Understanding

OMNICHANNEL

RETAIL
Beyond
Clicks vs. Bricks
Mihai Dragan

Table of contents
Executive summary
Market overview
Previous inhibitors
Enabling Technology
Mobile devices
Big Numbers and Big Data analytics
Omnichannel Building Blocks
Omnichannel retail facilities
Inventory consistency
Supply chain integration
Personalized retailing
Seamless commerce
Building a B&M store for the omnichannel future
Beyond the legacy POS
The store as a personal shopping hub
The store as a fulfillment hub
Supply chain management implications
Omnichannel Supply Chain
Implementing omnichannel retail
Stage 1: Boardroom buy-in
Stage 2: Executive Management adoption and coordination
Stage 3: Company wide adoption and implementation
Stage 4: Communicating change to customers, evaluation and improvement
Fastest growing omnichannel retailers
Trends shaping the future of retail
Mass customization
A need for improvement in the attribution model
Predictive personalization
Brick and Mortar retailers closing stores
Showrooming markets
Drop-shop / Pop-up Stores
Omnichannel retail in-sourcing
Conclusions

1
2
4
7

26

39
45

56
58

82

Executive summary
Not longer than 10 years ago, eCommerce was expected to become the sales
channel for the future. Online entrepreneurs, as well as established retail companies rushed to open online sales facilities.
Fast-forward to today and eCommerce is
not enough anymore. Neither is any
other channel, on its own. The battle
between brick and mortar stores and
online pure-plays is no longer relevant.
Consumers drive a revolution in retail,
empowered by connected devices. Using
mobile devices, they expect cross-channel
service within brick and mortar stores,
online in the web store, on their mobile,
on social media and when dealing with
phone order operators.
Probably the biggest enabling technology
has been the rise in smartphone usage.
Its adoption created a bridge between
previous silo-ed operations. Previously,
companies added separated structures for
new sales channels. The ecommerce
team, the mCommerce team, the social
media commerce team and of course the
central retail unit.
Once technology was available, and
omnichannel became a possible course
of action, consumers deemed it not only
possible, but expected. However, there is

a huge gap between consumer expectations and retailer abilities at the moment.
First - there are organizational challenges, such as boardroom buy-in, as well
as employee training and culture adoption.
Second - there are technological barriers
that need to be overcome. What technologies should we use? How can
we integrate existing software?
These are common questions within
retail companies contemplating change.
Challenges are often found outside the
company, just like within. Getting suppliers and partners on the same page is
essential to implementing actual omnichannel policies and processes. Getting
customers to know about these new
found benefits is just as important. Marketing and communication is essential
when finally, companies are ready to
roll-out omnichannel implementations.
This eBook provides a framework used to
understand the causes, previous enablers
and inhibitors for retail change as well as
the practical steps in adapting to an
omnichannel retail world.

Market overview

71%

There is a brand new breed of consumers out there and its influence and spread
is growing fast. These consumers are
using multiple sources of information, as
well as different channels. They browse,
get information and buy in store, on
marketplaces, using their smartphone,
and ultimately everywhere. Consumers
expect the same treatment cross-channel
and they have low tolerance for retailer
ineffectiveness and rigidity.

consumers expect
to view in-store
inventory
online

A shift in retail
As yesterdays champions find it hard to
change their approach to commerce, due
to legacy structures and sometimesineffective supply chains, web-native
retail challengers can only benefit. When
it comes to IT infrastructure and flexibility, online retailers have an upper hand
developing multichannel and ultimately
omnichannel policies.
There is balance however: neither brickand-mortar or online only retailers can
expect to dominate tomorrows market as
71% of consumers expect to view
the in-store inventory online and
50% of consumers expect to be
able to purchase online and pick
up in store, a recent Forester study
shows.

While customers demand and expect

convenience, such convenience is rather
hard to achieve and demands increased
efforts for retailers just adapting to new
trends. While US and Chinese markets
seem to rush ahead implementing multichannel and omnichannel operations,
Europe lags behind and that is clearly
visible in the online retail growth rate.
While Europe does grow at double digit
(12%) it lurks behind both China ($296
billion spent online in 2013) and US
($262 billion in 2013).

