Fulfillment in a Multichannel Retailing Environment: Consumer Expectations, Proven Strategies, Organizational Issues, and Technology Considerations

Transcription

1 : Consumer Expectations, Proven Strategies, Organizational Issues, and Technology Considerations Contents The Multichannel Retailing Imperative 2 Consumers Expect an Integrated Multichannel Experience 2 Proven Cross-Channel Strategies 3 Buy Online, Pick Up From Store Inventory 3 Buy Online, Return In Store 4 Save the Sale with Out-of-Stock Fulfillment 4 Endless Aisle Kiosks 4 Technology Considerations 6 Taking the Next Steps 6 Print POS Website Mobile Customer Social Media Call Center TV 1

2 The Multichannel Retailing Imperative Consumer adoption of multichannel shopping practices has reached the mainstream, as evidenced by a number of notable, unfolding trends in the North American retail landscape: Across the continent, retailers are moving quickly to integrate their physical stores and online channels to create greater synergies, improve store-level economics, increase sales productivity, and better leverage both in-store and warehouse inventories. A majority (57%) of retailers selling online have increased their e-commerce technology spending due to the low cost and relatively high ROI (compared to other IT projects) of such investments. 1 Executing coherent cross-channel strategies is now a top priority for leading retailers as they ramp up integrated multi-channel solutions to deliver a consistent, seamless cross-channel customer experience. 2 While shopping in brick-and-mortar stores, consumers refer to digital channels, with 19 percent reporting that they browse their mobile device while in-store. The majority does so to compare prices (66%), with others using mobile to compare product choices (27%), and read online recommendations (7%). 3 Shoppers spend between 15 percent and 30 percent more with retailers who offer them an integrated, multichannel experience. In addition, business from multichannel buyers is 5 percent to 10 percent more profitable, online conversion rates are more than 30 percent higher and inventory losses are up to 60 percent lower when virtual and physical stores are integrated. 4 Industry leaders are engaging in multichannel integration for some very good reasons. More effective cross-channel strategies lead to more satisfied consumers as well as more efficient, more profitable retail operations. One retail industry consulting firm has suggested: In order to progress to next-generation retailing, retailers must be capable of integrating multichannel selling, multichannel fulfillment, and multichannel service capabilities that span cross-channel order and inventory management, replenishment, logistics and fulfillment services, and returns processing. Next-generation retailing insists consumers have many options for where to shop, return, and pickup or send their purchases. 5 1 Forrester Research, B2C e-commerce Platforms, Q Gartner Group, Research on Retail Technologies, July hybris 2012 Multichannel Shopping Survey, see page 3 for more details. 4 IDC Retail Insights on Unified Retailing, September AMR Research / Gartner Group, July 2011 Integrating the offline and online components of a large retail operation into a seamless merchandising function has its challenges. Different executives and distinct groups of employees usually manage store operations, supply chain and e-commerce operations, and frequently they have divergent priorities and goals. Consequently, it s difficult for retailers to build the internal momentum required to launch a cross-channel initiative. This paper describes a set of proven cross-channel fulfillment strategies and their benefits to consumers and merchants. It also examines some of the business processes, organizational issues and technology considerations to address when seeking management buy-in and developing a roadmap towards achieving a fully integrated cross-channel customer experience. Consumers Expect an Integrated Multichannel Experience During Q1 2012, hybris commissioned a survey of more than 500 consumers in the U.S., across varied income levels and ages, with an equal distribution of genders. The survey found that over 80 percent of the responders were more likely to become loyal customers to retailers who provide an integrated multichannel experience. The importance of online and mobile strategies was seen to be rapidly increasing, with more than a third of consumers (39%) reporting that they make more purchases online than in-store. Looking ahead to the holiday shopping season, 46 percent said they planned to increase their online shopping during the holidays, while only eight percent indicated they would increase in-store shopping. According to the survey, U.S. consumers are shopping a variety of channels and devices, often simultaneously, as new technology is introduced. Shoppers now routinely expect that their favorite retailers will be accessible to them anytime, anywhere, via any channel. The study examined consumer shopping behavior and preferences across a variety of channels, devices and product categories to identify the key features that shoppers look for in a multichannel shopping experience. When asked to rank desired features in a multichannel retail experience: Almost half (45%) of respondents indicated that in-store pickup options for online purchases were most important. Nearly a third (28%) of consumers selected in-store returns for online purchases as most valuable. Eighty-two percent of respondents would shop again at a retailer who accepted in-store returns for online purchases, and 73 percent were more likely to become a repeat customer if a store offered in-store pickup. Only a third of these consumers 2

