As the omni-channel ecosystem undergoes evolution, retailers will need to make investments in the same to ensure a seamless experience. A significant majority of retailers have invested in omni- channel capabilities, given the quest to gain competitive advantage. In our report titled Winning the omni-channel retail race, we established that Innovative omni-channel retailers added 2.9 percent of economic value compared to -0.6 percent for risk averse retailersxxiii. However, the holiday season exposed flaws in current operating models of retailers, and the need to refine in- store processes and supply chains. For example, BOPUS serves to provide retailers with an additional opportunity to cross-sell and upsell to customers, generate savings by avoiding shipping costs altogether, and reduce order wait times drastically when done correctly. But retailers experienced several operational issues with one counter catering to in-store pick up and returns. To address these issues, Walmart is piloting a model kiosk at select locations, that fulfills BOPUS orders automaticallyxxiv.
Additionally, achieving streamlined omni-channel fulfillment requires retailers to re-align their inventory management strategy. Currently, retailers do not have single view of SKU levels across channels. Hence, real-time inventory visibility and data integrity will be key for retailers.
Retailers need to invest in alternative solutions to address fulfillment issues, as last mile delivery remains a key challenge. The 2016 holiday season saw record growth in e-commerce, with both Cyber Monday and Black Friday clocking USD 3.45 Billion and USD 3.34 Billion in sales respectivelyxxv. The need for diversified delivery options has become more evident with this online proliferation. The near exponential online growth is putting pressure on traditional logistics players. While on-time delivery rates have been better than last year, they are still below the annual average for most of the logistics providersxxvi. To handle the volumes, shippers stretched delivery times on some routes and even suspended delivery time guarantees. To counter this, retailers partnered with innovative sharing economy based companies such as Deliv and Uber to extend their reach in the physical world. Another approach has been the application of robotics and IoT, whereby a combination of drones and smart sensors will enable retailers to understand delivery and logistics patterns for a given area so as to optimize schedules and modes of delivery. This in turn requires retailers to develop analytics capabilities to harness operational and transactional data from their deliveries, and gather insights.
While a myriad of possibilities exists, retailers need to strike a balance between cost and customer satisfaction. Walmart launched the ShippingPass program in May 2015, a subscription based program similar to Amazon Prime in select geographies. Though it made the program available for all US consumers in July 2016, it scrapped the program recently and replaced it with free two-day shipping at a reduced threshold order value of USD 35xxvii.
Shift towards online spending will pressurize retailers to monitor store performance and rework their real estate strategy. While online channels account for a minor proportion (8.3 percent) of quarterly retail sales, they have a much wider influence on customers shopping habitsxxviii. Specifically, emergence of online channels has led to retailers reassessing their real estate portfolios as store closures are announced more and more frequently. Our analysis reveals that of the twenty-seven retailers considered, a third reported store closure count greater than 20 percent of their 2010 footprint (Exhibit 9).This is driven by increasing online sales coupled with decreasing in-store foot traffic at brick and mortar stores. Two major department store chains, Macy's and JC Penney announced the closure of 100 and 140 stores respectively to improve operational efficiency and make suitable investments in digital channelsxxix.
i. Holiday Retail Sales Increased 4 Percent in 2016, National Retail Federation, January, 2017
ii. National Retail Federation Forecasts Holiday Sales to Increase 3.6%, National Retail Federation, October, 2016,
iii. Mobile Pushes 2016 Online Holiday Spending Above $80 Billion, Comscore, February, 2017
iv. Lowe's Surges in Fourth Quarter, Chain Store Age, March, 2017
v. Home Depot Surges Amid Higher-than- Expected Sales, Profit, Chain Store Age, February, 2017
vi. Amazon Sees 72% of Holiday Shopping Coming from Mobile, Internet Retailing, January, 2017
vii. Retailers Made Black Friday Irresistible for Consumers with Great Deals, Online and In-Store, National Retail Federation, November, 2016
viii. 156 Million Americans Plan to Shop on Super Saturday, National Retail Federation, December, 2016
ix. Holiday Sales Trends Heighten Brick-and- Mortar Woes, Emarketer, January, 2017
x. Why Off-Price Retail is Rising as Department Stores are Sinking, Retail Dive, February, 2017
xi. Holiday Sales Struggles Again Plague Department Stores, Retail Touchpoints, February, 2017
xii. Wal-Mart Amps Up In-Store Customer Service - And it Pays Off in Holiday Quarter, Market Watch, February, 2017
xiii. Fourth Quarter and Fiscal Year Press Release, Gap Inc., February, 2017
xiv. Eleven Consecutive Billion-Dollar Days of Online Desktop Spending from Thanksgiving through Cyber Week Mark the Longest Streak Ever, Comscore, December, 2016
xv. Why Holiday Marketing Sparkled a Little Less Brightly in 2016, Retail Dive, January, 2017
xvi. Target Now Ships Online Orders from More than 1,000 Stores, Internet Retailer, November, 2016
xvii. Inventory Visibility - The Real Omnichannel Challenge, Multichannel Merchant, October, 2016
xviii. Why do so Few Shoppers Think of BOPIS as a 'Smooth' Process? Retail Wire, February, 2017
xix. The 7 Trends that will Shape Apparel Retail in 2017, Retail Dive, January, 2017
xx. 156 Million Americans Plan to Shop on Super Saturday, NRF Press Release, December, 2016
xxi. Based on NRF Gift Cards Data, NRF Retail Insight Center, Extracted, March, 2017
xxii. Black Friday Traffic Surges Slow Retailers' E- Commerce Sites, Internet Retailer, November, 2016
xxiii. Winning the Omni-Channel Retail Race, WNS DecisionPoint™, August, 2016
xxiv. Is Walmart about to Revolutionize Buy Online Pickup In-Store? RIS News, October, 2016
xxv. Cyber Monday Hauls in $3.45B of Online Purchases, Smashing the Single-Day Sales Record, Bloomberg, November, 2016
xxvi. UPS, Fedex On-Time Delivery Falls Due to Holiday Package Surge, Supply Chain Dive, December, 2016
xxvii. Walmart Takes Direct Aim At Amazon Prime's Free Shipping, Chain Store Age, January, 2017
xxviii.Based on Quarterly Retail E-Commerce Sales, US Census Bureau, February, 2017
xxix. Moody's Sees Further Department Store 'Rationalization', Chain Store Age, February, 2017