Executive Briefings

The Weakness of an Omnichannel Retail Strategy

Analyst Insight: Omnichannel is now the cost of entry, although it cannot be the core of your strategy to survive and grow in today's e-commerce environment. This is a defensive strategy. In this digital age you face more competition chipping away at your revenue and profitability. You must take advantage of e-commerce by growing into new retail market segments, experimenting with creating new retailer brands, and making acquisitions to expand into segments where your brand is lacking. - Steve Wilson, digital supply chain analyst, Tompkins International

The Weakness of an Omnichannel Retail Strategy

A great defense can occasionally help a football team win a Super Bowl, but this is not a winning strategy in retail. You are in a battle with your traditional competitors, you are (or soon will be) bludgeoned by Amazon, and you are getting nibbled to death by an ever-growing number of fragile online start-ups. With this big jump in the competition you face, you will start to lose ground in your existing categories. Revenue will decrease along with store sales, even though your online revenues are growing at a healthy clip. This is not enough to offset in-store revenue losses. The result is your profitability suffers, limiting your ability to invest in the future. Please connect the dots. You do not need a crystal ball, it is already happening. You must chart a bold new course.

For very large retailers the simple strategy is to build out their national footprint, aggressively expanding into new retail market segments. Your existing categories will produce less revenue and you need to reduce the floor space and staff allocated to them to maintain or improve profitability. This results in space available in your stores to expand into new categories. This is where you turn the disruption, e-commerce, into your advantage. You can enter additional retail market segments by developing new web stores faster and at a fraction of the investment in physical stores. Take advantage of this and experiment and play the numbers game. If you develop 10 new internet retail brands and hit just one home run, you still win big. One home run on the web gives you a good idea of what to do with that excess retail floor space. Very large retailers must develop a marketplace to benefit from the scale that only a marketplace can provide. You will be continuously fighting an uphill battle against large retailers with marketplaces.

Smaller retailers can grow their geographic footprint and add stores. They will still face more and fast-changing competition in their categories. You must understand the strong possibility of a shorter, profitable life cycle for your retail brand. You will face the same challenges as large retailers in decreasing store sales and its hit on profitability due to the ease of entry of new competitors on the internet. The best time to experiment and develop multiple new brands is when times are good.

The Outlook

The financial results of the 2016 holiday season should motivate retailers to take action. A great opportunity exists for an e-commerce logistics platform to claim a solid number two alongside Amazon. Walmart is clearly in the race with their marketplace and physical fulfillment assets with the Chinese e-commerce giants looming.

A great defense can occasionally help a football team win a Super Bowl, but this is not a winning strategy in retail. You are in a battle with your traditional competitors, you are (or soon will be) bludgeoned by Amazon, and you are getting nibbled to death by an ever-growing number of fragile online start-ups. With this big jump in the competition you face, you will start to lose ground in your existing categories. Revenue will decrease along with store sales, even though your online revenues are growing at a healthy clip. This is not enough to offset in-store revenue losses. The result is your profitability suffers, limiting your ability to invest in the future. Please connect the dots. You do not need a crystal ball, it is already happening. You must chart a bold new course.

For very large retailers the simple strategy is to build out their national footprint, aggressively expanding into new retail market segments. Your existing categories will produce less revenue and you need to reduce the floor space and staff allocated to them to maintain or improve profitability. This results in space available in your stores to expand into new categories. This is where you turn the disruption, e-commerce, into your advantage. You can enter additional retail market segments by developing new web stores faster and at a fraction of the investment in physical stores. Take advantage of this and experiment and play the numbers game. If you develop 10 new internet retail brands and hit just one home run, you still win big. One home run on the web gives you a good idea of what to do with that excess retail floor space. Very large retailers must develop a marketplace to benefit from the scale that only a marketplace can provide. You will be continuously fighting an uphill battle against large retailers with marketplaces.

Smaller retailers can grow their geographic footprint and add stores. They will still face more and fast-changing competition in their categories. You must understand the strong possibility of a shorter, profitable life cycle for your retail brand. You will face the same challenges as large retailers in decreasing store sales and its hit on profitability due to the ease of entry of new competitors on the internet. The best time to experiment and develop multiple new brands is when times are good.

The Outlook

The financial results of the 2016 holiday season should motivate retailers to take action. A great opportunity exists for an e-commerce logistics platform to claim a solid number two alongside Amazon. Walmart is clearly in the race with their marketplace and physical fulfillment assets with the Chinese e-commerce giants looming.

The Weakness of an Omnichannel Retail Strategy