3 believed that retailers were currently offering both in-store pickup and returns for online purchases. A gap was discovered between consumer expectations and retailer offerings, especially for mobile. Participants indicated they would be more likely to return to those stores that distributed personalized offers (40%), or in-store mobile promotions (42%), but nearly half of them believed retailers did not currently have those capabilities. The study also identified specific factors that would potentially impact the likelihood of a consumer following through with a purchase online. The most important factors for following through with an online purchase: Easy navigation (59%) Simple checkout process (57%) Presence of product images (42%) The most important factors that might deter an online purchase were: Shipping costs (47%) Out of stock items (28%) Lack of product images (23%) Since consumers demonstrated relatively strong price sensitivity, retailers should consider store-based fulfillment strategies such as buy online and pick up in store. In addition to omnichannel retailing strategies eliminating barriers to purchasing, they also present opportunities for retailers to sell more, once they attract customers into stores. Proven Cross-Channel Strategies As the industry acts on the multichannel retailing imperative, proven fulfillment strategies have emerged. Retailers should evaluate the benefits of the following strategies in the context of their brand promise and target customer, and build a case to quantify business value. Retailers who have been successful in adopting multichannel retailing practices generally stage the rollout of these strategies according to a prioritized roadmap. Buy Online, Pick Up From Store Inventory A prominent multichannel fulfillment strategy now being leveraged with great success by many big-name retailers 6 is Buy Online, Pick Up From Store Inventory. For a variety of reasons, some online shoppers prefer to pick up their orders in a physical store rather than having them shipped to their home or office. Example: a typical technologysavvy consumer is in the market for a new, flat screen TV. He wants to dazzle his friends with gigantic, crystal clear action shots of their favorite team during the upcoming Big Game. He uses a web browser and/or mobile device and spends hours comparing size, native resolution, dynamic contrast control, power efficiency, and the prices of dozens of available models. After deliberating for several days, he returns to the online store offering his top choice at the best price and finds there is no way it can be delivered to his home by game day. He explores his options and finds that a national electronics chain has the same TV in stock and it costs only $30 more to pick it up at a local branch in his neighborhood. The value to the consumer of this cross-channel strategy is obvious and yet powerful: Convenience The customer can research the purchase online at his leisure and on his preferred electronic device without being actively sold. Immediacy The customer can choose when to actually purchase a product. Cost Savings The customer feels better about purchasing when his is able to choose his delivery method and save on the cost of shipping. Bulk freight shipping to a brick-andmortar store is almost always less expensive than home parcel or home freight delivery, resulting in overall lower cost to a customer. Enhanced Experience The customer can see, touch and feel the merchandise in the store before final acceptance. Benefits to the retailer are significant. In addition to creating an improved customer experience, the retailer builds more store traffic and greater opportunities for in-store impulse purchases. On the way to the customer pickup desk, the consumer is exposed to in-store merchandising and special offers. For example, the TV buyer picking up his purchase in store might be tempted by high definition video cables, new DVD releases or other high-profit accessories that he might have chosen to buy elsewhere. While the Buy Online, Pick Up From Store Inventory strategy offers concrete benefits for almost any large retailer, its value proposition is particularly strong for those who sell higherpriced and heavily-researched products like electronics, office equipment and high-end toys (this could be also valuable for customers who want to try on products, such as shoes or apparel). This strategy has not been as popular in the apparel industry, but it has recently been implemented by a number of leading footwear retailers. 6 These include Apple Retail Stores, Best Buy, Costco, GameStop, Home Depot, Lowes, Nordstrom, REI, Sam s Club, Sears, Tiffany s, Toys R Us, Walgreens, Wal-Mart and many others. 3

4 Buy Online, Return In Store This is often considered an obligatory strategy for brick-andmortar retailers with a strong online presence or catalog. However, it does create opportunities for more sales. Use case: a footwear shopper buys an item online, has it shipped to her home, but then decides to return the item. Rather than shipping it back, the consumer simply drives to one of the retailer s physical storefronts and returns it there. Use case: a footwear shopper buys an item online, has it shipped to her home, but then decides to return the item. Rather than shipping it back, the consumer simply drives to one of the retailer s physical storefronts and returns it there. Probing further, we find that a consumer ordered a pair of shoes online and had them shipped to her house. Trying them on at home, she realizes that a size eight in this brand and style is too small, and, close up, the brown color of the shoes is not as pleasing as it appeared in the online photos, taken in a studio. Instead