers to grab the merchandise they want to buy and walk out of the store with no checkout process. Amazon then charges the customer’s account after they leave.
“If I were creating supermarkets from scratch, I would have done something like this,” Brent Franson, CEO of Euclid Analytics told Wired.com. “I think this is the future of retail. I just expected ... that it was a little further out than it seems, or that Amazon is making it seem.”
In general, retailers are not adapting their businesses for digital shoppers fast enough, according to Cisco Systems Inc.’s (CSCO) recent research report "Reinventing Retail," which surveyed more than 200 retail executives from North America, South America and Europe.
“We learned that almost every established retailer still has significant gaps in digitization,” the Cisco report said. “The key is a digital transformation strategy that balances investments in value drivers that span all phases in the digital transformation journey.”