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Omni-Chanel 2013: The Long Road to Adoption
 

Omni-Chanel 2013: The Long Road to Adoption

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    Omni-Chanel 2013: The Long Road to Adoption Omni-Chanel 2013: The Long Road to Adoption Document Transcript

    • i Omni-Channel 2013: The Long Road To Adoption 2013 Benchmark Report Paula Rosenblum and Brian Kilcourse, Managing Partners June 2013 Sponsored by:
    • ii Executive Summary Since RSR’s first study on multi/cross/omni-channel in 2007, we have asked retailers to assess the value of multi- vs. single-channel customers, and their feedback is conclusive: consumers that connect with retailers via multiple selling channels are more profitable than ones who don’t. The undeniable consumer trend towards more complex paths-to-purchase that blend the digital shopping experience with the physical one almost makes any discussion of a single “selling channel” irrelevant. Consumers certainly don’t see “channels”; retailers either address consumers’ lifestyle needs or they don’t. In RSR’s new study on omni-channel, retailers were asked to assess progress in addressing issues related to an omni-channel offering, and not a single operational process achieved 50% in aggregate as “full synchronized”/“full synchronization in progress”. What is clear that virtually every aspect of the business is in flux right now. Retailers know that their biggest challenge remains in how to merge the digital and physical selling worlds into one compelling, seamless customer experience. Some key findings in the study that support this conclusion include: • Virtually every cross-channel selling tactic is being employed by retailers to a greater extent than we saw in our 2012 study, with particularly strong growth in the mobile; • There is no consensus among retailers about the primary role of digital, but this year’s study shows a shift in retailers’ attitudes about digital channels from “selling more stuff” to providing consumers “everything they need to know to buy” products and services; • Creating a consistent customer experience remains the most valued capability for retailers, but 54% of our respondents indicate that their biggest inhibitor is that they do not have a single view of the customer across channels; • Retailers are focused on fulfillment execution: omni-channel fulfillment was rated “very important” by 75% (a 27% increase over our 2012 study), but 67% of Laggards say that inventory and order management are not integrated across channels; • Eighty percent of responding retailers say that 360° of inventory visibility is “very important”. Currently, 63% of Winners report having visibility to inventory across the entire enterprise compared to only 25% of laggards; • The perceived best opportunity for technology enablement is in creating enterprise-wide visibility, but “customer visibility”, “customer insights”, and “a single customer interaction platform that crosses channels”, also present huge opportunities; • Retailers favor mobile-optimized web access to their e-Commerce capabilities over mobile applications. They hope that the value of mobile can be realized without having to manage all the complexities of a mobile application environment through recent improvements in HTML5, particularly those relating to geo-location based applications. RSR recommends that retailers stay focused on the total customer experience across all selling environments by first designing the Brand Experience across all channels, determining the role of digital in the total experience, and aligning the organization to the Brand, not “channels”. To understand their customers’ complex paths-to-purchase, retailers must capture and analyze the ways that customers are using the digital and physical environments to make their purchase decisions. Finally, it’s time for retailers to start thinking about the implications of omni-channel selling on the “buy side” of the business.
    • iii Table of Contents Executive Summary..........................................................................................................................ii Table of Contents ............................................................................................................................ iii Figures.............................................................................................................................................iv Research Overview ......................................................................................................................... 1 Why This Study Was Conducted ................................................................................................. 1 It’s All About Execution ................................................................................................................ 2 Defining Winners and Why They Win.......................................................................................... 4 RSR’s BOOT Methodology.......................................................................................................... 5 Survey Respondent Characteristics ............................................................................................ 5 Business Challenges ....................................................................................................................... 7 Dancing as Fast as We Can, but Not Fast Enough..................................................................... 7 The Largest Retailers Generally Struggle the Most with Expectations........................................ 8 A Longer History does not Spell Success.................................................................................... 8 Opportunities ................................................................................................................................. 10 The Role Of Digital Channels .................................................................................................... 10 Seeking Understanding vs. Executing ....................................................................................... 11 Only For the Big Players?.......................................................................................................... 13 Organizational Inhibitors................................................................................................................ 15 Not Getting it Done, Despite Generally Adequate Resources................................................... 15 Winners Take a Different Point of View..................................................................................... 16 Why Can’t We Just Fix the Things that Hold Us Back?............................................................. 17 Different Solutions for Different Sub-verticals............................................................................ 17 Some Significant Differences Depending on Performance ....................................................... 18 Technology Enablers..................................................................................................................... 19 Much To Do................................................................................................................................ 19 The Customer-Centric Portfolio ................................................................................................. 20 Where Are The Best Opportunities?.......................................................................................... 21 What About Mobile?................................................................................................................... 22 Keeping Options Open............................................................................................................... 23 Summing It Up ........................................................................................................................... 23 BOOTstrap Recommendations ..................................................................................................... 24 Surviving and Thriving in the Omni-channel Age....................................................................... 24 Design the Customer Experience You Want for your Brand ..................................................... 24 Align Your Organization around Your Brand ............................................................................. 24 Spend Time Understanding Paths to Purchase......................................................................... 24 Think About a Single Customer Interaction Platform................................................................. 24 Understand the Implications to your Supply Chain.................................................................... 24 Appendix A: RSR’s Research Methodology.................................................................................... a Appendix B: About Our Sponsor ..................................................................................................... b Appendix C: About RSR Research.................................................................................................. b
