Retailers Turn To Omnichannel Strategies To Remain Competitive

Samsung Business Contributor , Samsung Business

By Lisa R. Melsted

As the 2014 holiday shopping season ended, the hottest trend for retailers was not a “Frozen” doll, the latest HDTVs or even a fashionable luxury item. The biggest trend in retail was, in fact, something most consumers aren’t even aware of. Known as “omnichannel,” it’s a new approach to retailing that is transforming the way that retailers do business.

For consumers, omnichannel means being able to shop anywhere and receive goods in the most convenient way possible, says Leslie Hand, vice president of IDC’s Retail Insights team. But for retailers, it’s a “single version of the truth” for items, orders and customers, allowing employees to deliver goods consistently no matter where they are in the system.

Omnichannel strategies make the days of buying and receiving products through different channels (online, brick and mortar or even mobile) a thing of the past. Now that retailers are finally integrating these channels, consumers can buy what they need and choose how they get it. The process is seamless to the consumer, but behind the scenes, it’s a massive shift in how retailers operate.

New supply chain approaches

The omnichannel shift essentially places the consumer and their individual preferences at the center of all transactions and processes related to those transactions. According to Hand, a key element in how omnichannel strategies are changing the retail business model is applying new approaches and technologies to managing the supply chain.

Hand says major retailers, such as Macy’s and Nordstrom, have taken pains over the past few years to have an umbrella view of where each item of merchandise is in real-time, whether in a store, warehouse or distribution center. “If I want to have the customer order online, pick up in store or if I want to ship from store, I need to have a much higher level of surety in my inventory numbers,” Hand says.

To do this, retailers are integrating things such as RFID tags on merchandise or mobile, tablet-based Point of Service systems from providers such as Samsung with back-end systems, allowing them to track the locations of items so if an item isn’t available from a distribution center, it can be shipped or picked up from a store. Unfortunately, Hand says, most retailers’ estimates of what’s in store can range anywhere from between 60 to 90 percent accuracy.

To solve this problem, retailers are turning to order orchestration providers such as Order Dynamics to get a big picture view of their merchandise. According to Order Dynamics’ President John Squire, the company uses information gathered across the entire business to enable retailers to see where money is being made or lost. “When you have hundreds or thousands of stores in the fleet, it’s a daunting supply chain equation to solve for. The technology needs to be there to fulfill that customer demand,” he says.

Using a cloud-based order management system, the company’s order orchestration and routing technology helps more than 60 retailers worldwide manage surges in demand that can’t be fulfilled by distribution centers, Squire says. For instance, the system has helped retailers such as home décor provider Bouclair pinpoint stores that have products and decide whether items can be shipped from those stores. The system looks at how well those stores have fulfilled orders in the past and whether they can meet the delivery deadline for the customer to help determine the best location from which to ship.

Retail Strategy Research analyst Nikki Baird says many luxury retailers are leading the pack in innovative approaches to omnichannel supply chain strategies. For instance, Baird says Michael Kors allows its customers to return handbags to a their store regardless of whether the bag was bought at the store, online or at another retail outlet such as a department store; the Kors store will take the return, no questions asked.

“They’re looking at it like it’s all our inventory, it’s all our brand, so it’s worth it for us to maybe take a hit in terms of taking back inventory…because in the long run the relationship with the consumer will pay the dividend,” Baird says.

Visibility across the supply chain also allows retailers to ship items that are less likely to sell based on location. For example, Baird says, if someone in Miami is looking for a particular swimsuit online, that item may actually be shipped to them from a store in Maine because there’s a higher likelihood that item may have to go on sale in Maine than at a store in Miami, where it might go for full price.

Order Dynamics’ Squire says they offer tools that can help make such decisions possible by pulling in information from across the business—marketing, purchasing, etc.—to provide the best data regarding how orders are fulfilled, down to the level of individual stores, products and orders and even individual customers. Decisions regarding fulfillment are then based on profit and prioritized action, he says.

Data to lead them

IDC’s Hand predicts retailers will invest more in analytics, higher performing systems and security for customer data in 2015 to better understand consumer behavior both online and offline.

Baird agrees, but says retailers face many challenges when it comes to data integration. For instance, she says most departments within retail operations have their own analytics software, but an omnichannel approach requires a more holistic view. “Now these problems are crossing channels, and supply chain’s problems today are going to be a merchandiser’s problems tomorrow,” she says.

With customer expectations and demands at the center of omnichannel, the question of sharing customer data—which has traditionally been under the purview of the marketing department—across the enterprise and using it to determine supply and demand trends based on the individual will also be something retailers begin looking at, Baird predicts.

“Omnichannel is transformational. It changes everything that it touches in the retail business model, and we’ve only really experienced the first wave of that…this is the tip of the iceberg—these are going to be the trends that are influencing retail for the next 20 years, not just next year.”