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Omnichannel Operations at a Crossroads

March 18, 2022

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With many retail chains announcing the opening of new stores, the so-called “retail apocalypse” seems to be waning. This twist of events may surprise some observers considering the fact that the pandemic has hastened the growth of e-commerce. Journalist Suzanne Kapner (@SuzanneKapner) reports, “After losing ground to e-commerce, bricks-and-mortar stores are back in style. Retailers this year are expected to open more stores than they close for the first time since 2017, according to an analysis of more than 900 chains by IHL Group, a research and advisory company. Most of the growth is coming from mass merchants, food, drugs and convenience chains.”[1] The news isn’t all good. Kapner notes, “Department stores and specialty retailers, which experienced the biggest shakeout over the past five years, are still closing more stores than they are opening. But the pace of closures has slowed from record levels.” The jump in e-commerce, coupled with the waning retail apocalypse, indicates that omnichannel operations are at a crossroads.

 

The Importance of Omnichannel Operations

 

One of the principal lessons retailers learned during the pandemic was the importance of omnichannel operations. When stores were forced to lock their doors to counter the spread of Covid-19, the only retail business they could conduct was online. Almost overnight, many physical stores became warehouses for online purchases. Curbside pickup at those locations flourished. These new retail options altered consumer expectations. Marisa Brown (@MB_APQC), senior principal research lead for supply chain management at APQC, observes, “Consumers expect to immediately access information online about a specific product and its availability and then very quickly obtain that product. Consumers want seamless options to learn about, order, pay for and receive a product across online and physical spaces. And, these expectations have seeped from retail into all realms of commerce.”[2]

 

In an ironic way, the rise of e-commerce has increased the value of physical locations. Kapner explains, “Stores have become integral in fulfilling e-commerce orders. They serve as distribution hubs and convenient places for shoppers to pick up and return online purchases.” The Kohl’s department store chain, for example, made the savvy decision to place Amazon returns kiosks in the middle of their stores. This decision immediately provided them with increased foot traffic and presented them with an opportunity to interact with consumers returning online purchases. Kapner notes, “As the cost of acquiring customers online has skyrocketed, stores also are a less expensive way to attract new shoppers.”

 

No one is suggesting that online sales are going to diminish — quite the opposite. Nevertheless, online and in-store operations are becoming more entangled as retailers sort out their omnichannel strategies. The pandemic threw many retailers into the deep end of the omnichannel pool and their supply chain professionals had to learn quickly how to swim in those waters. Brown notes, “An omnichannel supply chain supports [consumer] expectations by creating a single supply chain, integrated across locations and websites, with stock updated in real time and consistent visibility for employees, partners and customers. This is the ideal for many organizations, but requires years of substantial investment, planning and coordination.” Unfortunately, when the pandemic struck, retailers didn’t have years to act.

 

Improving Omnichannel Operations

 

Brown insists that many omnichannel strategies are an illusion. She explains, “Some organizations only have the appearance of omnichannel supply chains for consumers. But, in actuality, the back-end of the supply chain has distinct multi-channels.” The key to omnichannel operations, she asserts, is flexibility. “Organizations want to provide a flexible model for in-person and online commerce, but this requires a sophisticated supply chain plan using automation, complete visibility across partners and in-house operations, and ideally, an integrated platform for inventory planning, order management, stock replenishment and even stock transit.”

 

Consumers seldom see, or think about, the people or processes behind the curtain making the supply chain work. Their primary contact with the supply chain is the point of delivery. One question retailers are currently wrestling with is: How omnichannel operations change as the pandemic normalizes? If future Covid-19 variants fail to produce dramatic increases in illness, some of the delivery methods that gained prominence during the pandemic might lose their appeal — such as curbside pickup. Since curbside pickup adds to employee workloads and retailer expense, retailers probably wouldn’t mind seeing it diminish in popularity. Retail journalist Bob Hoyler observes, “The curbside pickup model is perhaps most uniquely suited to the realities of the North American retail landscape. Unlike BOPIS, which remains the dominant mode of click-and-collect service globally, curbside pickup allows for a customer with a vehicle to avoid stepping foot in potentially crowded stores altogether.”[3] BOPIS (buy online pickup in store) will undoubtedly remain a popular delivery option and instore pickup lockers are likely to remain permanent fixtures in many retailer stores. The downside of these delivery options, Hoyler notes, is that they eliminate impulse purchasing opportunities.

 

On the other hand, big box retailers, like Walmart and Target, understood early in the game that their physical stores are an asset when it comes to omnichannel operations. Yacine Terki, co-founder of Data Impact, explains, “Forward-looking retailers like Target and Walmart understood that the digitization of their stores would be an asset in the war against Amazon by answering shopper demand while limiting last-mile delivery costs.”[4] Unfortunately, many retailers are scurrying to catch up. Journalist Kim Souza (@TCWKim) reports, “The consumer packaged goods segment lags Walmart and Amazon in the shift to omnichannel transformation.”[5] As Brown noted above, mastering omnichannel operations “requires years of substantial investment, planning and coordination.” Terki agrees. He explains, “The ideal organization isn’t identical for all companies. The transition can be seen as a journey because the shift to a full omnichannel organization can’t be immediate. The shift is a long-term project with a lot of change management, and the first step is the creation of a team of experts that will lead the transformation.”

 

The first thing many experts recommend retailers doing is breaking down the silos between online and in-store activities. For example, Terki insists the main challenge for organizations struggling to master omnichannel operations is “removing or limiting the silos between online businesses and brick-and-mortar.” Gil Larsen (@GilLarsen2), Vice President of the Americas for Blis, agrees that business silos are an impediment to omnichannel success — including marketing silos. He explains, “Retailers that intend to capitalize on omnichannel shopping habits must align their marketing strategies to build better experiences for this new breed of omnichannel and channel-agnostic customers. Traditionally, marketing strategies have been broken into separate silos for shopper, e-commerce and brand marketing. But now, retailers have an opportunity to capitalize on this shift in habits by integrating their marketing and designing a truly omnichannel shopping experience that provides consumers with the same value and convenience regardless of which channels they use.”[6]

 

Concluding Thoughts

 

Brown bluntly states, “Those organizations that support an omnichannel commerce strategy outperform other organizations.” At the same time, Kapner notes that physical stores are adapting to a new era of retailing. “The stores that retailers are opening today,” she writes, “are different. Some are smaller, and more of them offer experiences beyond browsing.” She adds, “Whether the physical and digital sides are kept together or housed in two separate companies, executives say it is still important to have both.” Clearly, omnichannel operations are the future of retail. The more quickly retailers can master omnichannel operations the more profitable they will be.

 

Footnotes
[1] Suzanne Kapner, “E-Commerce Needs Real Store Locations Now More Than Ever,” The Wall Street Journal 25 November 2021.
[2] Marisa Brown, “Develop Supply Chain Maturity to Support Omnichannel Commerce Strategies,” Supply & Demand Chain Executive, 6 May 2021.
[3] Bob Hoyler, “The rise of curbside pickup: Best practices for retailers,” Retail Dive, 13 May 2021.
[4] Kim Souza, “The Supply Side: CPG companies lag in connecting online, traditional shopping,” Talk Business & Politics, 21 July 2021.
[5] Ibid.
[6] Gil Larsen, “How Retailers Can Apply the Lessons of COVID-19 for an Omnichannel Future,” Total Retail, 10 August 2021.

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