Executive Briefings

Are You Ready for Connected Commerce & Omnichannel Distribution?

Analyst Insight: The double-digit growth of the ecommerce channel is indisputable; yet, it's still only 6 percent of total U.S. retail spend. Amazon may seem like it's the 600-lb. gorilla, but it may just be Humpty Dumpty sitting on a wall. Omnichannel is certainly getting its share of hype. We believe connected consumer commerce will be a competitive mandate for bricks and mortar retailers. Are you ready for the disruptive changes to the rules of the game? – Rich Sherman, author and founder at Gold & Domas Research

Are You Ready for Connected Commerce & Omnichannel Distribution?

While no one will challenge the emergence and growth of ecommerce as a channel, it is just that: a channel in a much larger retail market. Remember Webvan? Lots of hype around home delivery, but no one did the math. More than 60 percent of U.S. household incomes are less than $60,000. Price matters. That's why Wal-Mart is the biggest retailer in the world and not Schwan's.

For many years, I have asked audiences how many of them shop regularly at Wal-Mart? Not many hands go up. Why? Because they can afford not to. Wal-Mart doesn’t offer a lot of ambiance, and the customer experience is no Neiman Marcus, but the prices make the majority of U.S. consumers very, very happy. Inconvenience and ambiance don’t come out of the wallet. It’s all about strategy.

The internet channel’s cost to consumer experience structure is different. Without brick-and-mortar assets and fixtures, Amazon makes strategic choices to serve its consumer segments and is capturing share in the ecommerce segment. However, there are fulfillment and transportation cost challenges to the internet retailers to serve the broader/bigger consumer segments. Shoppers provide the transportation, picking, and even some packing for the traditional retailer.

Brick-and-mortar retailers that understand the cost structures and differences realize they have an advantage to offering their products through multiple channels; hence, omnichannel. You’re probably not a regular Wal-Mart shopper. You simply don’t enjoy the experience. But, Wal-Mart offers its products online. They have drive-up windows at their conveniently located stores. You get the Wal-Mart price without the in-store experience. Nice!

Unfortunately most retailers have architected multichannel operations and systems that are not integrated. For example, most retailers developed or outsourced their online operations separately from their store distribution systems.

In addition, ecommerce is being supplanted by mobile commerce with shoppers using their smartphone before and during the offline shopping experience. The Online Research to Offline Purchase (O2O) segment is larger and growing faster than ecommerce (something like 30 percent to 40 percent of U.S. retail spend is O2O compared to 6 percent on ecommerce).

Retailigence is illuminating the “path to purchase” by enabling retailers to upload product, price and location information to make visible to mobile shopping applications that guide the shopper to the best price and most convenient place to make their purchase. The brands and retailers can “pop” ads to shape shopper behavior. The retailer can provide options to drive more online shoppers to their store. That demand control, visibility and managed response can make supply chains more efficient.

An effective omnichannel strategy with the supporting information systems will enable retailers to thrive and prosper in the new world of connected consumer commerce.

The Outlook

In 2015, look for more retailers to embrace omnichannel retailing leveraging the growth in mobile commerce and O2O versus ecommerce. Retailers that invest in transforming their operations to omnichannel will experience significant and sustainable growth in same-store sales while defending against ecommerce threats. When you do the math, the cost and congestion of mass home delivery services eclipse the benefit. At least for 60 percent to 70 percent of U.S. households.

While no one will challenge the emergence and growth of ecommerce as a channel, it is just that: a channel in a much larger retail market. Remember Webvan? Lots of hype around home delivery, but no one did the math. More than 60 percent of U.S. household incomes are less than $60,000. Price matters. That's why Wal-Mart is the biggest retailer in the world and not Schwan's.

For many years, I have asked audiences how many of them shop regularly at Wal-Mart? Not many hands go up. Why? Because they can afford not to. Wal-Mart doesn’t offer a lot of ambiance, and the customer experience is no Neiman Marcus, but the prices make the majority of U.S. consumers very, very happy. Inconvenience and ambiance don’t come out of the wallet. It’s all about strategy.

The internet channel’s cost to consumer experience structure is different. Without brick-and-mortar assets and fixtures, Amazon makes strategic choices to serve its consumer segments and is capturing share in the ecommerce segment. However, there are fulfillment and transportation cost challenges to the internet retailers to serve the broader/bigger consumer segments. Shoppers provide the transportation, picking, and even some packing for the traditional retailer.

Brick-and-mortar retailers that understand the cost structures and differences realize they have an advantage to offering their products through multiple channels; hence, omnichannel. You’re probably not a regular Wal-Mart shopper. You simply don’t enjoy the experience. But, Wal-Mart offers its products online. They have drive-up windows at their conveniently located stores. You get the Wal-Mart price without the in-store experience. Nice!

Unfortunately most retailers have architected multichannel operations and systems that are not integrated. For example, most retailers developed or outsourced their online operations separately from their store distribution systems.

In addition, ecommerce is being supplanted by mobile commerce with shoppers using their smartphone before and during the offline shopping experience. The Online Research to Offline Purchase (O2O) segment is larger and growing faster than ecommerce (something like 30 percent to 40 percent of U.S. retail spend is O2O compared to 6 percent on ecommerce).

Retailigence is illuminating the “path to purchase” by enabling retailers to upload product, price and location information to make visible to mobile shopping applications that guide the shopper to the best price and most convenient place to make their purchase. The brands and retailers can “pop” ads to shape shopper behavior. The retailer can provide options to drive more online shoppers to their store. That demand control, visibility and managed response can make supply chains more efficient.

An effective omnichannel strategy with the supporting information systems will enable retailers to thrive and prosper in the new world of connected consumer commerce.

The Outlook

In 2015, look for more retailers to embrace omnichannel retailing leveraging the growth in mobile commerce and O2O versus ecommerce. Retailers that invest in transforming their operations to omnichannel will experience significant and sustainable growth in same-store sales while defending against ecommerce threats. When you do the math, the cost and congestion of mass home delivery services eclipse the benefit. At least for 60 percent to 70 percent of U.S. households.

Are You Ready for Connected Commerce & Omnichannel Distribution?