    • iv Figures Figure 1: No Doubt .......................................................................................................................... 1 Figure 2: Anytime, Anywhere Selling............................................................................................... 3 Figure 3: Boiling the Ocean............................................................................................................. 4 Figure 4: Not-So-Subtle Differences................................................................................................ 5 Figure 5: Consumer Expectations Drive Change, but the Effort is Clumsy..................................... 7 Figure 6: Customers Expect the Most from the Largest Retailers .................................................. 8 Figure 7: Retailers Who’ve Been at it Longer Seem Hamstrung .................................................... 9 Figure 8: Shifting Attitudes About The Role Of Digital ................................................................. 10 Figure 9: High Points for Value..................................................................................................... 12 Figure 10: “If Wishes Were Horses, Beggars Would Ride”.......................................................... 13 Figure 11: Size Matters ................................................................................................................. 14 Figure 12: Willing to Allocate People and Funds, but Still Not Getting it Done............................. 15 Figure 13: Willing to Allocate People and Funds, but Still Not Getting it Done............................. 16 Figure 14: …And What Can We Do About It?............................................................................... 17 Figure 15: A Pragmatic Shift In Focus........................................................................................... 19 Figure 16: The Technology Priority List......................................................................................... 20 Figure 17: The Budget and the Wish List...................................................................................... 21 Figure 18: How Much Convergence is Really Needed? ............................................................... 22 Figure 19: Winners Believe in Channel Platform Convergence.................................................... 23
    • 1 Research Overview Why This Study Was Conducted RSR has benchmarked retailers’ attitudes about the challenges and opportunities associated with the harmonization of existing and emerging selling channels since 2007. Like the retail industry itself, our thinking has progressed from considering the rationale for multiple channels, through examining the opportunities and pitfalls associated with cross-channel integration, to addressing consumers’ complex paths to purchase with an omni-channel strategy. The entire retail ecosystem, from initial product design through point of consumption, has been affected by consumers’ use of both digital and physical shopping channels to make their purchase decisions, often using several channels to buy just one thing. These kinds of “omni-channel” behaviors kicked into high gear when consumer adoption of “smart” internet-enabled mobile devices surged across the globe (reaching more than 50% of the global market in 2012 1 ). Of course, retailers are only interested in the new consumer paths-to-purchase if addressing them results in better sales and profitability. We’ve asked retailers to assess the value of multi- vs. single-channel customers for several years, and the feedback is conclusive: consumers that connect with retailers via multiple selling channels are more profitable than ones who don’t (Figure 1). Figure 1: No Doubt Source: RSR Research, June 2013 The undeniable consumer trend towards more complex paths-to-purchase that blend the digital shopping experience with the physical one almost makes any discussion of a single “selling channel” irrelevant. Although retailers and their partners may align their operations according to 1 Source: Comscore 29% 4% 11% 28% 28% 26% 3% 6% 26% 39% 17% 10% 7% 28% 38% 18% 3% 3% 29% 47% Don't know / Can't tell Less profitable than single channel customers Equally profitable Slightly more profitable than single channel customers Significantly more profitable than single channel customers Multi-channel Customers are: 2013 2012 2010 2009
    • 2 the different consumer-facing channels being offered, consumers certainly don’t see “channels”; retailers either address consumers’ lifestyle needs or they don’t. The proof of that lies in retailers’ growing concern (from only 17% in 2009 to 35% now) that traditional measures of success (most notably, same store sales) are insufficient. But if the compelling case that multi-channel customers are more profitable hasn’t been enough to sway retailers to address the challenges and opportunities associated with consumers’ complex paths-to-purchase, then fear of showrooming has. The widespread adoption of consumer technologies such as the PC, tablet, and “smart” mobile devices has created the opportunity for new competition to disintermediate ”middlemen” that have traditionally been part of a value chain. Most notably, e-marketplace Amazon.com has created a new way to connect consumers with solutions, sidestepping retailers that have outdated demand fulfillment models bound by physical operating geographies. But while direct-to-consumer e-retailers may have their place, they have a hard time duplicating stores’ greatest value to consumers: shopping is fundamentally a social activity. And in any case, (again) the profit value of a cross-channel shopper consistently exceeds that of the single channel shopper. Instead, e-retailers depend on “landed” retailers doing such a bad job at blending the digital and physical offering into one seamless experience that consumers will be turned off by traditional stores. But smart retailers are learning how to combat that strategy. In this year’s study, our objective was more than to measure the extent to which retailers buy into the notion of a harmonized digital/physical offering to consumers, but to understand how well are they executing against their omni-channel strategies. It’s All About Execution Since 2010, the focus of the entire retail industry has been largely on the customer-facing (selling) side of the business. Questions such as, “how important is a mobile strategy to our Brand?”, “are social networks such as Facebook good tools in promoting the Brand?”, “should the role of digital channels be to engage in commerce, or to guide consumers to our Brand?”, pervading. This year’s survey shows the net effect of that focus; virtually every cross-channel selling tactic is being employed by retailers to a greater extent than we saw in our 2012 study, with particularly strong growth in the mobile offering (Figure 2).
