Profits elusive in omnichannel retailing

Retailers and consumer packaged goods manufacturers are spending great sums of money, energy and time on their omnichannel sales operations, but only 16 percent of companies said they can fulfill omnichannel demand profitably.

The high cost of goods is eroding retailers' omnichannel margins, according to the new report, "The Omnichannel Fulfillment Imperative," prepared by PwC for JDA Software Group. The study was based on a global survey of over 400 retail and CPG CEOs conducted in late 2014.

Sixty-seven percent of respondents said these costs are increasing as they increase their focus on selling across channels. The highest costs associated with omnichannel selling, as reported by respondents, were: handling returns from online and store orders, as cited by 71 percent; shipping direct to the customer, mentioned by 67 percent; and shipping to the store for customer pick-up, cited by 59 percent.

These CEOs acknowledge that the need for continued investment in business improvements to enhance omnichannel performance, reducing the related logistics costs is not their primary focus. In ranking the top initiatives for improving business operations, the No. 1 choice cited by 57 percent was spending capital on creating new customer experiences. In rating strategic growth enablers for the year, reducing/reformatting physical store footprints so as to focus on expanding the e-commerce business was the top selection, mentioned by 53 percent.

"Every time retailers receive an online order, they have a number of options to fulfill that demand," said Kevin Iaquinto, chief marketing officer at JDA, in a press statement. "They can pull the product from a local store, send it from a centralized warehouse or ship it directly from the supplier. JDA's new study demonstrates that most retailers lack the insight to make these decisions in a profitable manner, and are not sufficiently focused on this critical capability gap.

"They need intelligent logistics and fulfillment solutions that can reveal the hidden costs, and the customer service trade-offs, associated with every delivery option. In addition, to truly win in the omnichannel marketplace, retailers need the upfront demand forecasting tools to make sure products are already distributed across all locations in a manner that supports profitable delivery."

The key in this process is to first look at the best practices around the world, wrote Ralph Jacobson, global consumer products industry marketing executive, IBM, a "BrainTrust" commenter on RetailWire. "I find too often that local companies do not leverage the efficient processes of experienced companies. Take the best elements of the task and implement them in your organization. Next, look at specific-line item costs and extract those elements of the tasks. A great way to identify those tasks is to compare against publicly-traded peer companies and look at their financials. Determine the values of key metrics and drive those down in comparison to your peers," he said.

"Consumers will only continue to demand these services, so it is critical to mitigate these costs right away. It is too easy to let them get out of control," Jacobson said.

"Although the term omnichannel has become ubiquitous in the industry, this (study) indicates clear proof that retailers are a long way from successful execution in an omnichannel world," wrote Verlin Youd, managing principal, Verizon. "It would seem that some of the critical issues can be addressed by learning from what worked in addressing the same challenges across widely-distributed store networks–(such as) demand forecasting, merchandise allocation, responsive/adaptable supply chains, etc., along with learning from best practices of those who are succeeding today."

Everything is dictated by shopper expectations, said Adrian Weidmann, principal, StoreStream Metrics. "Retailers simply need to figure out all of the issues associated with serving their customers in an efficient manner. The most important issues pointed out–delivery logistics and inventory/supply chain–are two of the main reasons retailers exist in the distribution chain. If you're not excellent in these two areas, why shouldn't shoppers purchase directly from the brand?"

The retailers who address this gap will maximize their success, Weidmann said. "Brands will be monitoring this issue as they develop methods and processes to engage directly with their customers. Shoppers will not pay more for this capability. This is the expectation and the new normal. Shoppers do not put a premium on this capability. The challenge for retailers is to provide excellent customer service that is valued by their shoppers."

For more:
See this JDA press release
See this JDA report
See this RetailWire article

Related stories:
Macy's advances omnichannel strategy with same-day delivery
Mobile tops retailers' priority lists
70% of retailers embrace omnichannel
Finish Line appoints former Sears exec to head omnichannel
Cole Haan opens innovation center

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