Your Customer, Your Retail Tech: Balancing Bricks and Clicks
Do widespread store closings spell game over for traditional retailers, as many lose ground to online retailers? Not necessarily. But, the business is changing. Smart retailers must make strategic moves and look carefully at their technology infrastructure to change with it—and not just their e-commerce platforms. The technology that powers back-end inventory, distribution and logistics may hold the key to profitable integration of bricks and clicks.
The threat to traditional retailers is real. In fall 2016, Macy’s announced plans to close 100 of its stores and invest more heavily in its e-commerce operations. JCPenney and Sears also continue to grapple with connecting in the right way with their customers. Even retail behemoth Walmart has closed stores—more than 200 locations in the past 18 months. Walmart, however, upped its game with its recent $3.3 billion acquisition of Jet.com. A thriving online retailer, Jet’s competitive edge is a “smart basket” adaptive pricing algorithm that Walmart hopes will boost its online sales. Jet also gives Walmart access to new customers, along with a high-speed delivery network.
Now, e-commerce leader Amazon is entering the bricks-and-mortar space in a big way with its recent acquisition of Whole Foods. The deal gives Amazon access to ready distribution points in desirable locations with an affluent customer base and is sure to disrupt both the big-box retail and grocery sectors.
Traditional retailers making moves
Walmart’s acquisition stressed the need to have the right technology in place to integrate delivery networks, in-store sales and online retailing. It’s a familiar tale: Many traditional retailers have been slow to create online strategies and infrastructure to compete with popular online-only e-tailers. The most successful e-tailers have been investing in offering more products, faster and easier-to-use online interfaces and more delivery options. In contrast, many traditional retailers had not yet put the pieces together into a coherent omni-channel strategy.
The good news: familiar names are beginning to make the investments that will help them catch up. Walmart bet on a smart combination of strong locations and a more sophisticated online platform to help it thrive. JCPenney, too, has improved its fortunes with omnichannel technology investments, including buy-online, pick-up-in-store (BOPUS) technology, a new mobile application and mobile point-of-sale.
BOPUS is becoming a popular strategy for retailers looking to provide a seamless brand experience for consumers. A recent JLL Retail survey found that 44 percent of retailers offer a BOPUS option, and 48 percent offer free shipping from the store. At Home Depot, for example, about 45 percent of U.S. online orders are picked up at a local store, and the company’s online business grew more than 19% in 2016, proving that omni-channel integration can be successfully executed.
Offering the option of ordering online, then stopping by the store for a quick pick-up, provides both speed and convenience—and can also boost overall sales by bringing customers through the doors. Nearly 70 percent of holiday shoppers purchased additional items while picking up their online purchases at a physical store, according to the International Council of Shopping Centers’ 2015 Holiday Consumer Purchasing Trends survey.
Investing in Logistics Technology
While traditional retailers may be scaling back their footprints, most are finding their best hope is to blend “clicks and bricks” into an omni-channel strategy. However, creating a seamless, consistent brand experience online and in the store requires technology investments both in the online platform and in the behind-the-scenes order fulfillment and distribution network.
E-commerce logistics has become a specialty area in retail distribution as online consumers have begun to expect more delivery and pick-up options. The problem for traditional retailers is that their distribution networks, IT infrastructure and warehouse designs don’t necessarily work for online shopping.
Yet, adding a complementary system for running a large e-commerce operation is a long-term and costly undertaking. New kinds of distribution facilities are needed to reach consumers near their homes, or to reach stores for on-site pick-up. New kinds of warehouse technologies are needed to make order fulfillment and shipping faster and more accurate. Investments in financial applications and customer relationship management tools are also important for tracking consumer purchases and shopping behavior.
In a new trend, some major retailers are even partnering with third-party logistics providers (3PLs) for their e-commerce distribution networks—a strategy few would have considered in the past. The large 3PLs have already invested in warehouse automation for expediting deliveries, and often can provide cost-effective, fast delivery in major metropolitan areas and suburban markets alike. Crossing that final mile to the consumer’s door can be a lot more economical with a major 3PL than with in-house resources alone.
Physical stores obsolete? Not so fast.
Let’s consider a market share perspective. Sales from e-commerce comprised only 8.3 percent of U.S. retail sales in the fourth quarter of 2016, according to data from the U.S. Census Bureau. It’s clear that physical stores continue to be very important. However, U.S. e-commerce sales increased by nearly 12 percent from 2015 to 2016, while sales in department stores were down by 6.4%, followed by declines in many other retail categories.
One risk of shopping online is that the product might not be what is expected, and managing returns is something stores do better than e-commerce companies. Major retailers like Nordstrom and Macy’s have adopted no-questions-asked return policies for all customers (online and in-store), allowing shoppers to return any item to any store for instant store or online credit.
Using physical stores to extend customer service helps sidestep the complex logistics of managing returned shipments. For e-tailers, managing online returns, or reverse logistics, requires a distinct strategy for receiving, tracking and restocking returned items, updating customer records and keeping financial reports accurate.
As the battle for customers continues, some retailers founded as online-only are boosting their brand presence by setting up shop in the physical world. Eyewear specialists Warby Parker, fashion retailer Bonobos (acquired by Walmart), and even the giant of them all, Amazon, are setting up stores to capture more customers on- and off-line.
For traditional players, omni-channel is the way to go
How—not whether—retailers make their technology investments will be part of their strategy. Whether the decision is to “build it” or “buy it,” retailers can find a range of financing options. A knowledgeable banker can match retailers with capital for technology investments or strategic acquisitions. Debt and equity financing is available to help retailers invest in their operations or acquire technology companies.
The bottom line? Seamless online and offline integration and smart omni-channel strategies will be the way for most retailers to survive. Getting it right will require a strategic combination of products, a consistent brand experience and the technology investments required for a successful clicks-and-bricks combination.