Some key facts to consider:
● eCommerce is becoming a sizeable market and keeps growing rapidly. In Europe, 37% of the total population shopped online in 2009, up from 32% in 2008, with the U.K. and Germany leading the group. Globally, we expect online sales to grow by over 20% in 2010, and by nearly 50% in 2010–2013. The other half of the equation, as noted by Darryl Owen, is that 20%, maximum 30% of the multichannel retail community is making any money at all on the Internet. This is caused by top-line issues — price discounts and promotion intensity that are shrinking margins — and by back-end and supply chain fragmentation issues across channels causing overstocks, non-optimized procurement, and higher logistics costs. Many retailers even run ecommerce as a separate legal entity, which results in unnecessary redundancy, multiple supply chains, and thus much higher operational costs from an overall group perspective.
● Online purchasing patterns are evolving: In a consumer survey sponsored by Akamai which we completed last month, IDC Retail Insights found that online sales of clothes, accessories, and footwear have actually overtaken both media and travel/event tickets as the top goods category purchased online by Western European consumers. While this does not reflect the value hierarchy of goods sold online — with travel, media, and consumer electronics constituting a larger share of total B2C ecommerce spending — it nonetheless signals the increasing maturity of online commerce. One interesting example comes from the automotive sector — less than a year ago, an Italian car dealer launched a Web site — okusato.com — which is now generating a substantial share of the company's total revenues.
● Store sales influenced by online research are three to five times larger than total ecommerce sales. To illustrate my point, Terry Lundgren, chairman, president, and CEO of Macy's, said Macy's 3.0, the latest rendition of the company's ecommerce platform, provides a 360 degree view of the customer and is responsible for $1 billion in sales this year and a $5+ billion influence on in-store sales improvement. Interestingly, Macy's CMO is now responsible for marketing across channels. Another example comes from consumer electronics retailers, where 10% to 15% of store TV sales come from online promotions.
● Young, trend-setting consumers and high spenders will be the first groups to move en masse to the mobile channel. Interestingly, searching for store locations, opening hours, and product availability is the second most sought after reason for shoppers to use their mobile phone, while receiving alerts about promotions that are offered by stores nearby the shopper location rank third (the fist is checking order status). For example, Google launched its mobile goggles app for Android, with which a user can simply frame a shop or location and receive contextual messages about the store, offers, user reviews, and the like. Similar applications are available on iPhone and Windows mobile devices to retrieve product information, compare prices and read user comments via barcode scanning, image, and voice recognition.
One of the most common, traditional measures of a retailer's health are same-store sales. The focus now shifts to "same shopper" sales — using loyalty or payment identifiers to calculate how shoppers are patronizing the brand across stores and channels. For brick and mortar retailers, much of their secondary channel (catalog, Web, mobile) commerce is with consumers who are familiar with the brand and have likely shopped in their physical stores. Expansion will come from attracting customers not familiar with the brand or not in proximity to the stores to those secondary channels and by improving multichannel mprofitability.
Interaction channels to the consumer are converging — it is no longer a multichannel retailing approach that retailers should pursue, but rather all sales channels that run in parallel should effectively converge in a seamless and consistent manner. Thus, we identify in omnichannel retailing as the next wave of customer facing retailing strategies, in which the term omni suggests a fully integrated, "all at once" retail sales channels approach.
Why is this relevant for retailers? Because multichannel shoppers spend, on average, 15%–30% more with a retailer than someone who uses only one channel. IDC Retail Insights estimates that omnichannel shoppers will spend over 20% more than multichannel consumers, will exhibit strong loyalty, and will influence others to patronize the retailer.
Five Steps to Enable Profitable Multichannel Retail
Retailers are required by their current and potential customers to support full technology and process integration between all of their selling channels — meaning a single, logical view of the shopper, the order, and the inventory regardless of the channel. Retail ecommerce technology capable of supporting this requirement will need to blend the unique business-to-consumer (B2C) usability functions with tight integration to advanced retail transactional systems and all the appropriate consumer, promotion, and inventory optimization technologies.
We recommend retailers consider the following five steps to improve multichannel profitability:
1. Consolidate cross-channel supply chain management — both planning and execution — allowing for total inventory visibility, order management and fulfillment across all channels. Consolidate assortment planning across channels. Use inventory optimization tools and analytics to balance stock-levels and purchasing requirements regardless of channel. This means driving back-end modernization and integration for supporting multiple sales channels in a transparent fashion for the entire organization.
2. The fun and surprise in shopping needs to be restored so that shoppers are less compelled by the lowest advertised prices and more by the emotion attached to a brand and the shopping experience. Retailers that deliver relevant personalized offers in real time to consumers regardless of channel coupled with accurate availability, shipment, and product data are heading in the right direction.
3. Enable real-time business decision support capabilities, improved loyalty management and especially cross-channel loyalty. Online consumers themselves are making this evident, indicating that the possibility of using the same loyalty program both online and offline is their second favorite feature for an ecommerce Website to develop. In profit margin improvement terms for the retailer, we find that cross channel loyalty integration can drive 10% increases in loyal customers' profitability. An important achievement if you consider that loyal clients are typically a high share of total customers in selected segments — for example food, with typically over 75% of customers holding a loyalty card, and consumer electronics, where for example Mediamarket in Italy have a million loyal clients that generate 70% of their total online sales. Harrods noted in the Q&A session of the panel discussion that retailers have the fear of seeing online loyalty as a way for customers to redeem points without generating the multiplication effect and impulse buying of new store visits. Thus retailers are looking into new ways of combining online loyalty with store visits, for example by offering online coupons that can be redeemed at the store. Mobile represents perhaps the best way to create the required continuum between online and store.
4. Online customer support is a key consumer expectation that can also result in 75% cost savings when moving from call center to Web-based support. For example, we had an interesting conversation with Home Shopping Europe at Sapphire 2010 — it noted a direct correlation between customer service enhancements and increases in average revenue per user. As a result, CRM and customer service investments can pay off.
5. Use social networking tools to empower customer group analytics, enable targeted promotions, assortment, and new product developments. Customers' feedback can also be gathered flawlessly via social networks. For example, Point-7, a windsurfing sail manufacturer, is doubling visitor traffic to its ecommerce Web site each day it runs a targeted ad campaign on Facebook. From the enabling technology angle, SAP developed tools that integrate social network front-ends with CRM platforms. Using in-memory technologies, retailers can now enable one-to-one relations and contextually-relevant real-time interactions with customers, while at the same time tracking shoppers' patterns and customer feedback, and so monitoring business KPIs in a more timely and accurate manner. And this again benefits the bottom-line, thanks to top-line growth, lower stock levels, and better designed assortments that fit shoppers' expectations. Customers demand personalization, and the retailers that deliver on this requirement will achieve a tangible and sustainable competitive advantage over time.
In conclusion, and as noted by Darryl Owen, two beating hearts are emerging for retail IT application landscapes: core merchandising systems and customer-centric tools. The latter will incrementally enable business diversification strategies — think of food retailers selling a bit of everything today, from insurance, to travel packages, professional services and more. A fully integrated and transparent back-office system that is capable of transferring orders, vouchers, stock, and transactions across channels will ensure that the two beating hearts will work in synergy to maximize multichannel profitability.
Ivano Ortis, IDC Retail Insights
