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Promises and Challenges of Omni-Channel Retailing

Supporting the many different channels through which today's consumers shop for, purchase and return products presents tremendous challenges and opportunities for retailers, says Annibal Sodero, assistant professor at the Sam Walton College of Business, University of Arkansas.

Multichannel retailing and omni-channel retailing both reflect the many means that consumers use to interface with online and brick-and-mortar retailers, but multichannel implies independent management of each channel, while omni-channel implies an integrative approach, says Sodero.

The promise of omni-channel retailing is that companies will fulfill all orders from a single stock of inventory, “but firms are still struggling to get to that point,” Sodero says.

The physical and virtual channels each have strengths. The physical channel, or retail stores, enable consumers to touch and inspect products and take purchases home immediately, he says. The virtual channel requires a consumer to order without touching the product and to wait for delivery, but it can offer a wider variety of products at a lower cost. “We call that the long-tail phenomenon. Consumers can buy more obscure products and discover products online easier than in the retail store,” he says.

Having both physical and virtual channels gives retailers the best of both worlds, says Sodero. In virtual retail, inventory can be strategically positioned upstream in the supply chain and then shipped directly from vendors to the consumer. “Instead of carrying inventory in the stores, they can keep inventory upstream and drop ship it, which is a powerful competitive weapon,” he says. For drop-shipping to work, however, retailers must have visibility to the inventory being held by vendors. In some cases, it may be more efficient to partner with a third-party logistics provider to provide that visibility and process returns, he says.

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