    • 3 Figure 2: Anytime, Anywhere Selling Source: RSR Research, June 2013 But there’s a lot more to retail than just what the consumer sees; there is also the supply chain (buying) side of the business, and all of the internal operational processes that “glue” buying and selling processes together. When we asked retailers in this study to assess progress in addressing issues in the selling, buying, and operational aspects of their business, not a single operational process achieved 50% in aggregate as “full synchronized”/“full synchronization in progress” (Figure 4). What is clear that virtually every aspect of the business is in flux right now. 21% 32% 42% 53% 58% 65% 7% 23% 45% 55% 64% 68% 71% Buy via TV Buy via social commerce site Buy online/direct, fulfill through any store Buy via mobile device Buy online/direct, pick-up in store Buy in-store, fulfill through online/direct Buy online, return in-store Which Cross Channel Activities DoesYour Company Engage inToday? 2013 2012
    • 4 Figure 3: Boiling the Ocean Source: RSR Research, June 2013 So, the debate seems to be over as to whether the digital selling channels are important or not – clearly, they are. Now, the battlefield moves to executing in the new paradigm. Defining Winners and Why They Win Throughout this report, you will see reference to Retail Winners and their peers. Our definition of Retail Winners is straightforward. We classify retailers based on their year-over-year comparable store/channel sales improvements. Assuming industry average comparable store/ channel sales growth of three percent in 2012, we define those with sales above this hurdle as “Winners,” those at this sales growth rate as “average,” and those below this sales growth rate as “laggards.” Why do these comparisons matter? It turns out that over-performance is more than an accident of selling more stuff. RSR’s research findings typically show that Winners don’t merely do the same things better, they tend to do different things. Laggards also tend to think differently. They may have spectacular vision, but often fail on execution. But these are different times, when the fundamentals of the retail operational model are being challenged – for Winners and Laggards alike. It is often the case that past success becomes a major inhibitor that gets in the way of future success. With so many of the fundamentals of the operational model in flux, Laggards and average performers have a chance to leapfrog yesterday’s Winners. But do they? 7% 7% 8% 8% 10% 11% 11% 11% 14% 14% 15% 15% 17% 28% 36% 28% 31% 18% 32% 22% 33% 17% 29% 23% 25% 20% 52% 51% 44% 58% 60% 57% 67% 49% 53% 46% 58% 54% 58% 13% 6% 20% 3% 13% 7% 17% 11% 4% 6% 6% Customer segmentation Demand Forecasting Customer call center Store Operations Loyalty management Digital marketing (E-commerce, Mobile,… Consistent customer experience across all… Inventory visibility across all channels Traditional advertising Customer Order visibility across all channels Procurement/Assortment Pricing strategies Fulfillment What Is the Current State of Channel SynchronizationAccording to an “Omni channel” Strategy? Fully Synchronized Full Synchronization in Progress Some Synchronization in Progress No Plans
    • 5 Looking again at the data shown in Figure 2, we can see subtle differences in behaviors between Winners and Laggards (Figure 4). While there is general agreement that “buy online/return in- store” is a must-have capability, 50% more Winners than Laggards favor “buy online/direct, fulfill through any store”, whereas twice as many Laggards as Winners favor buy online/direct, pickup in-store” (i.e. ship from a fulfillment center to the store for pickup). Figure 4: Not-So-Subtle Differences Source: RSR Research, June 2013 This data point is indicative of a key differentiator in omni-channel strategy execution: enterprise- wide inventory visibility. As we will discuss later in this report, 63% of Winners now report having visibility to inventory across the entire enterprise, whereas only 25% of Laggards make that claim. Lack of visibility prevents Laggards from fulfilling non–store customer orders from store inventory – a key capability to a successful omni-channel offering. So the rule holds true: Winners don’t just do the same things better, do different things. RSR’s BOOT Methodology RSR uses its own model, called the “BOOT,” to analyze Retail Industry issues. We build this model with our survey instruments. Appendix A contains a full explanation of the methodology. In our surveys, we continue to find differences in the thought processes, actions, and decisions made by retailers who outperform their competitors and the industry at large – Retail Winners. The BOOT model helps us better understand the behavioral and technological differences that drive sustainable sales improvements and successful execution of brand vision. Survey Respondent Characteristics RSR conducted an online survey from March – June 2013 and received answers from 98 qualified retail respondents. Respondent demographics are as follows: 10% 10% 70% 30% 60% 60% 70% 5% 25% 35% 45% 63% 65% 73% Buy via TV Buy via social commerce site Buy online/direct, pick-up in store Buy online/direct, fulfill through any store Buy via mobile device Buy in-store, fulfill through online/direct Buy online, return in-store Which Cross Channel Activities DoesYour Company Engage inToday? Retail Winners Laggards
    • 6 • Job Title: Executive/Senior Management (C-Level or VP) 44% Middle Management (VP / Director / Manager) 51% Individual Contributor 4% Executive/Senior Management (C-Level or VP) 44% Middle Management (VP / Director / Manager) 51% • 2012 Revenue ($ Equivalent): Less than $50 million 26% $51-249 million 14% $250-999 million 10% $1Billion to $5 Billion 35% • Year-Over-Year Comparable Overall Sales Growth Rates (assume average growth of 3%): Worse than average (Laggards) 13% Average 39% Above average (Winners) 49% • Headquarters/ Retail Presence: USA 52% 60% Canada 7% 32% Latin America 3% 23% UK 7% 26% Europe 18% 35% Middle East 0% 17% Africa 2% 13% Asia/Pacific 11% 35% • Functional Responsibility: Executive team 29% Merchandising 10% Marketing 10% Store Operations 6% eCommerce/Direct Operations 13% Supply Chain 7%
    • 7 Business Challenges Dancing as Fast as We Can, but Not Fast Enough This year’s respondents clearly recognize two things: 1) the customer is demanding and 2) they’re struggling to meet those demands. Retailers do what they must to satisfy their customers, but they know they’re leaving money on the table. Given that fundamental pressure, it’s somewhat surprising just how little has changed in retailers’ minds over the past year. In other words, they haven’t solved many of the challenges they face (Figure 5). Figure 5: Consumer Expectations Drive Change, but the Effort is Clumsy Source: RSR Research, June 2013 One area we see an overall jump is the recognition that data, inventory and other assets are locked in their channel siloes, Nineteen percent more respondents call this out as a top-three business challenge this year than last year. Another area where we’ve seen a jump is the acknowledgement that while we may call the consumer’s path to purchase unpredictable and chaotic, we do believe that retailers should be able to understand it better, and that a lack of understanding is hurting them. In other words, all the industry talk about “big data” has made retailers aware of their shortcomings, even as they’re unable to collate and aggregate that data across channels into something meaningful. 20% 18% 27% 33% 41% 37% 53% 51% 15% 19% 32% 41% 42% 44% 48% 51% Need to control labor costs while integrating new cross-channel processes into our operations Consumers know more about products and prices than our employees do Digital channels are creating increasingly global competition for consumers’ “share of pocket” The way consumers use channels to make purchase decisions is unpredictable, but important to understand A good customer experience in one channel is not enough to maintain customer loyalty We are not doing enough to leverage our assets (digital, inventory, or otherwise) across channels We struggle to effectively integrate new processes driven by cross-channel strategies into the store Consumer expectations outpace our ability to deliver cross-channel experiences TopThree (3) Business Challenges Faced In Cross- channel Strategy 2013 2012