Online spending 2013

Europe
$186 bln

US
$262 bln

China
$296 bln

Achieving an omnichannel customer

experience is no longer a question of IT
objectives but rather a Marketing and
Brand Differentiator. Technology is
complicated, supply chains and retail
operations are complicated also. The
customer, however, expects buying across
multiple channels to be a simple, fun and
engaging experience.
The omnichannel experience is probably
the most important brand asset a retail
company can have. While achieving this
goal means handling complex operational and IT variables, it is finally a
brand and marketing asset. Therefore
retailers need to set aside the old paradigm of disconnected departments or
even channels and unite different teams
in one common goal.

That is, of course, easier said then done.

Legacy company policies, obsolete processes and others all account for ineffective and outdated approaches to the new
retail. But the real problem seems to be
technology.
In a 2013 study by Forester, while 43%
of all retailers had and operated an
ecommerce platform, only 29% were
using an ERP (Enterprise Resource
Planning) system, while a whooping 52%
found accuracy of inventory data be
neutral or challenging. Only 6% found
the accuracy of inventory data to be easy
to achieve.

Previous inhibitors
During the previous stage in retail, one that lasted for the better part of modern retail
history, two inhibitors determined success and business planning for retailers: Geography and Consumer Ignorance. Both are becoming increasingly obsolete in the age
of omnichannel retail.

Impact of geography on retail sales

Geography and consumer proximity had
a deep impact on a retailers bottom line.
The closer the shop, higher the
consumers propensity to buy. As the
large retail chains expanded their reach,
their sales figures increased also.
For example Walmart has now more
than 10700 retail units in 27 countries. Its retail operations bring in
net sales of $466 billion worldwide*. But that wasnt always the case.
Sam Walton opened the first Walmart
store in Rogers, Arkansas, 1962. At that
time it didnt even had a logo. Its print
ads featured the wordmark printed with
fonts chosen by the publisher.
In 1975 the company already had 125
stores and $340.3 million in sales. Its
that year Walmart leases an IBM
370/135 machine to manage inventory
control and cope with the growth. In
1977 the company builds a company
wide computer network and connects to
its suppliers by satellite.
The changes make extensive development possible and in 1979, Walmart gets
to be the first company to reach more
than $1 billion in sales in less than 17
years. The sales figures keep increasing

and in 1985 the company registers $8.4

billion in sales, a figure fueled by 882
stores.
In 1995 the company reports 1995
Walmart stores, 433 Sams Clubs, 239
Supercenters and 276 international
stores. Sales have now reached $93.6
billion.
11 years later, in 2006, the company
reaches almost 2 million employees, 6775
stores worldwide and $349 billion in
sales.
Walmarts story is more or less the story
of every large retail chain. The successful
model has been implemented by all retail
brands, some better than others.
Although Walmart was quick to understand that a strong IT infrastructure is
key to extensive development, it somehow failed to understand the importance
ecommerce brought to the retail world.
Although both its brands Walmart and
Sams Club were quick to open online
stores in 1995 and use the internet as a
retail infrastructure, it only allowed customers to buy online and pick up in
stores in 2007.

* Source: http://c46b2bcc0db5865f5a7691c2ff8eba65983a1c33d367b8503d02.r78.cf2.rackcdn.com/88/2d/4fdf67184a359fdef07b1c3f4732/2013-annual-report-for
-walmart-stores-inc_130221024708579502.pdf

Current Walmart figures

Nevertheless, Walmart did built a model that is now so successful as to put the company
at the top of the list when it comes to the companies with the largest revenue. Its focus on
extending the store network can be seen in the figure below:

Anthony Ostrander shows in its 2011 thesis* that Walmart maintained a sustained pace
in its vision to get closer to American consumer. The average distance to a Walmart store
in 1991 was 331 miles. In 2005 it was only 71.
Such proximity figures were improving the lives of millions of Americans that now had
access to merchandise at prices and proximity they never had before.

