How to Achieve Profitable Multichannel

Retail
PERSPECTIVE

#GRRS52S

I van o O rt i s

IN THIS PERSPECTIVE

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On May 19, 2010, IDC Retail Insights joined a panel discussion hosted
at SAP Sapphire 2010 in Frankfurt. The theme of the discussion was
how to enable profitable multichannel retail operations. Danielle
Tuarze, CSC, Darryl Owen, SAP, and Ivano Ortis, IDC Retail Insights
were the panelists. This document provides a summary of the debate.
Multichannel profitability Why Now?

In recently completed research, we found that improving multichannel

profitability is among the top 3 priorities out of a list of 16 items for
retail enterprises that are also selling online. As noted by Danielle
Tuarze, a key measure of multichannel activity was traditionally new
customer acquisition and sales growth. Now a truly multichannel
mindset is required to make it a profitable growth journey for retailers.
Key implications root back into supply chain integration, promotion,
pricing, assortment and organizational strategies.
Some key facts to consider:
eCommerce is becoming a sizeable market and keeps growing
rapidly. In Europe, 37% of the total population shopped online in
2009, up from 32% in 2008, with the U.K. and Germany leading
the group. Globally, we expect online sales to grow by over 20%
in 2010, and by nearly 50% in 20102013. The other half of the
equation, as noted by Darryl Owen, is that 20%, maximum 30% of
the multichannel retail community is making any money at all on
the Internet. This is caused by top-line issues price discounts
and promotion intensity that are shrinking margins and by backend and supply chain fragmentation issues across channels causing
overstocks, non-optimized procurement, and higher logistics costs.
Many retailers even run ecommerce as a separate legal entity,
which results in unnecessary redundancy, multiple supply chains,
and thus much higher operational costs from an overall group
perspective.
Online purchasing patterns are evolving: In a consumer survey
sponsored by Akamai which we completed last month, IDC Retail
Insights found that online sales of clothes, accessories, and
footwear have actually overtaken both media and travel/event
tickets as the top goods category purchased online by Western
May 2010, IDC Retail Insights #GRRS52S
IDC Retail Insights: Retail Store, Channel, and Consumer Strategies: Perspective

European consumers. While this does not reflect the value

hierarchy of goods sold online with travel, media, and
consumer electronics constituting a larger share of total B2C
ecommerce spending it nonetheless signals the increasing
maturity of online commerce. One interesting example comes from
the automotive sector less than a year ago, an Italian car dealer
launched a Web site okusato.com which is now generating a
substantial share of the company's total revenues.
Store sales influenced by online research are three to five times
larger than total ecommerce sales. To illustrate my point, Terry
Lundgren, chairman, president, and CEO of Macy's, said Macy's
3.0, the latest rendition of the company's ecommerce platform,
provides a 360 degree view of the customer and is responsible for
$1 billion in sales this year and a $5+ billion influence on in-store
sales improvement. Interestingly, Macy's CMO is now responsible
for marketing across channels. Another example comes from
consumer electronics retailers, where 10% to 15% of store TV
sales come from online promotions.
Young, trend-setting consumers and high spenders will be the
first groups to move en masse to the mobile channel.
Interestingly, searching for store locations, opening hours, and
product availability is the second most sought after reason for
shoppers to use their mobile phone, while receiving alerts about
promotions that are offered by stores nearby the shopper location
rank third (the fist is checking order status). For example, Google
launched its mobile goggles app for Android, with which a user
can simply frame a shop or location and receive contextual
messages about the store, offers, user reviews, and the like. Similar
applications are available on iPhone and Windows mobile devices
to retrieve product information, compare prices and read user
comments via barcode scanning, image, and voice recognition.
One of the most common, traditional measures of a retailer's health are
same-store sales. The focus now shifts to "same shopper" sales
using loyalty or payment identifiers to calculate how shoppers are
patronizing the brand across stores and channels. For brick and mortar
retailers, much of their secondary channel (catalog, Web, mobile)
commerce is with consumers who are familiar with the brand and have
likely shopped in their physical stores. Expansion will come from
attracting customers not familiar with the brand or not in proximity to
the stores to those secondary channels and by improving multichannel
mprofitability.
Interaction channels to the consumer are converging it is no longer
a multichannel retailing approach that retailers should pursue, but
rather all sales channels that run in parallel should effectively
converge in a seamless and consistent manner. Thus, we identify in
omnichannel retailing as the next wave of customer facing retailing
strategies, in which the term omni suggests a fully integrated, "all at
once" retail sales channels approach.