    • 8 The Largest Retailers Generally Struggle the Most with Expectations While we see surprisingly small differences of opinion among retailers at different performance levels and among those in different sub-verticals, we do find sometimes stark differences when we look at the data based on annual revenue (Figure 6). Figure 6: Customers Expect the Most from the Largest Retailers Source: RSR Research, April 2013 The largest retailers (who have generally become the most siloed to achieve their mass) are almost unanimous in their concern about delivering a consistent cross-channel experience. In many cases, their digital channels are completely separate companies, in other cases they are united by name and CEO only. We’ve seen some change over the past year, as companies like Gap reorganized by “banner” rather than by channel. But creating a new entity and getting synergies across that entity apparently still take a lot of time. The “noise” we hear in the marketplace leads us to believe there will be significant movement in the next year, but so far, change has come exceedingly slowly. A Longer History does not Spell Success We were somewhat surprised to learn that a longer history in cross-channel operations does not make for greater success. In fact, we found just the opposite to be true. The retailers who’ve gone cross-channel in the past two to five years are far more likely to be Retail Winners than those who’ve been operating for more than five years. Those who’ve been cross-channel for less than two years tend to be average performers (Figure 7). 35% 18% 41% 41% 29% 59% 28% 11% 44% 33% 44% 39% 43% 20% 53% 40% 60% 40% 8% 8% 25% 50% 50% 83% Digital channels are creating increasingly global competition for consumers’ “share of pocket” We need to control labor costs while integrating new processes driven by cross-channel strategies into our operations - especially the store We are not doing enough to leverage our assets (digital, inventory, or otherwise) across channels The way consumers use different channels to make purchase decisions is unpredictable, but important to understand We struggle to effectively integrate new processes driven by cross-channel strategies into the store Consumer expectations outpace our ability to deliver cross-channel experiences Top-three Business Challenges: Revenue Differences Over $5 Billion $1Billion to $5 Billion $51 million - $999 million Less than $50 million
    • 9 Figure 7: Retailers Who’ve Been at it Longer Seem Hamstrung Source: RSR Research, June 2013 From this data we infer several things: • Based on evidence gathered as early as 2003 that cross-channel customers would be more profitable, early adopters of cross-channel processes threw those processes and technologies together quickly. • The technologies put in place to support those early adopters were appropriate for a two or three-channel world. Based on “typical” technology lifecycles, they would generally be considered mature but not dated. But by 2007 the convergence of smart phones and social networks brought the need for continued expansion of digital marketing and commerce across more and more platforms. The early technologies used to support cross-channel retail obsolesced far more quickly than expected and early adopters have fallen behind. • The systems, people and processes have remained tremendously siloed, with compensation strategies also reflecting single channel, rather than omni-channel responsibilities. These new fiefdoms have proven remarkably resistant to change. The next task for retailers is clearly to get on with the task of creating a seamless and profitable cross-channel experience that includes people, processes and data. We need to satisfy both customers and shareholders. In the following section, we’ll investigate the opportunities retailers see to satisfy those constituents. 0% 20% 40% 30% 10% 3% 13% 10% 23% 52% 2% 16% 24% 38% 16% We operate one channel, with no plans to open additional channels More than 10 years Between 5-10 years Between 2-5 years Less than 2 years How Long HaveYou Operated in Multiple Channels? Retail Winners Average Performers Laggards
    • 10 Opportunities The Role Of Digital Channels The business model that will support consumers’ converged digital and physical shopping behaviors is still be explored throughout the industry. But there are several “knowns”. First and most importantly, consumers expect to have the ability to engage in a dialogue with those who offer solutions to their lifestyle needs. Now it’s all about relationships built on trust that hopefully will result in transactions. Secondly, consumers want transparency. In other words, they want to be able to see information about products and services, and they want it to be accurate and consistent. A perfect example is price transparency – consumers want to be able to compare competitive prices, even as they are shopping in the store. Third, consumers want anytime, anywhere shopping and fulfillment options made available to them, depending on their lifestyle needs. Finally, consumers want to talk to others in the community about their choices. Retailers are learning that the reward for providing a rich experience to consumers is enhanced sales and profits. Early adopters of digital channels saw them mostly as a new opportunity to “sell stuff”. But this year’s results show a shift, as retailers begin to think of the digital channels in the context of the overall Brand experience. Although many retailers still see the digital channels as providing a new way to engage in commerce, the biggest attitudinal shift (from 14% only a year ago to 25% now) comes from retailers who now believe that the value of the digital channels is that they provide consumers with “everything you need to know” to make the best purchase decisions (Figure 8). Figure 8: Shifting Attitudes About The Role Of Digital Source: RSR Research, June 2013 16% 8% 18% 12% 14% 33% 10% 12% 13% 15% 25% 26% To encourage the consumer to “buy the lifestyle” To help the consumer “build your personalized solution” To drive traffic to stores To educate consumers about our company and brand To provide the consumer “everything you need to know to buy” products and services Commerce- “to sell stuff” Primary Role of Digital Selling Channels (e- commerce,mobile, social media) in your Company’s Overall Strategy 2013 2012
    • 11 There is no consensus among retailers about the primary role of digital. Clearly, although consumers may be taking full advantage of instant access to information about anything, anywhere and any time, retailers are still mulling over how they should use the new capabilities available to them. Perhaps the biggest opportunity for retailers now is in defining how to harmonize the digital and physical selling channels, rather than letting the competition figure it out first. The importance of the digital (and particularly, mobile) channels to act as a “shopping assistant” to consumers – even while they are in the store, is coming into focus for more retailers, curiously more for lagging and average retailers (30% and 28% respectively, compared to only 20% of Winners). However, it is important to point out that the notion of using the digital channels as self-contained “stores” is on the wane for Winners in particular; in our 2012 study, 43% of Winners thought of the digital channels as an opportunity to “sell stuff”, compared to only 25% now. Seeking Understanding vs. Executing Amid uncertainty about the primary role of the digital channels, retailers are still very clear about one thing: the customer experience should be consistent across all selling channels (Figure 9). Retailers have most frequently cited this as a top-three opportunity in our studies over each of the last three years. More interesting is the rise in importance for “inventory visibility across all channels” and “fulfillment”. Whereas in the 2012 study, 70% of responding retailers said that 360° of inventory visibility was “very important”, this year the number has risen to 80%. Similarly, omni-channel fulfillment was rated “very important” to 59% of retailers, today the number has risen to 75% (a 27% increase in importance). The two processes, inventory visibility and fulfillment, are closely related, as we discussed in the introduction to this report. But as we will see later, Winners have made far more progress to make those “real” than their under-performing competitors.
