Omni-channel: The Future of Retailing Jessica Golombek 11/1/2013
Summary: In the world of retail many changes have impacted the way businesses operate. Retail can date all the way back to the days of general stores and farmers markets. Today it is a multi-million dollar industry that continues to bring an end product to a demanding customer. The way the world is today requires companies to keep up with fast paced, convenient and reasonable business models. Robert Noel sums up this idea by saying Retail is not dead, it s changing (Evans). Being proactive and always staying one step ahead customers, retailers can increase customer satisfaction, which ultimately leads to increased profits. Facing Changes: In 2012, retail spending by the American consumer was increased by 4.8 percent from the previous year (Johnsen). This is a direct indication that the U.S. economy is rebounding and the amount of surplus cash among the entire population has increased. It is important for companies to stay competitive in this ever-changing game called retail. In this past, stores were only labeled as brick and mortar stores, which are average retailers with physical store locations to run their operations. Years ago, retailers started making the switch to brick and click stores, which means they can run operations out of physical locations, but also have an online presence. The problem is that consumers want shopping to be fun and convenient, especially for all the money they are pumping into the economy. That being said, retailers need to keep up and make shopping easy, and efficient to get customers what they want and need; after all, consumers are the ones that keep businesses afloat. 1
One retailer that may be in trouble if they don t make these changes is TJMaxx. Back in 2004, TJMaxx introduced their first website, which was quick to diminish after weak response. In 2013, they re-launched their website after two years of careful planning, and did so with no announcement to the public. TJMaxx was late to the game with this launch, and due to the fact that their customers only had one outlet to shop, this could mean they made less profit than they expected. So why hasn t TJMaxx created a stronger web presence in the past? Well for starters, they found that business was so strong without it that they felt no need to make a website. Also, the nature of the company is not to buy full lines of merchandise, but to buy smaller quantities of items at a discounted price. Because of that model, it leads to a hodgepodge of items in random sizes and colors which means they often have limited amounts. They currently have only high-end, designer items on their new website. Jennifer Davis, a senior retail analyst states, sales of such high-end goods will be the key to helping the company offset the expense of operating the site (Luna). It is clear that the world is changing. Consumers are fast-paced, and demanding so when they want something, they want it now. They know that if a certain store doesn t have what they are looking for, they will go elsewhere to find it. How to Remain Competitive: The solution for TJMaxx and other retailers who face similar issues is omni-channel retailing. Omni-channel retailing means that a company seamlessly integrates all channels of the company to get the product to the customer in the most efficient and effective way possible (Dunne). This includes the movement of a product from the warehouse to store, from an online order to a customer s home, online to local store or even shipping store to 2
home. The processes needed for this occur in the supply chain. The CFO of Macy s claims, We re finding that customers don t really care where we pull the goods, as long as we fill the order accurately and the delivery is timely (Ryan). Customers are now looking for faster delivery of online products or even same day delivery. A melding of Web site and store is surprisingly rare in the retail world (Clifford). That being said, if a store can implement omni-channel retailing they will have a superior advantage in this industry. The idea is to have online operations act in place of your brick and mortar store if needed. To the customer, it should seem as if you are in the store while you are on their website which means the look of the site should match the personality of the store, the prices online should match the store prices, and all inventory should be accounted for to prevent out-ofstocks in either place. Nordstrom is a company that has taken advantage of this change. It has greatly affected their customer satisfaction as well as their sales. Their online operations work by displaying inventory from all stores on the web. For instance, if a customer were looking to buy a particular blue dress in a size eight, this item would never be out of stock online. It would show the nearest location that has the dress, and from there they could either pick it up in the store or the company would fulfill your request in-store rather than from a main warehouse. In an eleven month span after transitioning to omni-channel, Nordstrom increased their same-store sales by eight percent compared to the 11.9 percent drop they faced the year before (Clifford). By using Nordstrom s model, TJMaxx can have a framework to build upon to make these changes. One thing they can do differently based off of their current business model is to remove an item off the online store once the inventory falls 3
