Channel Integration Enables Shift to True Omnichannel Retailing

Jul 19, 2012

Topic: Technology

A dozen years after launching online stores, many U.S. retailers are coming to understand an important distinction: there is a big difference between being a multichannel and being an omnichannel retailer. The former may be able to sell through multiple channels, but the latter can aggregate data on customer behavior across all channels to anticipate demand, segment marketing and coordinate fulfillment in ways that differentiate their brand.

IT gurus call this “demand-driven retail” and say Tier 1 retailers have used it to chip away at mid-tier and specialty retailers’ business since the 2008-09 recession. Yet even Tier 1 retailers have yet to unlock the full value of omnichannel retailing, which involves mining the vast torrent of customer data retailers now collect to improve not only inventory management and online pricing but virtually all facets of the customer experience.

“Marketing today requires a clear change in perspective — from just driving acquisition of new consumers to a prioritized focus on retention and loyalty of existing customers,” writes Zain Raj, author of Brand Rituals and CEO of the digital marketing network Hyper Marketing Inc. “Much of the data analysis has been going into driving traffic, conversions and transactions rather than reinforcing bonds with existing customers. This has led to a short-term boost in sales, but a long-term threat to brand value. A higher number of bonded customers is not only possible but absolutely necessary if you and your company want to create sustainable brands that defy competitors for decades. In an age of universal price transparency, brand loyalty is harder and more important to gain.”

Research increasingly shows that the ability to collect, interpret and act on data gives retailers a competitive advantage across all their channels. While overall retail sales in the United States grew at an annual average of just 3 percent between 2006 and 2011, digitally influenced in-store sales grew at an average of 13 percent. Forrester Research reports that demand-driven retailers realize 27 percent greater return on assets, 23 percent more inventory turns and 26 percent revenue growth compared to their peers. Much of this is attributable to the ability to use data to personalize marketing offers, dial in-store layouts and assortments and otherwise create a superlative experience that keeps customers coming back even when they can find the same products cheaper elsewhere.

Yet 74 percent of multichannel retailers recently surveyed by the Aberdeen Group still operate their sales channels as separate silos that can’t easily exchange customer information. Nearly one in six, or 58 percent, report they have not integrated their business processes or technologies across these channels. This means customers may encounter different assortments, prices, loyalty programs and return policies depending on how they shop. This lack of consistency is undermining many brands and stands to worsen as more and more people opt to shop via smartphones and tablet computers, like the iPad, Aberdeen concludes.

The lack of integration is also inflating inventory costs, according to Celerant Technology Corp., which specializes in providing multichannel management software to rapidly growing small and mid-size retailers.

In the two years since Celerant helped Fontana Sports integrate its POS and budding e-commerce operations, the Madison, Wis., retailer has grown sales 15 to 20 percent annually with 20 percent less inventory. This has enabled Fontana to increase inventory turns from two to three to four times per year just through improved inventory management, according to a case study.

Celerant argues that retailers who were late to launch online stores — Fontana only began selling online in 2008 — may be able to leapfrog big box competitors because they don’t have to integrate separate inventory, warehouse and fulfillment platforms.

More and more POS vendors, including Celerant, are offering software that integrates all channels of a multichannel retail enterprise, including POS, warehouse, inventory management, sales back office, data mining, open-to-buy, mail order/catalog and e-commerce. This enables retailers to port gift registries, inventory management and other features between channels with a single interface.

“From the consumer’s perspective,” asserts a Celerant white paper, “the framework facilitates what so many retailers are striving for — a seamless customer experience at every touch point.”