    • 12 Figure 9: High Points for Value Source: RSR Research, June 2012 Looking at details of omni-channel processes, an interesting exception jumps out. Laggards place far more importance on “Customer segmentation” and “pricing strategies” (67% & 67%) than Winners do (38% & 49%). This echoes a finding from RSR’s April 2013 report on retailers’ pricing strategies We noted that, “Laggards drive most of the interest across the board around customer data. Historically it has been Winners who have expressed the most interest in using customer data elements … That has changed. Laggards consistently rated customer purchase history, demographics, segmentation, even social media sentiment as highly valuable, in some cases doubling down over Winners. The biggest difference came from customer social media sentiment, where laggards outstrip Winners' interest in this data element by more than 2 to 1. Winners appear to be more cautious in embracing some of these data elements.” 2 2 Tough Love: An In Depth Look at Retail Pricing Practices, Benchmark 2013, pp. 18-19, © RSR Research, April 2013 13% 33% 42% 44% 46% 50% 52% 53% 64% 73% 75% 80% 84% 54% 48% 55% 49% 44% 47% 41% 43% 36% 21% 19% 16% 16% 33% 19% 3% 7% 10% 3% 7% 4% 0% 6% 5% 4% 0% Traditional advertising Customer call center Procurement/Assortment Demand Forecasting Customer segmentation Store Operations Loyalty management Pricing strategies Digital marketing (E-commerce, Mobile, Social Media) Customer Order visibility across all channels Fulfillment Inventory visibility across all channels Consistent customer experience across all channels Value of Processes toYour Company’s Omni-channel Strategy Very Important Some Importance Little to no Importance
    • 13 Laggards see the opportunity to learn more about their customers through information collected from omni-channel paths-to-purchase, but their goal is to tune up their pricing strategies. Winners are less concerned about using new customer analytics to drive pricing, but are focused more on getting total shopping experience from product investigation through fulfillment right. It comes down to “understanding vs. execution”; Laggards are trying to understand their consumers through the lens of new behavioral attributes, while Winners are more focused on the value of executing in the new omni-channel model. Only For the Big Players? With these findings in mind, the next question is more pragmatic: what in fact are the omni- channel opportunities for retailers right now? The one standout for more than 50% of the respondents has to do with the basics of customers buying something, taking possession of it, and being able to return it (Figure 10). Figure 10: “If Wishes Were Horses, Beggars Would Ride” Source: RSR Research, June 2013 At face value, the responses for all the other opportunities seem somewhat pessimistic, compared to the value rating that respondents give to various omni-channel processes cited in Chart 9. For example, “a consistent customer experience across all channels” is considered the most valuable process for a successful omni-channel strategy, and yet only 40% of our respondents see real opportunities right now to “create a single brand identity across all channels”. 20% 21% 28% 35% 40% 45% 66% Leverage customer knowledge and information assets across channels Use the digital channels to build a sense of “community” around our Brand Use the digital channels to drive traffic to stores Allow inventory allocated for one channel to be used for another channel's fulfillment Create a single brand identity across channels Improve operational execution across all channels Allow the customer to purchase, take delivery, or return a product through the channels of their choice TopThree (3) Opportunities to Create Improved Customer Satisfaction Across Channels?
    • 14 To understand the responses, it was necessary to look at them by revenue band. It turns out that the pessimism is driven by retailers with revenues less than the equivalent of $1 Billion (Figure 10). Figure 11: Size Matters Source: RSR Research, June 2013 There is an unfortunate perception that creating a single brand identity across all channels, enabling anytime/anywhere shopping, and running the omni-channel model efficiently are opportunities only available to those retailers that can afford the technologies that support them. We will see in the Technology Enablers section of this report that systems to support distributed order management, cross-channel customer analytics, enterprise-wide inventory visibility, and others are viewed as valuable only to the big operators – not the mid-market and small retailers. This represents a challenge and an opportunity to the technology solutions community, which clearly has not done enough to demonstrate to retailers that their technologies (and their price tags) can be scaled down to meet the needs of small and mid-sized operators. 44% 39% 53% 40% 33% 77% 58% 67% 75% Improve operational execution across all channels Create a single brand identity across channels Allow the customer to purchase, take delivery, or return a product through the channels of their choice Top Opportunities Over $5 Billion $1Billion to $5 Billion < $1 Billion
    • 15 Organizational Inhibitors Not Getting it Done, Despite Generally Adequate Resources The primary barriers to executing an effective omni-channel strategy center on fragmentation: fragmented systems, fragmented organizations and fragmented metrics. This theme is re-stated throughout this study. It appears that retailers know what to do. They’re just not executing on an omni-channel vision. Typically, when we get into this section of a benchmark, regardless of the topic we see similar answers bubble to the top of the list: not enough people and money to execute on technology initiatives and lack of business user willingness to change. Yet we don’t really see that here. In fact, it appears as though retailers are opening their wallets and minds to omni-channel initiatives. As we can see in Figure 12, only 15% of respondents identify constrained IT staffs as a top- three concern, down from 38% last year. That’s a dramatic shift. And less than a third of respondents cite store-oriented merchandising strategies as a top-three barrier to change (Figure 8). Figure 12: Willing to Allocate People and Funds, but Still Not Getting it Done Source: RSR Research, June 2013 We found a similar situation in our recent eCommerce benchmark, “The Multi-channel Retailer’s Reality in a Post-Amazon World” (November 2012). Getting IT resources was the least frequently 38% 25% 25% 28% 25% 22% 28% 42% 55% 15% 18% 27% 31% 35% 35% 37% 42% 54% IT personnel are too constrained to take on more projects E-commerce systems are too difficult to change & adapt to an omni-channel strategy Budgetary constraints prevent us from moving forward with cross-channel strategies Merchandising strategy is too store-oriented Our IT systems were not designed to incorporate customer insights into processes Mismatched metrics & incentives slow cultural acceptance Store systems are too difficult to change & adapt to an omni-channel strategy Inventory & Order management are not integrated across channels We don't have a single view of the customer across channels TopThree (3) Organizational Inhibitors Standing in the Way ofTaking Advantage of Omni-channel Opportunities 2013 2012