Consumer ignorance
With proximity comes another factor
that determines consumer behavior:
consumer ignorance. Simply put, the
customer is not very good at math or is
ignorant to cost benefits when convenience is increasingly dominant. Why
should I drive another 5 miles for a 10%
saving?
Before the rise of online retailers, and
even in the early years of ecommerce,
the consumer was still a responsive,
rather than proactive and demanding
force of the market. Walmart was not
always the best choice, but it was the
closest and most convenient.

The rise in online retail opened a whole

new market with lower costs and a far
greater catalogue to consumers. It was,
however, until recent years, hard to
manage price comparison on million of
products spread across thousands of
retailer websites.
The enabling technology came with the
rising popularity of mobile devices,
improved connectivity and systems that
allowed big data management and analytics.

The rise of retail supermarket chains did

sometimes hurt local economies, thus
creating a decrease in purchase power. It
also decreased competition and hurt
retail innovation but the regular consumer was not paying attention to growing disadvantages as long as convenience
was at hand.

* Source: Ostrander, Anthony P. The Expansion of a Retail Chain: An Analysis of Wal-Mart

Locations in the United States - http://digital.library.unt.edu/ark:/67531/metadc68027/m2/1/high_res_d/thesis.pdf

Enabling technology
Omnichannel is the result of a tectonic shift in retail, a pressure on retailers to redefine
their business models and a combination of new technologies.
Among those technologies - two of them really stand out. First, there was the mobile
browsing revolution, ushered in by the launch of the iPhone and subsequent innovations
and market shifts. The smartphone and later on the tablet changed the way consumers
interact with brands, get informed and ultimately purchase.
The second biggest change in retail was big data processing. With increasingly better
connectivity, larger processing power, improved database software and analytical processes, consumers and retailers alike accessed a pool of information previously untapped.

Mobile devices
Mobile has transformed retail and it
is bound to be even more influential
in the future. According to Nielsen,
64.7 % US adults now have own a
smartphone, as opposed to 4.7 % in
2007. Even though mobile shopping
is still in its infancy, mobile devices
are heavily used to compare prices,
read product reviews and browse
for, if not buy, products online.
When it was first introduced to the
market, the mobile phone had an
autonomy of 30 minutes and
needed 10h to recharge. Its abilities
were basic at best but the whole idea
of mobility stuck and gained ever
more traction. Phones got smaller,
increasingly autonomous and
smarter.
Now the mobile phone is accessible
and ubiquitous. Even though the
mobile penetration has slowed,
there will be 4.55 billion mobile

users in 2014, eMarketer* estimates. 1.75

billion of them will be smartphone users.
The 69.4% mobile penetration will shift
users from the good old feature phone
(phones without qwerty keypad, touch
screen or advanced operating system) to
the smartphone. It is expected that
almost 50% of all mobile users (2.5

* Source: http://www.emarketer.com/Article/Smartphone-Users-Worldwide-Will-Total-175-Billion-2014/1010536

billion) will be a smartphone user in

2017.
This change is noteworthy as it marks
how disruptive smartphones have been
to retail. Internet connectivity, rich
media applications, location based
services and mobile payment systems
are all factors pushing retailers into an
omnichannel era.
Todays smartphone user is not yet fully
empowered in his use of mobile technology. Recent data shows that
although a large number of consumers use the mobile to browse

the internet (82% in the US, 75% in

China ) and install applications (62%
in the US, 71% in China), only a few
use their mobile for more advanced
options.
Only 30% US mobile users and 43% of
Chinese users are ready to shop online by
mobile. Even fewer use location based
services or barcode or QR code scanning.
NFC (a technology allowing mobile payments using the device in store) / Mobile
Wallet is rather negligible with only 3% in
the US and 4% in the UK. Asian countries
like China or South Korea are more
inclined to adopt this new payment method.

