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Omni-channel retailing: nominalism versus realism (or Hobbes versus Plato)

December 4th, 2015 | by Paul Fenaroli, Independent Strategy and Business Consultant | LinkedIn

A number of years ago, a large traditional brick and mortar retailer bought a Silicon Valley tech startup. They indicated this organization would become the core of their dot-com business.  Rather than move the talent to their modest “flyover country” headquarters, they would base their dot-com business in Silicon Valley.  Very cutting edge.  This leading retailer was not about to cede retailing dominance to Amazon or eBay.

Several years later, the promise of “multi-channel retailing” emerged, which was insolently renamed “omni-channel retailing”, offering the promise of providing traditional brick and mortar retailers with competitive advantages over the on-line only juggernauts.  With most of retail’s growth coming on-line, and in-store retailing close to flat in many sectors, most retailers today are touting their on-line and omni-channel success every at investor presentation and on every quarterly conference call.   Clearly on-line retailing is growing fast at most retailers.  But as to claims of achieving true omni-channel success, in the current vernacular:  maybe not so much.

I recently had the opportunity to (attempt to) buy on-line, pick-up in store at the aforementioned leading US retailer with its touted omni-channel capability.  Bolstered by its infusion of Silicon Valley talent, supported by its footprint of thousands of stores, and with years of eCommerce investment under its belt, surely I would experience the seamless experience promised by omni-channel retailing.  Again, not so much.

Looking for a single item in the electronics department, I was given the option of shipping to home at a cost, shipping to store for free, or buying on-line and picking up in store. I chose the third option - - what some unfortunately call BOPIS or the like.  I placed my order and paid on-line which was easy enough.  Instead of an immediate confirmation, I was told to wait and come to the store only after receiving a confirmation.  Unlike some retailers with a 20 minute confirmation guarantee, this retailer gave me no indication of when to expect confirmation.  Given that the store was only two miles away, I invested the time to drive to the store to see if I might just buy the item in store and cancel the order.  I arrived to find the store was out of stock of the item I had ordered - - so much for real time inventory integration.  That evening I tried another nearby location and found 6 units in stock, one of which I bought.  After 30 hours, I had still not heard back from the website confirming my order, or cancelling my order, or giving me the option to pick-up in another store or cancel.

The deep philosophical question is this:  does this leading retailer provide omni-channel retailing?  Nominally, they do.  They can talk about it to the investment community.  Realistically do they?  Not so much.

What are the lessons to be learned? 

First, senior leadership - - C-suite executives and Board members - - should “experience their brand” as customers do.  Frequently.  And not in controlled settings like the pre-announced store visits.  Understand what customers see and experience. 

Second, identify the critical success factors in delivering customer satisfaction.  What is important to the specific segment of customers you are targeting?  And think carefully about how those play out in the reality of a shopping experience.  If a mass market retailer is 90% in stock, and the average order is 30 different items, that’s 3 missing items from the shopping list.  Is this acceptable?  Can you offer up alternative items to mitigate the disappointment?  How and when will the customer find out about the unfilled items?  This requires deeper customer insight than a simple survey - - you have to understand customers as they shop in real life.  A lion in a zoo is not the same as a lion in the wild.

Third, put the right metrics in place.  Measure what matters - - to customers and to the business.  One beauty of on-line shopping is the ability to track customer behaviors far more easily than tracking their physical movements throughout a store.  Don’t settle for what is easy to capture - - if it’s hard but important, get it and manage it.

Finally, align incentives.  This is often easier said than done.  First, growth rates are inflated by secular channel shifts.  A 3% store for store comp may, in fact, indicate better channel performance than 20% growth in on-line sales.  You need to grade “on the curve”.  Second, don’t overweight the bottom line.  A large record company client was looking to take the lead in digital delivery of music.  As such, they were competing with several established and start-up technology companies.  While the client was being valued on EBITDA multiples, the technology companies were being valued on things like eyeballs and growth opportunities.  By focusing on EBITDA, the client severely underinvested.  As of today, Amazon has a trailing P/E ratio of over 900.  For Amazon, it’s not about today’s earnings. It’s about future growth and profitability.  Without being reckless, if the Holy Grail of retailing is “omni-channel” (and for many, I truly believe it is), retailers need to invest as if their future depends on it. 

Which brings us to the question:  are you nominally succeeding omni-channel retailing or are you really succeeding in it?  Is your experience good enough to advantage you against the best on-line retailers?  Will it hold up sufficiently as they move to free and faster delivery, even same day?  Will your stores be your competitive advantage or will they become stranded assets - - your albatross in The Tale of the Ancient Mariner

Food for thought as you plan your 2016 initiatives.

UPDATE: 6 1/2 days after placing the order I received an e mail (apparently sent from their Silicon Valley operations) notifying me that my order could not be filled and was being cancelled.  I am not sure which is the greater flaw - - the delay or the lack of "save a sale" initiative. I doubt that this customer experience is what senior management had in mind when pursuing their omni-channel initiative.

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