    • 16 cited top-three Organizational Inhibitor (18%). Retailers clearly recognize the importance of converging physical and digital channels. But recognizing importance is just the first step on what is apparently a very long path. Winners Take a Different Point of View The data takes on a more traditional flavor when we take a look at answers based on sales performance. As a general rule in our surveys, we find laggards tend to focus on the end, but don’t place enough importance on the means to that end. Figure 13 certainly reinforces that view. Figure 13: Willing to Allocate People and Funds, but Still Not Getting it Done Source: RSR Research, June 2013 Laggards are most apt to cite lack of synchronization of customer, inventory, and order systems as a top-three concern, while Winners are more evenly split: they do recognize the synchronization problem, but also recognize the inadequacy of the systems, processes and strategies they have in place. Laggards also recognize mismatched metrics and incentives as a significant organizational inhibitor – far more than Winners or average performers. Of all our respondents, Average performers are particularly concerned about changing their eCommerce systems and have the most concern about allocating IT resources. They are stuck between a rock and a hard place: wanting to catch up with Winners but not easily able to get the funding to do so. 11% 0% 56% 67% 22% 44% 22% 67% 26% 35% 35% 39% 22% 26% 22% 61% 10% 12% 31% 38% 38% 40% 45% 48% IT personnel are too constrained to take on more projects E-commerce systems are too difficult to change & adapt to an omni-channel strategy Mismatched metrics & incentives slow cultural acceptance Inventory & Order management are not integrated across channels Merchandising strategy is too store-oriented Store systems are too difficult to change & adapt to an omni-channel strategy Our IT systems were not designed to incorporate customer insights into processes We don't have a single view of the customer across channels Organizational Inhibitors that Differ Based on Performance Retail Winners Average Performers Laggards
    • 17 Why Can’t We Just Fix the Things that Hold Us Back? In some respects, we see a relatively clean match between the organizational inhibitors retailers identify and the tools and techniques they believe will help them overcome them. Overall, our respondents seem to be saying “Well, these are the problems…let’s just fix them.” As we can see in Figure 14, our retailers say “Okay…if the problem is lack of integration of inventory and order management, let’s make it right. Our problem is unconsolidated views of customers, so let’s consolidate them.” Figure 14: …And What Can We Do About It? Source: RSR Research, June 2013 It’s not about money. In a way, it’s not even about resource allocation – it appears to be a matter of untangling the mélange of data spread around the organization, normalizing it, and putting the pieces back together again. And as we’ve known for a very long time, these things are easier said than done. Different Solutions for Different Sub-verticals There are some variations to perceived solutions depending on sub-vertical. • Retailers selling Consumer Electronics and durable goods are most interested in consolidating customer data across channels. 15% 20% 28% 30% 34% 35% 35% 43% 54% Implementation partners to ease the IT personnel burden Replace eCommerce systems with modern technology Improved integration tools Replace store systems with modern technology Gaining better insight into cross-channel influences on our business, in order to build a stronger business… Changing organizational structures to be brand-, rather than channel-specific Gaining better insight into cross-channel customer behavior, in order to prioritize opportunities Consolidate our customer data across channels Integrate inventory & order management across channels Overcoming Organizational Inhibitors
    • 18 • Retailers selling fashion and short lifecycle product as well as those selling basics/replenishment items see more urgency in changing their organizational structures to be brand, rather than channel specific. • Fashion and short lifecycle retailers are also most interested in replacing their eCommerce systems with modern technology. These retailers are really using digital channels as a proxy for touching and feeling products. As a result, the need for more dynamic visualization tools, along with personalized cross-sells and up-sells is more critical. Still, all respondents see significant opportunity in integrating inventory and order management across channels. Treating inventory as a shared asset gives retailers their best opportunity to drive profits to the bottom line and improve inventory ROI. Some Significant Differences Depending on Performance When we look at perceived solutions by retailer performance, we do see a few differences. In particular, laggards are virtually unanimous in their desire to integrate inventory and orders across channels. Eighty-nine percent cited this as a top-three way to overcome the problems in front of them, vs. approximately half of all other respondents. These retailers are likely the most cash-strapped and need to improve their return on inventory investments. Laggards are also the most interested in changing their organizational structures. Fifty-six percent cite this as a top-three way to overcome the issues they face internally vs. approximately a third of the remaining respondents. In summary, this is one of the more unusual situations we’ve seen in our coverage of the retail industry. We have the will, we have the money, we have allocated the resources, yet the problems seem overwhelming. Which leads us to finally ask the question, how can technology help? What are retailers plans?