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Why is this relevant for retailers? Because multichannel shoppers

spend, on average, 15%30% more with a retailer than someone who
uses only one channel. IDC Retail Insights estimates that omnichannel
shoppers will spend over 20% more than multichannel consumers, will
exhibit strong loyalty, and will influence others to patronize the
retailer.
Five Steps to Enable Profitable
Multichannel Retail

Retailers are required by their current and potential customers to

support full technology and process integration between all of their
selling channels meaning a single, logical view of the shopper, the
order, and the inventory regardless of the channel. Retail ecommerce
technology capable of supporting this requirement will need to blend
the unique business-to-consumer (B2C) usability functions with tight
integration to advanced retail transactional systems and all the
appropriate consumer, promotion, and inventory optimization
technologies.
We recommend retailers consider the following five steps to improve
multichannel profitability:
1. Consolidate cross-channel supply chain management both
planning and execution allowing for total inventory visibility,
order management and fulfillment across all channels. Consolidate
assortment planning across channels. Use inventory optimization
tools and analytics to balance stock-levels and purchasing
requirements regardless of channel. This means driving back-end
modernization and integration for supporting multiple sales
channels in a transparent fashion for the entire organization.
2. The fun and surprise in shopping needs to be restored so that
shoppers are less compelled by the lowest advertised prices and
more by the emotion attached to a brand and the shopping
experience. Retailers that deliver relevant personalized offers in
real time to consumers regardless of channel coupled with accurate
availability, shipment, and product data are heading in the right
direction.
3. Enable real-time business decision support capabilities, improved
loyalty management and especially cross-channel loyalty. Online
consumers themselves are making this evident, indicating that the
possibility of using the same loyalty program both online and
offline is their second favorite feature for an ecommerce Website
to develop. In profit margin improvement terms for the retailer, we
find that cross channel loyalty integration can drive 10% increases
in loyal customers' profitability. An important achievement if you
consider that loyal clients are typically a high share of total
customers in selected segments for example food, with typically
over 75% of customers holding a loyalty card, and consumer
electronics, where for example Mediamarket in Italy have a
million loyal clients that generate 70% of their total online sales.

2010 IDC Retail Insights

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Harrods noted in the Q&A session of the panel discussion that

retailers have the fear of seeing online loyalty as a way for
customers to redeem points without generating the multiplication
effect and impulse buying of new store visits. Thus retailers are
looking into new ways of combining online loyalty with store
visits, for example by offering online coupons that can be
redeemed at the store. Mobile represents perhaps the best way to
create the required continuum between online and store.
4. Online customer support is a key consumer expectation that can
also result in 75% cost savings when moving from call center to
Web-based support. For example, we had an interesting
conversation with Home Shopping Europe at Sapphire 2010 it
noted a direct correlation between customer service enhancements
and increases in average revenue per user. As a result, CRM and
customer service investments can pay off.
5. Use social networking tools to empower customer group analytics,
enable targeted promotions, assortment, and new product
developments. Customers' feedback can also be gathered
flawlessly via social networks. For example, Point-7, a
windsurfing sail manufacturer, is doubling visitor traffic to its
ecommerce Web site each day it runs a targeted ad campaign on
Facebook. From the enabling technology angle, SAP developed
tools that integrate social network front-ends with CRM platforms.
Using in-memory technologies, retailers can now enable one-toone relations and contextually-relevant real-time interactions with
customers, while at the same time tracking shoppers' patterns and
customer feedback, and so monitoring business KPIs in a more
timely and accurate manner. And this again benefits the bottomline, thanks to top-line growth, lower stock levels, and better
designed assortments that fit shoppers' expectations. Customers
demand personalization, and the retailers that deliver on this
requirement will achieve a tangible and sustainable competitive
advantage over time.
In conclusion, and as noted by Darryl Owen, two beating hearts are
emerging for retail IT application landscapes: core merchandising
systems and customer-centric tools. The latter will incrementally
enable business diversification strategies think of food retailers
selling a bit of everything today, from insurance, to travel packages,
professional services and more. A fully integrated and transparent
back-office system that is capable of transferring orders, vouchers,
stock, and transactions across channels will ensure that the two beating
hearts will work in synergy to maximize multichannel profitability.

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Copyright Notice

Copyright 2010 IDC Retail Insights. Reproduction without written

permission is completely forbidden. External Publication of IDC
Retail Insights Information and Data: Any IDC Retail Insights
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Insights reserves the right to deny approval of external usage for any
reason.

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