Omnichannel: Why There’s Hope for Retailers After Amazon
As everyone knows, Amazon has completely upended the bricks-and-mortar retail industry. The downfall of Sports Authority and the bankruptcy of Toys “R” Us are commonly attributed to the broad choices, lower prices, and almost-instant gratification offered by the Seattle-based online behemoth. And many more Mom-and-Pop stores that don’t have national name recognition but were still important to their communities have shut down as well.
But the story isn’t as simple as saying that online has triumphed. If anyone tells you that brick-and-mortar stores are dead, you might point out that 94% of all retail sales in the United States still take place in physical stores. With $3.9 trillion in annual sales, the 1.1 million brick-and-mortar retail storefronts in this country are here to stay.
That isn’t to say that online sales aren’t thriving. Online retailers rang up more than $294 billion in sales in 2017—a figure that is predicted to rise to $414 billion by the end of 2018. As a percentage of global retail sales, in 2017, online sales accounted for 10.2% of all retail sales worldwide. This is expected to reach 17.5% by 2021, but that still leaves a lot of demand for physical stores to snap up most consumers’ dollars.
So what’s really going on?
The move to omnichannel
It’s a clunky mouthful, but omnichannel retailing has arrived with a vengeance. Omnichannel means that today’s retailers are selling through all possible channels: online, brick-and-mortar, and creative combinations of the two. And omnichannel retailing pays off. Businesses that adopt omnichannel strategies achieve 91% greater year-over-year customer retention rates compared to businesses that don’t.
A case in point: Beauty chain Ulta found that its omnichannel shoppers—those customers who shop at both its online and brick-and-mortar stores—spend nearly three times as much as customers who only shop at its physical locations.
In the new omnichannel world, everyone is jumping in with both feet. We’re seeing brick-and-mortar retailers innovate online, and online retailers venture into the physical world.
Ulta Beauty was already one of the largest U.S. brick-and-mortar retailers and is currently the fastest growing specialty online retailer after making a big digital splash in 2016. By 2017, Ulta’s digital sales had increased a staggering 71% in the first quarter alone, contributing to a 14.3% increase in overall sales for the brand.
Then you’ve got Amazon moving in the other direction. Despite being responsible for 44% of all digital sales worldwide, Amazon has recently made several moves toward selling via physical stores. It bought Whole Foods, and inked a deal with Kohl’s so that Kohl’s stores will accept Amazon returns.
And recently—and, many feel, rather ironically—Amazon opened a chain of its own branded bookstores. Amazon Books are currently in 13 locations across the country, with more outlets planned. In its 2017 annual report, Amazon reported $1.3 billion in physical store sales, breaking out brick-and-mortar business revenues for the first time.
Customers want it all
Why is this happening?
Although everyone likes the convenience of clicking a button and getting a next-day delivery, no one likes ill-fitting jeans or poor-quality kitchenware. You have to sit on a sofa or drive a car before making a big purchase like that. Returning products bought online is a hassle (and can cost you extra for shipping and restocking). This is why so many consumers are mixing it up, bringing their smartphones with them to physical stores so they can see, try on, or test the product they want, then conveniently—and more cheaply—get it online.
In fact, just 7% in a recent Harvard Business School study were online-only shoppers and 20% were store-only shoppers. The remaining majority, or 73%, used multiple channels when on their shopping journeys.
Naturally, omnichannel shopping habits have even earned their own retail nicknames. Customers who shop in physical stores but make their purchases online are going the “brick-and-click” route, whereas people who buy online but prefer to pick it up at a physical location are “click-and-collect” buyers.
Brick-and-mortar stores become “experiences”
Going omnichannel means more than just building a website or opening a storefront. Retailers must create personal experiences throughout all channels. This means understanding customers at every point where they touch the brand: in the physical store, online store, in-app notifications, email, or social media. In short, cross-channel personalization is critical to succeeding at omnichannel.
And as retailers enter the second half of 2018, they are already seeing that if customers are going to visit a store, it needs to be about more than just the transaction. Retailers need to offer something you can’t get online. They need to offer an experience.
As an example of a retailer that successfully did this, Nike opened a new five-story, 55,000- square-foot store in New York City. The store encompasses an indoor basketball court, a treadmill, a soccer field, and a “shoe bar” for personalizing Nike shoes for individual customers.
How to go omnichannel
Here are three steps on moving to the right mix of digital and physical.
1. Know your customer across access points. A full 98% of Americans switch between devices in the same day, according to Google. Fifteen years ago, the average consumer typically used two touchpoints when buying an item and only 7% regularly used more than four. Today, consumers use an average of almost six touchpoints. This means you need to recognize your customers across all their devices, apps, and ways of interacting with you.
2. Make customer service omnichannel as well. More than 35% of customers expect to be able to contact the same customer service representative on any channel. And 64% of customers expect to receive real-time assistance regardless of the customer service channel they use.
3. Provide a seamless experience. A full 87% of customers think retailers need to put more effort into providing a seamless experience between channels. So if they buy from one channel, they should be able to return to another without hassle. Don’t underestimate this requirement.
Ugg has caught on. It sells through physical stores, wholesale partners, an e-commerce site, and a mobile app, but has created a seamless shopping experience across all these channels. Customers can shop online, pick up in-store; search products online while in store; win loyalty points no matter how they purchase; return product across channels; and offer customer service and pricing consistently across channels. This allows in-store salespeople to help customers find and purchase products not found in stores.
As more retailers adapt to the changing expectations of customers, we see a new omnichannel retail world come into focus. No, brick-and-mortar retailing is not dead. Yes, many retailers who didn’t understand what customers wanted are no longer in the game. But others are flourishing in omnichannel splendor. Get going on omnichannel if you haven’t already.