    • 19 Technology Enablers Much To Do In 2012, when we asked retailers to weigh the value of various technologies enabling an omni- selling model, the focus was very clearly on understanding the customer: first in getting some visibility into customer behaviors, and then in analyzing what they saw to gain a better understanding of those behaviors. But as we’ve discussed earlier in this report, this year there is a definite shift towards delivering on the “back end” of consumer’s paths to purchase, order and fulfillment. Consistent with that, respondents to this study weigh the technologies that enable consumers to select and purchase things across channels, such as enterprise-wide inventory visibility, distributed order management (DOM), and mobile enablement (Figure 15). Figure 15: A Pragmatic Shift In Focus Source: RSR Research, June 2013 That is not to say that retailers are losing focus on gaining customer insights and analyzing them. In fact, both capabilities, in addition to inventory visibility and DOM, are particularly important to 13% -39% 0% -25% 8% -18% -5% 18% -16% -10% 4% -13% 15% 27% 28% 41% 43% 51% 51% 58% 59% 65% 66% 68% 73% 84% 24% 46% 41% 58% 47% 63% 61% 50% 77% 73% 65% 84% 73% A Call Center solution Integration to social network tools and sites A more modern POS platform A more modern eCommerce platform A mobile commerce platform Enterprise-wide marketing/promotions platform Enterprise content management Distributed order management Enterprise-wide customer insights A single customer interaction platform across channels Enterprise cross-channel analytics Enterprise-wide customer visibility Enterprise-wide inventory visibility TheValue Of EnablingTechnologies (ranked 'Very Valuable') 2012 2013 YOY Difference
    • 20 both Winners and Laggards (curiously, far fewer average performers assign high value to those capabilities, driving the average value down). This shift is a pragmatic one that points to the importance of anytime/anywhere selling, as was illustrated in Figure 2. What may have been new and exciting just a few years ago is an expectation now, and as pointed out already, multi-channel customers are the most profitable. The Customer-Centric Portfolio Retailers of all stripes have internalized the obvious importance of technology in enabling the digital side of an omni-channel selling capability, and roughly one-half of our respondents have technologies in place now to support the capabilities (Figure 16). Figure 16: The Technology Priority List Source: RSR Research, June 2013 The overall rate of adoption is driven by very large retailers (> $5B equivalent) especially as relates to enterprise-wide inventory visibility (63% compared to 54% overall) and cross-channel analytics (63% compared to 46% overall). Almost 40% more large retailers than the overall response group have also integrated with social network tools and sites. On the other hand, 41% 46% 43% 51% 46% 49% 47% 51% 46% 41% 46% 54% 54% 32% 40% 46% 43% 45% 46% 43% 35% 43% 47% 48% 43% 34% A Call Center solution Integration to social network tools and sites A more modern POS platform A more modern eCommerce platform Enterprise-wide marketing/promotions platform A mobile commerce platform Enterprise content management Distributed order management Enterprise-wide customer insights A single customer interaction platform that crosses channels Enterprise cross-channel analytics Enterprise-wide customer visibility Enterprise-wide inventory visibility Omni-ChannelTechnology Usage Implemented Budgeted/Planned
    • 21 fewer large retailers than the overall group have modernized their in-store POS systems to integrate with omni-channel selling (underlining the difficulties and costs associated with converting a large number of lanes). Where Are The Best Opportunities? Examining retailers’ perception of value of various technologies compared to what they’ve actually implemented yields an interesting picture. Consistent with what we’ve seen thus far, the best opportunity for technology enablement is in creating enterprise-wide visibility of inventory (Figure 17). Figure 17: The Budget and the Wish List Source: RSR Research, June 2013 Creating inventory visibility across the enterprise is a huge task for many retailers, since it gets not only to the basic capabilities of the legacy merchandise management system, but also how often and how well the selling systems (such as in-store POS) notify the merchandise management system of item movement in something approaching “reasonably real time”. The ability to commit a product to sell anywhere, and at anytime is dependent on “360° of inventory visibility”, but making that happen is likely to be an expensive, complex, and time consuming effort. It’s important to note however, that retailers aren't shying away from that task, nor are they ignoring the just-as-pressing need to understand their customers better than they ever have before. Whereas the analytics of the past focused primarily on what product was selling when 20% 30% 40% 50% 60% 70% 80% 90% Omni-Technology: Current Status vs. Perceived Value Implemented "Very Valuable"
    • 22 and where, retailers know that they must understand how products and services are being selected and purchased, and who is doing the purchasing. Because of this new reality, “customer visibility”, “customer insights”, and “a single customer interaction platform that crosses channels”, all present huge opportunities for both retailers and the technology companies serving them. What About Mobile? Throughout this report and in our work generally, RSR has made a pretty big deal of the fact that “smart mobile” is the technology trigger that brought the need for an omni-channel selling environment to the forefront. Consumer studies abound, and they all say the same thing: consumers everywhere have integrated smart-mobile capabilities into their lives. For retailers, it has meant a fundamental change; the consumer now carries “the store” around in his pocket or her purse, and that changes the very fundamentals of how retailers and consumers interact. But in this study, having “a mobile commerce platform” is given short shrift. How can it be? The answer is in the data point below (Figure 18). Retailers far prefer to use a mobile-optimized web page that links to the existing e-commerce platform than implementing a separate mobile capability. Figure 18: How Much Convergence is Really Needed? Source: RSR Research, June 2013 This finding reflects something we discovered in our December 2012 study entitled The Impact of Mobile in Retail, where, “84% of Retail Winners (even more than the 73% of laggards) say that an ecommerce site that can extend to mobile is very valuable”. 3 As we noted in that report, the complexities associated with developing and managing mobile applications have caused many retailers to look for an alternative. But recent improvements in the language of the web – HTML5, deliver many of the perceived advantages of a mobile application, particularly those relating to geo-location based applications. Retailers hope that the value of mobile can be realized without having to manage all the complexities of a mobile application environment. 3 The Impact of Mobile in Retail, December 2012, © RSR Research LLC 50% 24% 3% 24% A mobile-optimized web page linking to our existing E-commerce site A customized downloadable mobile application A 3rd party downloadable application that features our brand (among others) Don't know/can't say ForYour Mobile Selling Channel,WhatTechnology DoesYour Company Prefer?
    • 23 Keeping Options Open In theory, the same information and the same business rules should be employed uniformly across all selling channels, eliminating the need for separate selling systems for different selling environments. Theory notwithstanding, most retailers aren’t buying it. They contend that there are differences between the physical selling environment (the stores) and the digital environments that can’t be ignored (for example, store POS registers have to be able to calculate and dispense change). For that reason, a majority of retailers want to keep their options open (Figure 19). Figure 19: Winners Believe in Channel Platform Convergence Source: RSR Research, June 2013 Summing It Up Retailers know that they need to modernize the IT portfolio to support consumers’ new digitally- empowered paths-to-purchase. But, to use an analogy, they also know that they can’t “boil the ocean”, and must prioritize the re-engineering efforts needed to support a new omni-channel selling model. “Enterprise-wide inventory visibility” potentially gets to the heart of the merchandising operation, and is a necessary prerequisite to being able to efficiently support anytime/anywhere shopping. But it’s important to remember that consumers give retailers no credit for being able to reliably commit inventory to sell – they assume that to be the case. For this reason, RSR believes it is important to also aggressively pursue technologies that can help retailers reach customers in new ways, like the ability to capture and analyze customer insights, and a marketing/promotions platform to enable new digital marketing capabilities. Finally, retailers need to start to consider the long-term implications of omni-channel selling on the supply chain design – but that’s the subject of another study! 4% 10% 34% 52% There will always be stand-alone commerce platforms for each channel Non-store (digital) channels will converge to a shared platform All of our selling platforms will converge to a single platform There are some opportunities for convergence to a shared platform, but there will always be a need for some stand-alone capabilities in each channel To What Extent areYou RethinkingYour Selling Platforms for the Longer-term Future?
