Retailers face various challenges when they add an online sales channel to their strictly brick and mortar retail presence, such as building a transactional website, integrating it to their operational systems, and building their online marketing plan.
However, they encounter their biggest challenges when they begin to expect significant growth from the online channel, and begin to implement truly omnichannel strategies.
My consulting work with B2B and B2C merchants, and my discussions with my E-business Strategy students at HEC Montreal, have both highlighted that the common challenge for retailers is to fully embrace the unique strategic advantages of e-commerce instead of replicating their traditional (brick) business online.
Here are 8 strategic challenges that merchants need to address in order to control their own digital transformation before being disrupted by their competition… or their own customers.
Access to new markets and customers, especially international markets is a key growth factor for many e-commerce businesses; being online means being able to reach anyone that understands the site’s language and could be interested by its offering.
Retailers from Quebec only account for $1,7B of the $6,6B of online purchases made by Quebecers online, and Quebec online retailers only sell for about $600M outside of the province: this gap is dramatic1.
Sadly, many merchants build their online presence to “better serve their customers”, but fail to realize that their online customer base could be much larger, or completely different (think greater focus, access to a critical mass in specific demographics, etc.)
The ability to market an extremely large number of products, including the long tail (endless aisle) and to satisfy niche markets extremely well is another path to e-commerce success that could never be achieved offline.
Since e-commerce pages are cheaper than retail square footage, listing more products adds entry points to an e-commerce catalog (generating targeted search engine traffic and relevant landing pages for campaigns) and allows to sell exactly what the customer is looking for (with a higher margin).
The key challenge here is that e-commerce teams should work with procurement and category managers to adjust buying/markdown cycles to this new reality.
To fully profit from endless aisle strategies, some retailers may be able to leverage just-in-time procurement, inventory integration with suppliers or dropshipping to sell products that are not (and will never be) in their in-house inventory. If the customer can’t touch the product before ordering it, he doesn’t even need to know where it will be shipped from!
These integrations may require different partnerships and some automation that are not typical of more traditional retail buying forecasts/negotiation/cycles.
Furthermore, merchants need to step away from the boolean on-hand/out-of-stock paradigm, and adopt a philosophy based on availability delay: “In stock, same-day shipping”, “Limited quantities”, “In-stock, allow 48h for delivery” (implied: from another warehouse/store in our network), “Available within 2-3 weeks” (implied: from our supplier), etc. These various ordering case existed years before e-commerce for most merchants; why should e-commerce limit itself to a single “web inventory”.
After all, some customers won’t mind waiting a few more days (or even pay more)… to get exactly what they are looking for, and they shop online precisely because it offers them the broadest product selection.
Omnichannel logistics may bring additional solutions by leveraging store inventory and staff to fulfill online orders through “ship from store” schemes, or by driving customers to stores through “stock in store” or “ship to store” approaches. In many cases, having a great e-commerce site is still one of the best ways to bring people… to stores.
Although on the corporate level, these omnichannel approaches bring obvious advantages, fair attribution of the results and costs of omnichannel transactions is key to the success of such programs. This is where a relevant KPI framework, and a state-of-the-art analytics practice, is useful.
Most retailers with franchises or sales commissions also have to manage additional interests from these stakeholders. And, omnichannel returns also need to be addressed!
As most retailers already experience, stores still have a unique place in the future of retail because of the physical contact with the product they allow the customer. This experience can be enhanced by allowing store visitors to order online items directly from the store (a great way to leverage endless aisle strategies).
As some retail locations experience showrooming (a feared word for merchants, but a convenient way of shopping for consumers), it will be increasingly essential to monitor omnichannel customer behaviour to improve overall service, and to align staff/management incentives with the initiatives that bring long-term value to both the retailer and its customer base.
Some retailers will also discover that many (if not most) of their store visits depend on previous website visits.
The ability to continually optimize numerous online marketing campaigns according to their real-time results: instead of establishing rigid budgets months in advance, a mature e-retailer may prefer to set a specific advertising price to pay per sale (for a specific product) to guarantee a positive ROI… and let campaigns run as long as the return is satisfactory.
Marketing automation will also most probably become the norm, from targeted email to remarketing advertising.
All of this points to the fact that e-commerce and stores face fundamentally different economic challenges. A retailer with a decades-long brick presence has built numerous value-added services in its offline value proposition (e.g. knowledgeable staff, special events, trial or rental programs, warranties, repair, configuration, courses, financing, etc.)
These unique services are typically harder to migrate online (esp. internationally), and retailers will face a very difficult dilemma when adopting e-commerce: what part of this baggage is really essential to the online customer, and if we don’t offer these services, how will we differentiate from Amazon or any other online seller?
The strategies that can really make a differences are in many cases the ones that are the most disruptive. Digital and e-commerce teams need to be suspicious of any implementation request that comes with “it’s always been done this way in our industry”, and help their organization move past their initial e-commerce presence; however, the next step in the digital transformation will be a challenge for everyone in the organization, from procurement to HR, and from logistics to store managers.