Matt Clark, director at UK management consultancy, Boxwood, explores the upsides and downsides of omni-channel retailing and provides pointers for those bricks and mortar retailers ready to take the plunge
All you hear these days in the trade press and conference circuit is the importance of having a personalised offer that customers can access at any time in any way they wish. The trouble is, we have educated the average punter with a smartphone or tablet to expect all this convenience for free and actually, it is rather expensive.
The obvious costs of IT infrastructure and distribution are dwarfed by the hidden cost of the complexity most bricks and mortar retailers face when trying to deal with the endless permutations of multi-channel customer journeys. Very few retailers have worked out how they will actually make money in this new business model, but most are charging headlong into the abyss anyway, terrified of being left behind. This is especially dangerous in times of intense price competition and is leading to a ‘race to the bottom’ where only the biggest or smartest will survive.
Should retailers ride the wave of omni-channel retailing and risk drowning in complexity or hold their breath and sit tight, ready to emerge once the tsunami has subsided?
Let’s start with the question of “who is doing well?”
Amazon is the obvious example, but this is a pure play, low margin high volume proposition that others can admire but few can emulate. Asos is perhaps a better example of a business that has a truly compelling customer offer for its target market and makes money – but again it’s still a pure play.
In terms of multi-channel retailers, Argos was the original multi-channel retailer in the UK, but its offer has lacked customer relevance in the last couple of years. Aurora has one of the most advanced ‘omni-channel’ business models anywhere, but it has yet to really see any significant return for all that innovation and investment. Burberry has an amazing flagship store in Regent Street that exemplifies how bricks & clicks can be combined beautifully, but it has the margin to play with that many others don’t. John Lewis delivers next day nationwide to your nearest Waitrose, a useful leveraging of its delivery network. But since it stops short of your front door, is it really that convenient?
What does drowning feel like?
Most retailers are at the very least, choking on their multi-channel strategies. Deteriorating margins, a confused customer offer, harassed management, lots of consultants working on ‘omni-channel business models’, executives preaching at conferences and in the press. Sound familiar? The Morrisons deal with Ocado is really the only option they had to play catch-up, but this has been an expensive move. Rumour has it that even the most established online grocers (Tesco and Sainsbury’s) struggle to make any money from this channel – depending on how you allocate costs of course.
The reality is that, by jumping on the omni-channel bandwagon, most traditional bricks and mortar businesses will ultimately destroy margin. Their operating models are just not designed for this channel and the complexity it adds means that inefficiency and compromise is inevitable. So the imperative must be to utilise the online channel’s convenience to secure additional market share or establish a whole new level of customer loyalty to drive incremental sales. The problem is, at present, omni-channel has become a defensive play – a ‘must-do or die’ strategy to avoid being out manoeuvred by your competition. Is it actually a no-win scenario?
Can you really hold your breath and sit this out? – Primark has avoided a transactional website so far having done the maths and worked out (correctly) it is impossible to make money in value fashion where margins are thin and an average apparel returns rate of circa 50% would destroy any chance of making any money at all. Even Primark knows it will need to trade online eventually and the recent trial with Asos is a smart way to get online and see what returns rates you will attract and if you can afford it. Very few are being so bold. In grocery, only discounters such as Aldi can afford to avoid transactional websites, but for how long?
There are many things you can do of course, here are a just a few questions retailers need to be considering –
The business model:
- Of course, success is not actually about the channel or technology – it’s about the customer. Those with a truly compelling value proposition or brand will succeed in every channel, so long as it is executed well. How does your proposition make you uniquely relevant to your customer and how will multiple channels help reinforce this?
- Monetise convenience. How do you get your customers to pay for the personalisation of those amazing offers you provide them based on the deep insight you have gained via your loyalty scheme? How will you disaggregate your offer so that the super-fast and super expensive fulfilment option’s costs are recuperated?
- How do you create loyalty and maximise spend through an omni-channel approach? The transparency and convenience the internet provides means you will need to think differently, this often means making counter-intuitive moves.
- How do you engage your customers in conversation? How do you get them involved in your brand? Will they help design your products for you, recommend your services to their friends or be brand ambassadors?
The operating model:
- How do you land technology at the heart of the business, rather than a bolt-on? Making your channels work seamlessly together and having a fully integrated technology solution is essential if you are to reap the benefits of this technology investment.
- How do you keep the complexity out there, not in here? It is imperative to remove cost and complexity and keep it simple inside your organisation whilst ensuring your business remains agile and constantly improving the relevance of the offer to your customers.
The reality is, (as always) it’s horses for courses. Many will feel compelled to attempt to ride the omni-channel wave because this is what the customer wants. Only a brave few like Primark have the confidence and strength of offer to risk a more cautious approach.
For the rest, think through how your business will make money in the future, how you will take your customers with you and how to avoid drowning in complexity. Take care when and where you jump in, the water isn’t always lovely.