    • 24 BOOTstrap Recommendations Surviving and Thriving in the Omni-channel Age The retail world has fundamentally and irrevocably changed. It’s not the first time we’ve seen such a dramatic shift. We need only go back a decade to the time when many retailers quaked in the face of ever-growing behemoth Walmart. In 2004, as part of research reports and speeches co-author Paula Rosenblum exhorted retailers to contemplate living in a post-Walmart world. The company wasn’t going away so the question became “How do we survive and thrive within it?” We say the same today. We are living in a post-Amazon world. Rapid order fulfillment is now a given. The question that remains is “How do we differentiate from Amazon and do it profitably?” Following are our recommended steps to success. Design the Customer Experience You Want for your Brand RSR has said this many times before, but it’s the place to start. Key questions to ask: • What do you want to stand for? • What do you want your “advocates” to say about you? • What is the role of digital channels for your brand/company? Once you’ve answered those questions it’s time to go back to the root – the store. It has grown popular to say “the store is dead” or “the store is losing relevancy” but in fact, in general people are social. They would prefer to talk to humans, to touch what they’re buying, to have a place to take their kids, or get away from their kids. It’s a huge differentiator. Don’t force the issue by creating “store only” promotions, but make it a destination. Align Your Organization around Your Brand Some retailers have created a separate head of “omni-channel” strategies and activities. This may not be appropriate for many retailers. It may be more appropriate to align all channels under one executive. We aren’t going to make that call. Our point is just to say “Do something!” Spend Time Understanding Paths to Purchase On the one hand, consumer paths to purchase can appear chaotic. They have so many tools at their disposal and the mobility explosion allows them to stroll down that path at unlikely times, in unlikely places. But pulling back and looking at aggregated data should reveal some patterns that are unique to your brand. Analytics can help you understand the more typical paths of your customers. Think About a Single Customer Interaction Platform We’ve often said that the explosion of information and selling channels cries out for a different kind of systems architecture. It’s one that’s extensible and fluid. We can no longer survive on point-to-point integration. There are just too many integration points and they multiply every time another channel erupts. As tedious as it may sound, we have to think about architecture. Without a solid foundation, the house of cards that is our cross-channel strategy will just fall down. Understand the Implications to your Supply Chain We, and others, have spent a lot of time talking about the implications of omni-channel shopping to the sell-side of the retail business. But the implications to the buy-side of the business are enormous. Retailers build revenue on the sell-side of the business, but build profits on the
    • 25 buy-side. While retailers have mostly used price as a lever to drive profits, in an omni-channel world, the Winners will also use the supply chain to drive profits. Amazon has raised the bar on responsiveness, but it is up to others to also do it profitably. We strongly recommend retailers take a look beyond pricing and promotions and put more focus on responsiveness and return on inventory investment. Clearly most of us will not find value in air-shipping consumer orders from half-way around the world. But most of us can find value in creating a supply chain that responds to changes in demand by altering supply. That’s a 360 degree picture of the omni-channel world.
    • a Appendix A: RSR’s Research Methodology The “BOOT” methodology is designed to reveal and prioritize the following: • Business Challenges – Retailers of all shapes and sizes face significant external challenges. These issues provide a business context for the subject being discussed and drive decision-making across the enterprise. • Opportunities – Every challenge brings with it a set of opportunities, or ways to change and overcome that challenge. The ways retailers turn business challenges into opportunities often define the difference between Winners and “also-rans.” Within the BOOT, we can also identify opportunities missed – and describe leading edge models we believe drive success. • Organizational Inhibitors – Even as enterprises find opportunities to overcome their external challenges, they may find internal organizational inhibitors that keep them from executing on their vision. Opportunities can be found to overcome these inhibitors as well. Winning retailers understand their organizational inhibitors and find creative, effective ways to overcome them. • Technology Enablers – If a company can overcome its organizational inhibitors it can use technology as an enabler to take advantage of the opportunities it identifies. Retail Winners are most adept at judiciously and effectively using these enablers, often far earlier than their peers. A graphical depiction of the BOOT follows:
    • b Appendix B: About Our Sponsor hybris helps businesses on every continent sell more goods, services and digital content through every touchpoint, channel and device. hybris delivers "OmniCommerce™": state-of-the-art master data management and unified commerce processes that give a business a single view of its customers, products and orders, and its customers a single view of the business. Over 500 companies have chosen hybris, including global B2B sites W.W.Grainger, Rexel, General Electric, Thomson Reuters and 3M as well as consumer brands Toys“R”Us, Metro, Bridgestone, P&G, Levi's, Nikon, Galeries Lafayette, Migros, Nespresso and Lufthansa. hybris has operations in 15 countries around the globe. For more information, go to http://www.hybris.com/en/. Appendix C: About RSR Research
    • c Retail Systems Research (“RSR”) is the only research company run by retailers for the retail industry. RSR provides insight into business and technology challenges facing the extended retail industry, providing thought leadership and advice on navigating these challenges for specific companies and the industry at large. We do this by: • Identifying information that helps retailers and their trading partners to build more efficient and profitable businesses; • Identifying industry issues that solutions providers must address to be relevant in the extended retail industry; • Providing insight and analysis about a broad spectrum of issues and trends in the Extended Retail Industry. To download this or any other report, as well as sign up for our weekly newsletter, register at http://www.rsrresearch.com/registration/ or follow this QR code: Copyright© 2012 by Retail Systems Research LLC • All rights reserved. No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher. Contact research@rsrresearch.com for more information.