By Nikki Baird, Managing Partner, RSR Research
Through a special arrangement, presented here for discussion is an excerpt of a current article from Retail Paradox, Retail Systems Research’s weekly analysis on emerging issues facing retailers.
At the inaugural meeting of the Cross-Channel Consortium, a highly engaging discussion came to the conclusion that moving to a cross-channel strategy means fundamentally “rewiring retail” – with wide-ranging impacts that span channel operations, organization design (with a heavy emphasis on IT and merchandising), technology infrastructure, and even assortment strategies.
Put together through the efforts of Jim Bengier at Sterling Commerce and Kasey Lobaugh at Deloitte Consulting, companies represented included IBM, AT&T, Virtucom, Shop.org, Best Buy, Borders, Limited, and Target. The discussion reinforced some of RSR’s findings about cross-channel over the last year:
Multi-channel is a retail paradox: E-commerce is still a grade-school kid compared to the venerable and well-established chain store, so even though it’s been around a long time as part of the Internet age, it still needs focus of its own. Only the strongest companies are going to be good at managing the friction that comes from growing a single channel, while developing synergies across channels. Participants agreed – there was a very long discussion about all of the challenges that fall out of this friction, everything from finding resources to focus on e-commerce as more processes get pulled back into the main organization, to what mobile commerce will mean for this friction in the future.
Fulfillment is a differentiator: For now, I would add. Infrastructure and inventory challenges hold retailers back from a truly flexible fulfillment capability – the whole “buy anywhere, fulfill anywhere” paradigm. The first retailers to pull that off will succeed in defining customer expectations for how that will work for all retailers.
Following online pure-plays won’t get you there: Online pure-plays are focused on building such fantastic online experiences that consumers never miss the store. Winning multi-channel retailers recognize this, and are focused on building powerful cross-channel capabilities (in effect, putting the fact that they have stores as front and center to the customer relationship). Unfortunately, lagging multi-channel retailers haven’t cottoned on to this distinction – they are blindly following online pure-plays’ innovations in the hopes of building their online channels, while ignoring one of their greatest strengths – stores.
The biggest thing that I took away from the day was that going “cross-channel” is so much more than bringing those “online renegades” back in-house. A complete re-think of product strategy is needed. Kasey Lobaugh summed up the example nicely: a true cross-channel retailer will think about all the potential products it can sell, identify which of those play in all channels, and which play in specific channels – and how products might transition from one category to another. That’s a far different assortment strategy and process than an online group running out and adding new products to its online assortment independent of stores, or one that forces a subset of what is carried in stores into the online channel.
Discussion Questions: What are some key hurdles for retailers plotting a cross-channel strategy? In particular, what do you think of the “friction” that develops from growing a single channel while developing synergies across channels? Is a rethinking of product strategy required for many brick & mortars to succeed with their cross channel strategies?
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A blue-ribbon discussion to be sure, but it should have included Bed Bath & Beyond and here’s why: Like many, I regularly receive 20% Off coupons (for a single item) from BB&B through the mail. They all bear expiration dates and the statement, “Valid for in-store use only.” But neither is true. Stay with me.
I wanted a new Weber grill. The old one was, well, really old. I searched online and found the exact model I wanted available at a reasonable price at BB&B. And, I had my 20% Off coupon. Hurray, I win! Not so fast, grill-boy. The product is not stocked in the stores and is only available online. According to my coupon, I couldn’t get a 20% discount. So I went to the closest BB&B location and spoke to the manager (Rebecca, you know who you are). She assured me of two wonderful things: First, BB&B coupons do not expire on their expiration dates or at any time whatsoever. They’re always good, and you can use one per item during a single transaction if you have them. Those printed dates are to make sure the mailed coupons are delivered in a timely manner by the USPS. Second, and most important (not “importantly”), they honor their coupons for online purchases. Very cool, and I now had four ways to buy my grill while using my coupon: 1.) I could go to the store, wait while they place my order, pay them, and present my coupon for an automatic discount. 2.) I could call the store, have them place my order, pay them, and when my order arrives I could take my invoice and coupon to the store for a 20% credit. 3.) I could call BB&B’s toll-free number, place my order, and take my invoice and coupon to the store for a 20% credit. 4.) I could order online and take my invoice and coupon to the store for a 20% credit.