of packing up the shoes, sending them back and wondering for days or weeks whether the return was processed correctly, the buyer drives down to the local mall and visits a physical storefront and returns them there. The benefits to the consumer resulting from this strategy include: Convenience The customer can return an item in a way that is more convenient to them Outstanding Customer Service The customer gets their refund faster by dropping off their unwanted purchase in the store Enhanced Consumer Experience - The customer feels great about resolving a minor problem quickly and efficiently. Similarly, the benefits to the retailer are compelling. Again, the retailer gains an opportunity to upsell the consumer when she visits the store to make the return. A sales clerk has a higher likelihood of convincing the consumer to consider an exchange instead of a return. The buyer may be once bitten and twice shy about ordering another size or style of shoe online but more willing to do that when she visits the physical storefront to see and try on the merchandise. At a more strategic level, offering Buy Online, Return In Store will make your business appear easier to interact with and has a better chance of increasing satisfaction (or decreasing dissatisfaction) with a potentially contentious segment of your customer base. Save the Sale with Out-of-Stock Fulfillment Here s a common example of how retailers apply the principles of multichannel retailing to prevent lost sales due to out-of-stock items. A consumer visits a local store but can t find the exact item or variant of an item that they saw online or in a catalog. Even though the item is not in stock at that store, the store staff is able to ring up the sale and have the item shipped to the consumer s home from another store or a central warehouse. As a scenario, imagine that a customer is shopping in a clothing retailer s brick-and-mortar store. They accumulate a shopping cart full of goods and then stumble across a sweater closeout that they fall in love with. Unfortunately, they can t find their size. When they inquire with a clerk, they re upset to learn that the store is out of that size, and they nearly walk out of the store. The clerk saves the sale by informing the shopper that another store location in a nearby city has three of those sweaters in their size, with a choice of colors. The customer agrees to have the sweater shipped to their home and also has the clerk ring up the other items in their shopping cart. Leveraging the second store as a remote warehouse saved the sale on the sweater, and likely saved the sale of other shopping cart items as well. The value to the retailer of this strategy includes: Inventory Optimization The retailer is able to turn their inventory faster and boost return on invested capital. Healthier Margins The retailer is able to shift inventory across different locations to fulfill demand across a broad geographic area, resulting in full price sales that otherwise might have become discounted deals. Customer Loyalty Retailers can increase sales of sales while satisfying a diverse base of customers and prompting loyalty. Store-Based, Out-of-Stock Fulfillment is a strategy that could be used by virtually any retailer, and it has been found to be particularly effective with retailers whose inventory items have many variants (size, style, color, flavor, etc). Endless Aisle Kiosks This strategy allows retailers to offer an extended catalog of slower moving items. Here s a prototypical scenario for this strategy. A consumer shops a store looking for an uncommon shoe size. Retailers who carry odd sizes often end up with a surplus, and are forced to mark them down or push them into an outlet channel. Instead of absorbing this risk of stocking odd sizes in every store, the retailer can offer an endless aisle kiosk or an order point within the store to allow consumers to view a wide selection of inventory housed outside the store, place an order inside the store and have it shipped to their home. Consumer benefits: An opportunity to see, touch and try an item not easily found in stores. An ability to order a unique or desirable item if they like it. The convenience of shopping at one physical location that offers everything they need. 4

5 Retailer benefits: Ability to serve customers that might otherwise go to a niche online player. The opportunity to profitably carry slow moving items. The option to provide a wider selection of variations, colors, sizes, applications, and choices. Organizational Issues Store operations and store associates are the threads that tie together the cross-channel strategies described in this paper. Despite the best technology, most thoughtful process design, and the best intentions, merchants still need to motivate front line staff members complete the steps of picking an order from store stock and shipping it to the customer. What can be done to ensure that the most important part of the operation -the people -execute the strategy? Below are three proven tactics, based on the experiences of dozens of retailers over the last decade. Offer clear incentives Commissions and same-store sales volumes are the scorecards for most retail organizations, and it s critical to maximize these numbers. However, some crosschannel retailing strategies conflict with these metrics. In the case of store-based fulfillment, why should store personnel feel motivated to fulfill an order for another store? The perception is that this only helps another store s sales numbers, and that an inventory item shipped out the back door reduces front door sales opportunities for the store that ships it. Incentives must be designed to prevent this impression. Many retail organizations