The 3 big problems with omnichannel retail
In early 1999, as a fairly recently minted VP, I found myself at a posh Arizona resort attending Sears annual “strategic leadership team” meeting. At the final session of our retreat then CEO Arthur Martinez made a bold–and as it turns out rather prophetic–statement which went something like this: “the future of Sears will be dictated by our ability to meet our customer’s needs anytime, anywhere, anyway.” A few months later I was appointed Sears’ new Vice President of Multichannel Integration.
Nearly twenty year later, multichannel has morphed into “omnichannel” (thanks Terry) which, in turn, has spawned a cottage industry of related jargon: “cross-channel integration”, “seamless shopping”, “unified commerce” and so on. Today many retailers still justify their investments in all things omnichannel by stating that customers who shop in multiple channels are their best customers. Of course by definition the customers that like a brand the best tend to do everything more. So as much fun as it is to point out confusing correlation with causality the best reason to make these investments is always going to be because customers value them.
As more retailers seem to finally be waking up to the fact that it’s all just commerce and that all this talk about channels is mostly noise, it’s worth taking a hard look at the state of omnichannel retail and some of the oft over-looked–and potentially highly problematic–issues.
Customers don’t care about channels
During my nearly 30 years in retail I’ve heard my colleagues talk about the catalog channel, the e-commerce channel, the store channel, the mobile channel, the home shopping channel and on and on. Maybe this was an interesting distinction a decade ago. But for many years now, for just about every category, for just about every customer, the distinction between channels has been evaporating. We no longer go online, we live online. Some sort of smart device is a nearly constant companion in many customers’ journeys, with the result being that we can go back in forth between a digital channel and a physical channel in an instant. Digital drives brick & mortar and vice versa. The problem for far too many retailers is that they still are stuck in their channel-centric thinking and their organizations, metrics, systems and incentives still reflect that. Embrace the blur. Silos belong on farms.
It’s not about ‘all’. It’s about relevant and remarkable where it truly matters.
At one level, being everywhere the customer is sounds like a good strategy. Except far too many retailers took the “omni” to the extreme, and in the quest to be everywhere they mostly ended up being nowhere. Meeting the consumer where she is AND actually being good at all of it is neither easy nor inexpensive. While the industry still lacks a consistent working and useful definition of what “omnichannel” really means it seems obvious that many brands embarked on a “get me some of that omnichannel stuff” and spread themselves way too thin. As we should all know by now, trying to be everything everywhere for everybody is a fool’s errand . It is far better–for both customers and investors–to instead focus on delivering a harmonized experience; by which I mean focusing on eliminating the discordant notes and amplifying the wow in the customer journeys for those customers that have the greatest current and future value. Without this, we risk diffusing our efforts and falling further and further behind those that have a laser focus on being relevant and remarkable where it actually makes a difference.
The omnichannel migration dilemma
Retailers that do a superb job of focusing their omnichannel investments strategically can still face the harsh reality that creating a harmonious shopping experience is often terribly expensive. And for those that are playing competitive catchup, many millions can be spent only to even the playing field, not create a meaningful advantage or generate clear ROI. And even if a brand can stomach the heavy capital costs, the marginal economics of e-commerce are often worse than brick & mortar, primarily owing to high customer acquisition costs and/or skyrocketing fulfillment expenses. The situation is often made worse by aggressive (some would say irrational, uneconomic or even predatory) product and delivery pricing on the part of brands that value hyper-growth over profits. So as e-commerce continues to grow 3–5 times faster than physical store sales, even the best omnichannel retailers may see margin erosion.
For consumers just about all of this is good news. Prices are better, choices continue to expand and shopping is ever more convenient. For brands, it’s never been more important to understand consumer behavior, embrace the blur and to take a laser-like approach to executing a strategy that is harmonious and intensely customer relevant and remarkable. Otherwise omnichannel can easily be far more a problem than an opportunity.
Recently, brands like Walmart and Target have been applauded for upping their e-commerce and “omnichannel” games and for taking on Amazon more aggressively. From a customer relevance standpoint this is all good. Whether investors will like the outcome is another matter entirely.
A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.
Later this month I’ll be in NYC attending the NRF “Big Show” and participating in various related events. On January 24th I’ll be keynoting the ICSC Nexus Conference.
Originally published at stevenpdennis.com on January 4, 2019.