Forrester: IT Hurdles Still Crippling Merged Channel Efforts

Despite an almost universal embrace of the idea of merged channel, most retailers aren't getting any closer to making it a reality, with overly restrictive inventory reserve policies, inconsistent data and political resistance getting most of the blame, according to a new Forrester Research report.

"How many smart people are out there who are simply not reserving inventory" for all channels, asked Forrester Principal Analyst George Lawrie. "You never know where demand is going to crystallize." He cited morale—not to mention inventory—problems caused by "reserving inventory for stores that could have been sold by the catalog or online channel."

As retailers slowly try and make data more transparent between channels, Lawrie argued, it's going to force many chains to create a customer hub. "You'll need to have one central location where you refer to everything about that customer. You have to rethink the processes that support" those databases, he said.

Asked whether he saw this as a long-term problem, Lawrie went for middle ground. "I do think it will be an issue in five years, but I don't think it will be an issue in 10 years," he said.

The report detailed many of the most common merged channel glitches today, including the inability to share gift registry data across channels and order tracking.

"Between one-quarter and one-third evaluated their capabilities to be poor/below average for the practices of having strong quoting capabilities, facilitating online ordering, and supporting returns and exchanges online," the report said.

Another problem area: in-store personalization. "Although linking a personalization engine and in-store systems enables retailers to use a consumer's online activity to drive store associate interactions and dialogue with that consumer, Forrester spoke with only one retailer that had this provision on its road map," Lawrie wrote. "For most retailers, the insights gained in one channel are simply lost when the consumer chooses to interact via a different channel."

A much-discussed merged channel challenge involves compensation incentives. Given that most companies were created with rigid linear structures in terms of call center, catalog, online and offline (mobile is too new to have many of its own fiefdoms yet), the first compensation hurdle involves definitions.

For example, is a mobile purchase online or in-store? If the customer is on the road, it's going to feel online as it connects to the Web site. But what if that purchase was entered on a phone while the customer was in the store? What if an in-store associate was standing by that customer pointing out where to click and suggesting which model—which the brick-and-mortar had sold out of—that customer should purchase?

Even more complicated, what if this particular mobile commerce purchase was done through a mobile technology that had to be done in-store, such as 2D-barcode or some NFC applications? Which department should get the credit for those purchases?

In other words, when in-store associates are pointing customers to the Web site and when that Web site is sending other customers to the store, do the current compensation plans make any sense?

Lawrie argues for a better way, where each channel's management gets incentives for what amounts to upsells. "One big box retailer told us that 25 percent of visitors to its Web site reserve merchandise online for in-store collection. This retailer reported that its consumers are so keen on this interaction that they drive past competitors' outlets and past other branches of the same retail chain to make their collections. And once in the store, they spend on average an additional 25 percent on items other than the considered purchase that they reserved."

Channel confusion is certainly not limited to mobile devices. Kiosks, too, get their share of cross-dressing channel-choosing chores. Some retailers interviewed by Forrester complained of executives "de-motivating store operations by crediting the online channel with store kiosk sales to reserving inventory for stores that could have been sold by the catalog or online channel."

A lot of data is being presented across channels, but not much effort has gone into massaging the data to make it useful in other formats, Lawrie wrote. "Multichannel interactions need to expose such data to consumers to help them in their decision-making, but much of the data is inconsistent or composed of esoteric abbreviations such as 'blck' for 'black' and is simply not presentable to consumers," he said. "Channels such as the Web, POS, store-label printing or display, and catalogs also require different formats, sizes, and resolution for text and images. The result? Retailers maintain large teams engaged in 'data enrichment' but still present inconsistent data across channels."

The problem gets worse, the report said, when the spotlight is focused on inventory.

"Most retailers hold in their merchandising apps an 'on hand' inventory balance by store and by stock-keeping unit. They use shipments to stores and store POS uplink data to maintain inventory balances. But it's useless to share this level of data with a consumer looking for her nearest store with a particular size 12 red dress," the report said. "SKU data is not sufficiently detailed because it generally doesn't show store balances by size and color. The challenge of exposing inventory availability to consumers is yet greater for those North American replenishment-items retailers that have yet to implement perpetual inventory disciplines and that currently keep book inventory continuously in agreement with on-hand stock."

Yet another problem area is order-tracking, with consumers expecting a lot more sophisticated data-sharing operations than usually exist. "Consumers interact indiscriminately among a retailer's stores, call center and Web sites, and expect the brand as a whole to be aware of their histories, preferences and orders. As one outdoor-apparel retailer said, 'Consumers expect you to know what their order was and when it was placed.' But this is a challenge for store associates who have no access to online or catalog orders and no simple method of identifying the consumer."

Forrester is selling the full report on its Web site. We don't typically send readers to look at such a link, but this is one of the more thoughtful and detailed reports that we've seen in awhile, so it seemed appropriate to make an exception.