use a 50/50 credit split between the store that made the sale and the one the fulfilled the order, and others share commissions. A method must be found for both stores to share credit, otherwise everyone loses when a customers walks out the door, unable to purchase the product they wanted. Promote team collaboration Some retailers who have implemented store-based fulfillment strategies have also experienced increased inventory hoarding behavior among store personnel. This can happen when there s a hot product in short supply and it s tempting to hold onto a hot inventory item rather than share a sale with another store. Incentives don t always work, and it sometimes becomes necessary to implement procedures that reward collaboration and discourage non-cooperation. These may include the distribution of management reports that show declined orders versus in-stock positions, and specific disincentives for store personnel who repeatedly fail to demonstrate a willingness to be a faithful team player. Communicate effectively Store-based fulfillment and other cross-channel retailing strategies are inherently complex, collaboration-intensive business processes. The mission of many retail businesses is to do a few things very well open lots of new stores quickly, fill them all with the same inventory at the lowest possible cost. This is like running a relay race, while cross-channel retailing is more similar to a team sport like hockey that requires the team get the puck to the teammate who s best positioned to score. Organizations that win with this new approach to retailing will be those that quickly identify what works and what doesn t work. The best way to make that determination is to collaborate with experts who work with your processes and customers every day and know them well. Turn Customer Service into a Profit Center Many forward-thinking retailers are taking steps to leverage their centralized customer service functions as profit centers. Here s an example of how this might work: a customer calls a retailer s 800 number to get help with an issue they are having with a new flat screen TV they just purchased. For some reason, the picture just isn t as sharp as the one the customer saw in the store. The telephone service rep questions the customer and learns that while they bought a great TV, they didn t opt for the superior, high definition cables to connect their DVD player and satellite dish to the TV. In a cross-channel-savvy company, the customer service rep would be able to sell the high-end accessories needed by the customer and have the order fulfilled from the warehouse, picked up in a local store, or shipped from another store. What better time is there to upsell a customer than when the call center is in the process of resolving a customer satisfaction issue? The hybris customer service module gives retailers powerful capabilities, including multiple store handling, shopping cart view, customer management and self service. It helps speed response times and time-to-resolution, supports true cross-channel customer service, and enables personalized service to customers of multiple brands with multi-tenancy. 5

6 Technology Considerations The following are key considerations identified by leading commerce experts as being important to retailers as they evaluate technology platforms to power their cross-channel strategies. 1) Does the solution offer a robust, feature-rich front-end with all of the most desirable shopper capabilities? Today s consumers are surprisingly demanding, especially when it comes to the way they interact with technology. When shopping online, they expect their favorite e-commerce websites to not only look fantastic but also read their minds and do everything they could possibly want with a minimal number of clicks. It s a tall order, but front-end features such as intelligent search, personalization, customer ratings & reviews, social media sharing capabilities, mobile browser support and a product recommendation engine are now routinely expected by the cross-channel shopper. 2) Is there an order management platform capable of managing the order lifecycle from creation to delivery? If you truly want to engage in all or most of the multichannel best practices noted above, you need an order management platform that sees all and knows all. It requires visibility into multiple sources of inventory and needs to orchestrate a diverse set of order flows across multiple channels. 3) Does it have warehouse management capabilities that cater to the deep complexities of cross-channel operations? Contemporary warehouse management systems must be capable of accommodating multiple product fulfillment scenarios and managing inventory for both stores and e-commerce orders. Given time to market considerations, it is not practical to wait to replace or upgrade a legacy warehouse system that cannot accommodate a multichannel operation. In this case, consider adjunct warehouse management systems designed for e-commerce to run alongside a traditional warehouse management system. 4) Is the system able to provide inventory visibility? A modern multichannel commerce operation requires that a retailer have inventory visibility across stores and warehouses. This is a foundational capability. Most retailers have a highly accurate inventory system of record that multichannel systems (such as order management) can tap into to access this information. 