Omni-Channel Retailing – Part 1 – What are the Implications for Shippers, Retailers and Consumers?

Omni-Channel Retailing is a subject we are go to be hearing a lot about in the coming years. This is the first of two blogs on this topic.  In the first blog I will provide an oveview of what the term means and then outline the implications for shippers, retailers and consumers.  In the next blog I will outline the implications for freight transportation companies and logistics service providers.

It is helpful to define some terms to understand what is taking place.  The chart below and some of the content in this blog are taken from an article entitled Omni-Channel Supply Chains Designed for a Retail World without Boundaries by Randy Stang, Vice President of Customer Solutions for the Retail Industry team at UPS.  The chart captures the various retail models visually.

Over the past decade, retailers have been migrating from the basic Single Channel model of store to consumer retailing to the utilization of multiple modes (e.g. store and e commerce).  Multichannel retailing is the use of a variety of channels in a customer’s shopping experience.  Such channels include: retail stores, online stores, mobile stores, mobile app stores, telephone sales and any other method of transacting with a customer. Transacting includes browsing, buying, returning as well as pre and post-sale service.

As the name implies, Multichannel retailing involves serving customers through a discrete set of distribution options.   Pioneers of multichannel retailing include Macy's, Next PLC, John Lewis and Neiman Marcus. The pioneers of multichannel retail built their businesses from a customer centric perspective and served the customer via multiple channels before the term 'multichannel' was used.

In the multi-channel model, there was often little in common between what was available in the store, in a catalogue, or online. Each channel offered multiple independent touch points to the consumer—many times selling different items under separate brands. Just as often, orders were satisfied through separate supply chains. Inventory for store replenishment and wholesale orders was managed from one distribution centre while inventory for online and catalog orders was managed from another facility or a third-party logistics provider.

Multi-channel evolved into the cross-channel model, as retailers started offering common branding and messaging. However, they continued to operate in separate functional silos with various touch points to consumers. Multi-channel and cross-channel retailing innovations were driven by retailers that were trying to expand their sales. The transition from cross-channel to omni-channel retailing, on the other hand, is being driven by consumers. The increasing use of smartphones, tablets, and mobile applications in the U.S., Canada, Asia, and Mexico has created online shoppers with an insatiable appetite for information.

Omni-Channel Retailing is in the process of transforming the world of retailing and world of logistics for those companies that serve this sector.  Omni-channel retailing offers a seamless approach to the consumer experience through a set of integrated shopping channels, i.e. mobile internet devices, computers, bricks-and-mortar, television, radio, direct mail, catalog and so on.

Today, and into the foreseeable future, consumers are demanding that retailers move past multi-channel retailing to omni-channel retailing. While the two are similar, omni-channel focuses on creating a homogeneous customer experience across all channels. The customer experience is brand-focused rather than channel-focused. Bricks-and-mortar stores become part of the retailer’s overall supply chain. These retail options should be considered inventory and fulfillment sources to meet the demands of their customers.

This omni-channel consumer is driving the desire for a seamless customer experience across all customer touch points for retailers. They want to buy from anywhere—in a store, on a laptop or PC, or from their phones and tablets; they want to pick it up from anywhere—in a store, at their place of work, at their home, or sent to a friend; and they want to return it anywhere—to a store or back to a distribution point. Moreover, in an omni-channel world, retailers want to be able to satisfy demand from anywhere—a retail store, a distribution center, a third-party distributor, or drop-shipped from a manufacturer; and they want the ability to have an order returned to where it can generate the most value on the next sale.

The retailer’s challenge is how to plan, optimize and execute the right inventory, at the right place, at the right time to meet or exceed the customer experience. A successful omni-channel retailer is capable of capturing orders (demand) from an e-commerce website, social media sites, bricks and-mortar stores and kiosks. The retailer must have the ability to fulfill orders from any place, which may include drop shipping from a vendor, single or multiple distribution centers (DCs), a store, a business partner and even a competitor. Finally, the retailer needs to deliver orders to customers when they want it and with order integrity.

The retailer’s goal is to meet or exceed the customer’s expectations and to create brand loyalty by being transparent with content and context. The world of retailing must move from pushing out product to allowing customers to pull product in from multiple sources.

Last February, working with comScore, a leading digital analytics firm, UPS asked 3,000 online shoppers which factors led them to shop more on their computers, smartphones, or tablets; abandon their shopping carts; and to recommend particular retailers to their friends. The result is the 2013 UPS Pulse of the Online Shopper: A Customer Experience Study.  The study confirmed a recent online omni-channel shopping trend: Consumers want to shop anywhere at any time.  Sixty-eight percent of online shoppers prefer to shop with multi-channel retailers online instead of shopping in a store, from a catalog, or by the mail. Retailers using enhanced websites and advanced mobile apps will have a competitive advantage.

When it comes to the check-out process, retailers should pay attention to cart abandonment as it continues to rise. In 2013, 88 percent of online consumers abandoned a shopping cart compared to 81 percent in 2012.  The study confirmed a recent online omni-channel shopping trend: Consumers want to shop anywhere at any time.  Sixty-eight percent of online shoppers in the survey prefer to shop with multi-channel retailers online instead of shopping in a store, from a catalog, or by the mail. Retailers using enhanced websites and advanced mobile apps will have a competitive advantage.

Online shoppers also value a hassle-free returns policy, especially repeat customers: 82 percent of consumers said they would complete the purchase if they could return the item to a store or have free return shipping; 67 percent said they would shop more with that retailer; and 64 percent would recommend the retailer to a friend.

In the next blog, we will look at consumer expectations as they pertain to transportation and delivery of their merchandise.  We will also look at how transportation companies have responded and will need to respond to this new paradigm of retailing to be successful.  Stay tuned.

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