E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
Retailers respond to omni-channel pressures with integrated operations.
Consumers want to shop in the most convenient way. That may mean starting out or even completing a product research-and-purchase cycle on a mobile device or on an online social network—instead of on a web site, in a store, or through a contact center—or through any combination of selling channels. And, increasingly nowadays, they also expect to receive what they've purchased in the cheapest and most convenient way.
The concept is often called "omni-channel" retailing—or order anywhere, fulfill from anywhere—and retailers as well as consumers are beginning to recognize it as the way retailing should operate.
"The awareness among retailers is there," says Paula Rosenblum, managing partner of research and advisory firm Retail Systems Research LLC. "The problem is, can they execute?"
The challenge for retailers, she and other experts say, is to align their technology infrastructure and business processes across their operations—including online order management, store point-of-sale systems, social and mobile venues, and inventory management systems—in support of the omni-channel concept.
"75% of retailers are not there yet," says Sahir Anand, vice president and principal analyst for retail and banking at research and advisory firm Aberdeen Group, a unit of Harte-Hanks Inc. "Most lack total integration to support a cross-channel shopping experience."
What customers demand
To excel in an omni-channel world, he says, retailers need to mesh their systems, including merchandising, pricing, marketing and fulfillment, across their e-commerce sites, mobile commerce presence, social networks and contact centers as well as any physical stores they operate. Done well, the result is that when shoppers see a retailer's brand and promotions on a mobile device or on Facebook, for example, it's familiar to them from what they've seen in the retailer's other channels; and if they prefer in-store pickup over home delivery from a retail chain, they have that option.
"Deploying an integrated, cross-channel system is not necessarily an easy choice to make, but it's what customers today expect," Anand says. "So it's imperative for retailers. It has to be done. Either do it now or in five years, but if you wait to do it in five years you might not be in business."
Retailers don't have to rip out and replace entire technology systems to move toward operating in an omni-channel or cross-channel retailing environment. To start out, Anand recommends focusing on one retailing channel, build customer relationships in that channel and then extend those relationships through other consumer touch points supported by integrated technology systems.
A retail chain might start with the store point-of-sale system. If the system isn't capable of sharing customer data and inventory data with online and other channels, Anand says, a retailer should work with its POS system vendor to see how it can begin communicating that information across channels. And, if that appears too costly and time-consuming, consider migrating to a web-enabled POS system designed for cross-channel integration.
Another good first step for a retail chain is to begin applying the store customer loyalty program across channels, he adds. Instead of making a plastic loyalty card only good at store POS systems, extending it across channels not only builds stronger customer relationships but gathers information about how customers shop on the web and through mobile phones, as well as in physical stores.
And bricks-and-mortar does not need to be the starting point. A retailer could also start with its e-commerce site or even a social network presence to begin building stronger customer relations and loyalty programs, then extend them to other channels. "I don't know why more retailers don't have effective loyalty programs online and in contact centers as well as in stores," Anand says.
Building customer bases and relationships, of course, requires retailers to also have strong fulfillment operations that deliver the right goods—and quickly. And they must effectively integrate fulfillment with order management systems.
Robots can help
One of the newer and more innovative ways of managing cross-channel operations and improving customer service is through automated, robotic warehouse systems in place at retailers ranging from multichannel retail chains Gap Inc. and Crate and Barrel to growing web-only retailers like Quidsi Inc.'s Diapers.com and Acumen Holdings, an operator of an increasing number of niche retail sites including outdoor apparel site TrailsEge.com and baby gear site TheBabyHabit.com.
The Kiva robotic system runs on software that integrates with a retailer's operating systems, including inventory management and broader enterprise resource planning systems, which can include order management and financial accounting.
A major challenge of multichannel retailers is to manage their warehouses in a way that supports both the large orders that get shipped to stores and the smaller individual orders that go to online consumers' homes. The two types of fulfillment can make it difficult to arrange space in warehouses for the products that move in the largest volumes and at the greatest frequency—a situation that can constantly change along with seasonal demand and the introduction of hot new products. "Robots can absorb such complexity of operating through different channels," says Mitch Rosenberg, vice president of marketing and product management at Kiva.
That's because everything in a Kiva warehouse, without the fixed racks and conveyor systems of conventional warehouses, can be constantly rearranged based on current demand coming from stores as well as individual consumers. Kiva robots and their supportive software are designed to bring portable inventory racks to warehouse workers, expediting order fulfillment. And as demand for a particular product or category spikes, the robotic system is designed to automatically re-locate the portable racks of those products closer to workers, shortening the space the robots must travel when bringing products to pick-and-pack stations and further expediting fulfillment, Rosenberg says.
The system is helping Acumen better manage its warehouses and maintain a high level of customer service as it proceeds on a fast growth curve, including the launch of 16 online stores this year alone.