5) Is there product information management (or product content management) functionality capable of delivering product related information? Retailers now have the opportunity to provide shoppers with deeply rich data and volumes of information related to products, but this has created an explosion of product content that is challenging to manage. For example, how do you manage the complex web of data tied to one SKU that might include attributes as diverse as digital photos, videos, schematic drawings, audio files, component part numbers and social media testimonials? And how do you do this in a multichannel retail operation, when product information changes rapidly and must be propagated across different channels? All multichannel commerce solutions should have robust product content management capabilities as a part of their core foundations. 6) Optimal deployment: which model best fits your business? A There are different ways to deploy multichannel commerce platforms including on-demand, hosted, and on-premises. You might need installed software that runs on yours servers and is administered by your IT staff. Or you might prefer a fully hosted software-as-a-service option or managed deployment where the vendor maintains dedicated servers and is responsible for all software maintenance and upgrades. Similarly, a managed services deployment with software residing on your servers but maintained by the vendor might better suit the needs of your business. Not all vendors offer all of these options and, even when they do, the cost differences among the options can be significant. The best practice here is to evaluate vendors that offer all of these options and chose the deployment model that works best for your business in light of your situation and business goals. 7) Can the vendor deliver adequate levels of scalability, time to market, innovation and a low total cost of ownership to meet long-range business needs? Beyond the functionality that can be found or is absent in any one vendor s multi-channel offering, there are other technology-related factors that must be assessed and compared. These include: How long will the implementation take? How much of your IT staff will be dedicated to the project Is the vendor well positioned to grow their multichannel platform and be ready for the commerce challenges that your business will face in the next three to five years? Will the solution scale adequately with the pace of your business? The financial stability and technological expertise of the vendor is critically important to your decision. Are they established enough and sufficiently forward-thinking to deliver everything you re going to need without being too large and too entrenched in their own thinking that your success won t be important to them? Taking the Next Steps Online sales channels are increasing in popularity very rapidly, with sales growth projections from leading analysts as high as 50 percent over the next three years. The consumers driving this growth are demanding more options on where they can shop, pickup purchases, and make returns. Those buyers who use more than one channel are showing greater brand loyalty and spending up to 30 percent more with 6

7 merchants who offer them a smoothly integrated experience across online and offline channels. Thus, implementing coherent multichannel strategies should be an urgent priority for every retailer. This paper has described the business processes, organizational issues and technology considerations that can be leveraged to build organizational buy-in and deploy a flexible multichannel fulfillment strategy. It has also provided a set of proven cross-channel fulfillment strategies and their demonstrated benefits. Retailers should select the strategies which best fit their way of doing business. The keys to an effective multichannel retail implementation are proper alignment around organizational incentives and ensuring that you have chosen the right technology platform for your business model. If you can clearly articulate the business benefits of your selected strategies to the rest of your organization, and demonstrate that you have enabled them with the proper, proven technology, your chances for the success of your initiative are optimal. If you d like to discuss the commerce strategies described in this paper, or meet with one of our multichannel solutions experts to help you expand upon these concepts, please feel free to send us an message or call our nearest office. sales@hybris.com Web: Other locations and phone numbers: More about our solutions: About hybris, an SAP Company hybris helps businesses around the globe sell more goods, services and digital content through everytouchpoint, channel and device. hybris delivers OmniCommerce : state-of-the-art master data management for commerce and unified commerce processes that give a business a single view of its customers, products and orders, and its customers a single view of the business. hybris' omni-channel software is built on a single platform, based on open standards, that is agile to support limitless innovation, efficient to drive the best TCO, and scalable and extensible to be the last commerce platform companies will ever need. Both principal industry analyst firms rank hybris as a leader and list its commerce platform among the top two or three in the market. The same software is available on-premise, on-demand and managed hosted, giving merchants of all sizes maximum flexibility. Over 500 companies have chosen hybris, including global B2B sites W.W.Grainger, Rexel, General Electric, Thomson Reuters and 3M as well as consumer brands Toys R Us, Metro, Bridgestone, Levi's, Nikon, Galeries Lafayette, Migros, Nespresso and Lufthansa. hybris is the future of commerce. sales@hybris.com Version: October 2013 Subject to change without prior notice hybris hybris is a trademark of the hybris Group. Other brand names are trademarks and registered Fulfillment trademarks in a Multichannel of the respective Retailing companies. Environment 7