It worked seamlessly, and I took delivery of my Weber today via UPS. The 20% discount I will receive in the next few days when I visit Rebecca in my BB&B store more than offsets the shipping charges associated with my online order, so I got the best deal available.
This is essentially how cross-channel marketing should work. However, here’s a couple of recommendations for BB&B: First, remove the “Valid for in-store use only” verbiage from your coupons. Yes, it may affect in-store impulse purchases, but you must admit you have no handle on that metric or on the metric of online impulse sales. Try it, you may like it. And second, each of your mailed coupons bears a unique code number. Why should I have to take my coupon to a store for my credit/discount if I can simply enter it during my online purchase or share it during a phone order?
This is the right discussion at the right time. But I think it could be simplified. Cross-channel retailing is best looked at as an inside job. Retailers need to align all executive functions, operations, sales, marketing and infrastructure around individual channels with accountability for those specific channels built into a holistic “one company” measurement.
If cross-channel works within a company, the cross-channel customer will spend more, and spend more often. If the cross-channel retailer drops the ball (i.e. inconsistent inventory, pricing or fulfillment) they drop the customer.
The development of cross-channel marketing for a “brick and mortar” retailer should be a financial boon. The addition of an integrated internet component should allow a retailer the opportunity to considerably increase revenues and turns without a substantial increase in inventories. To get this benefit, the retailers will need both a rewiring of systems and their thought processes.
This business objective should be closely adhered to when developing the internet component. If done well, it would lead to a competitive advantage for successful cross-channel retailer versus their single channel counterparts and their pure play internet retailers.
The first rule that must be followed is the branding of the internet component. It must FULLY be reflective of the brand of the store component. The look, feel and message must be exactly the same. Therefore, the target customer should be exactly the same. If so, the product lines should be exactly the same for both channels.
Even if a shopper is exclusively internet oriented, that shopper would have the same demographic/psychographic profiles of the store shopper. If products and lines are determined by whom the target shopper is there would be no need for the internet store operators to add products that are not carried in the stores. That alone minimizes the need for added inventory.
Now that we have determined that the inventory of items is going to be the same for both channels, the inventory becomes completely interchangeable between the channels. While it likely makes operational sense to wall off the internet inventories from the retail inventories in distribution centers, there are no rules that say one each side of the wall can’t support the other in item fulfillment. If the retailer has multiple distribution centers, only one on-line operation need cohabitate with a retail distribution warehouse. Since inventory needs can be responded to quickly between the two components, only a minimal increase in inventory should be needed to support both channels.
Rewiring the entire system at this point is what would give the cross-channel retailer the competitive advantage with the shopper. The system would keep track of every SKU in every store as well as the distribution center for on-line sales. From a shopper’s point of view, the internet presence is just an extension of the closest store. The shopper could go online looking for/needing a specific item. The system would tell the shopper if it is available in the closest store or if not, what store would have it. The shopper can then go to that store and pick it up. Perhaps the shopper can even have the store hold the item aside for an hour until it can be picked up in person.
Perhaps, the shopper doesn’t want to make that trip to the store. If not, the item or items can be ordered online conveniently, with the usual up charges for faster delivery. In some places, like New York City, there can be same day delivery with a significant up charge. In that case, the order will be fulfilled from a store via messenger.
Shoppers can even get similar alternatives for returns. If the item is to be returned, the customer can bring it to the post office. Or, better yet, bring it back to a store and shop for a replacement or more.
Cross-channel success comes with a strategy that sees both channels as one. It comes with a critical concern in keeping the brand constant. If an online component is already started, it must be integrated into “brick and mortar” business. From a company point of view, it should not make a difference if an item is sold online or at the store. The online component should even be used to drive shoppers to the stores and those who don’t go, won’t go or can’t go, will buy on line.