below 10 items or so. Since they do not carry full lines, this would prevent any stock outs online and would leave the remaining items to be sold in the brick and mortar stores. A survey conducted by PricewaterhouseCoopers confirms that having the ability to shop across multiple channels increased consumer spending. In most cases, the shopper spent up to 58 percent more at their favorite store (Johnsen). Other channels that go beyond having a physical location and online website include mobile apps for cell phones, kindles and tablets, as well as in-store kiosks. Lisa Feigen states, For those who offer an omni-channel shopping experience to the customer, the customer actually spends more with that retailer. She also says, true omni-channel retailers capture a greater share of wallet (Johnsen). How it Affects the Industry: Imagine you are online looking for a specific item and you see that it is out of stock; what are you going to do next? Like most, you don t want to wait for it to be restocked so, you will plug it into Google and see who else has it (Clifford). Having options such as omnichannel, really helps the retailer meet fast changing consumer demands in a way that provides the highest level of service, yet remains wholly transparent to the end customer (Saucier). Omni-channel really shows that a retailer knows exactly what we, as consumers want and that they are willing to provide for us. This integration throughout any companies supply chain can impact them positively. If implemented correctly, all you have to do is sit back and reap the rewards. Initially it is a lot of work and may seem costly to put into effect but companies who already use omni-channel can testify that the benefits outweigh the negatives. An increase in company sales will offset the cost of changes to the supply chain, this also means that 4
inventory is moving a lot faster than it would previously which lessens the amount of markdowns needed to be made. In the end, shoppers with higher satisfaction will be more likely to become repeat customers leading to more sales. The possibility of in-store stock outs due to in-store fulfillment of online orders is prevented by using a series of algorithms to regulate the flow of goods. Peter Glenn s algorithms pull products from a brick and mortar store where the product is not moving as fast as other locations, but also makes sure not to pull items from stores where it is flying off the shelf (Ryan). The idea of seamless integration works in many ways and that s the beauty of omnichannel. For those companies such as Etsy, ebay, and Piperlime by Gap, omni-channel can work in a reverse way to increase customer patronage and profits (Johnsen). What these stores have in common is that they all have strong online presence but no physical locations. For ebay and Etsy to open locations would be more difficult due to the nature of their brand. They have millions of items, so it would be nearly impossible to showcase them all. It could however, sell the top items of the week, assist in selling locally owned items, and provide better customer service for people who need help posting their goods or returns. Wrap-Up: Being a retailer these days forces you to combat many fast paced changes in the industry; Omni-channel retailing can help attack the up and coming demands of consumers. Once a company transitions to this new concept, they have an increased opportunity to provide better customer service, speed up the movement up inventory, and ultimately increase profits. 5
Works Cited Clifford, Stephanie. Nordstrom Links Online Inventory to Real World. The New York Times. The New York Times, 23 Aug. 2010. Web. 23 Oct. 2013. Dunne, Patrick. Retailing. Cengage, 2011. Print. Evans, Peter. Mall s New Spin on Leisure. The Wall Street Journal. The Wall Street Journal, 20 Feb. 2013. Web. 29 Oct. 2013. Johnsen, Michael. Chasing The Elusive Omnichannel Shopper On The Cover. Drug Store News, ProQuest. 18 Feb. 2013. Web. 24 Oct. 2013. Luna, Taryn. Retailer T.J. Maxx Quietly Relaunched Online Store. Boston Globe. Boston Globe, 18 Sept. 2013. Web. 23 Oct. 2013. Ryan, Tom. Will Stores Become Warehouses in the Omnichannel Future? Retailwire.com. Retailwire.com, 29 Mar. 2013. Web. 23 Oct. 2013. Saucier, Tamara. Omnichannel: It s Just Not For The Front End Anymore. Tech Q&A. Chainstoreage.com, ProQuest. July 2013. Web. 24 Oct. 2013. 6