5 Things Holding You Back From Making Omnichannel Retailing Profitable
Now more than ever, retailers must have the right inventory in the right place for consumers to purchase in the channel of their choice. As e-commerce transactions have surged since the start of the pandemic, ship-from-store and buy online, pick up in-store (BOPIS) fulfillment have been on the rise, adding to this complexity.
With stores now fulfilling as much as 40 percent of total e-commerce sales, they now serve as miniature distribution centers. In this new retail model, effective end-to-end omnichannel retail execution is required. However, retailers are struggling to manage a myriad of enterprise impacts, ranging from planning to logistics to the store labor model.
In my work with retailers, I see five major breakdowns in omnichannel efforts. Here are the breakdowns to avoid, as well as the steps retailers can take to resolve these issues:
1. Wasted Effort Around Orders for Products That Are Actually Out of Stock.
Inventory accuracy is essential for omnichannel retail success. However, many retailers are unable to discern where a particular item is, or even whether it’s in stock. Investing in the right systems to provide a single view of inventory, promoting visibility and reliability, is paramount.
2. Unmanaged Shipping Costs Causing Profit Loss.
This problem can cost retailers millions of dollars. It's imperative that your shipping strategy is correlated with your overall omnichannel goals. Do you ship from the location closest to the customer or from a distribution center? Fulfillment rules prioritization can deliver the right experience at the right cost. One retailer had a single order split into 18 separate shipments. While this is obviously an extreme example, it emphasizes how shipping decisions have a direct impact on omnichannel profitability. Adjusting the dials in your order management system to minimize the number of splits is a good place to start to rein in shipping costs.
3. Lack of Cultural Alignment and Buy-In at the Store Operations Level.
Many retailers still question the need to give omnichannel sales credit to the store. Do yourself a favor — set yourself up for success by incentivizing the store to support your omnichannel strategy. I've seen many retailers’ omnichannel strategies not reach their potential because their stores weren’t fully on board.
4. Legacy Organizational Processes and Systems Wired to Support Pre-Omnichannel Retail.
Technology investment made without a guiding strategy — or without the necessary process changes — won’t pay dividends and will only result in time and money being wasted. A retailer’s strategy, technology and processes must reflect the new omnichannel reality.
It’s important to have senior executive sponsorship and clear ownership and unification of end-to-end operations spanning IT, which owns and manages the systems (e.g., order management, inventory, fraud, shipping, stores, warehouses, etc.), e-commerce, store operations, and logistics.
5. Poor Understanding of Actual Omnichannel Profitability.
In my work with retailers, I recommend compiling an omnichannel profit and loss statement that details the incremental sales coming from new omnichannel capabilities and the incremental costs of these sales. This gives retailers a clear view of omnichannel sales margins and provides a benchmark for improvement.
When conducting omnichannel health checks with retailers, I also look at other criteria, such as the following: What do reject rates look like for ship-from-store or BOPIS purchases? And how long does it take to fill an order?
A Very Omni Future
If your omnichannel retailing strategy is suffering from these five breakdowns, the time to act is now. To make omnichannel retailing successful, retailers must knock down silos across their organizations, processes and systems to improve efficiencies, customer experiences, cost structures and profits.
Steve Ross is the omnichannel solution principal at Aptos, an enterprise retail solutions provider for over 1,000 retail brands globally.
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