*Source: http://www.nielsen.com/content/dam/corporate/uk/en/documents/Mobile-Consumer-Report-2013.pdf

Dont let the numbers fool you, however. There is a growing trend in terms of advanced
mobile usage and it is only a matter of time until mass market adoption of (now)
advanced mobile features will empower the consumer even more.
Some tech companies are pushing the limits of mobile device usage further and some of
them will be increasingly relevant to retailers everywhere. Here are some of them:

Upcoming omnichannel-relevant technologies

Most of these technologies are already public but are yet to be widely adopted. Some are
improvements on earlier software or hardware and some are possibly disruptive new
applications. All of them are worth retailers attention.

NFC (near eld communication)

Near Field Communication is probably
the most expected and promising technology for omnichannel retailers worldwide. The technology allows, among
others, tap-and-go payment services that
have the potential to transform payments, identification services and even
personalized marketing. A tipping point
is yet to be reached - even though NFC
has been around for quite some time,
widespread adoption is yet to be reached.
But there is hope. One in four smartphones shipped in 2012 were NFC compliant and the trend is encouraging. By
2017, 1.55 billion NFC enabled smartphones will be shipped annually.
This technology can be widely used in
retail to identify users and provide personalized pricing. Payments are easily
accessible when connected to customer

bank accounts and/or credit cards. NFC

can change the way we buy tickets,
redeem coupons and ultimately, interact
with retailers.
In US, as well as Europe, NFC is implemented but not yet popular. Changes in
consumer behavior are expected to
increase NFC adoption for both US and
western Europe countries from 2% in
2012 to a bold 25% in 2017. If such
estimates will come true, payments
processed by NFC enabled devices
will reach $180 billion in 2017.

1.55 billion

NFC-enabled smartphones

in 2017
* Source: Press Release: More than 1 in 4 Mobile Users in the US and Western Europe will pay in-store using NFC by 2017.
Juniper Research. May 2012.

10

The ecosystem involved in determining

NFC success is, of course, complex but
complexity seems to be an surmountable
barrier for those involved. Large companies in the field of telecom, banking and
tech giants like Apple or Google have big
stakes in the game.
Opportunities are attractive as NFC
makes possible numerous applications
previously impossible or hardly worth the
effort. Imagine a customer entering a
showroom, checking in to receive personalized information or personalized prices
and recommendations based on previous
purchases. The consumer would be able
to discuss options with a virtual assistant
inside the store, get data on inventory in
other closeby shops and eventually purchase and pay just by touching his phone
against a NFC payment terminal.
Same customer would find paying using
his NFC enabled phone easier than
paying with his multiple cards. Many
accounts could be unified into one
payment/identification/personalization
tool. Security wouldnt be an issue: The
SIM card inside the phone stores the
customer credentials and allows better
spending tracking and budget analysis.
Imagine the same customer, now interacting with a multichannel approach to
marketing. Ads would recognize him or
her, providing relevant information,

Identication
and personalized
merchandising / support

Mobile
payments

$180 billion

payments processed through

NFC-enabled smartphones

in 2017
vouchers and recommendations, instead
of boring or untargeted ads. Vouchers
could be redeemed and stored on the
phone without any hassle and complementary products would be easily accessible. Location of these products could
be the same store or showroom the customer visits or the store across town.
He could leave public or private ratings
or messages for his friends, who would
also be able to read these messages by
using their NFC enabled mobile device.

Maybe the customer has tried on that red

sweater the fashion retailer, just marked
as a promo. But she wants the blue one
instead, which can be found in the outlet
few blocks away. Of course, she can
spend time to get there or just preview it
on the mobile app, check the inventory
and order it / pay for it by mobile. By
the time she arrives home - it would be
already there.

Interactive
shopping

11

Online authentication is really not the most pleasant thing when it comes to shopping but
there is good news. Consumers will be able to login through NFC using the laptop or
desktop. Lenovos Thinkpad Yoga for example, a hybrid laptop/tablet comes with a NFC
reader.

But its not just the laptop - almost every type of device imaginable will come NFC enabled in the near future. Whether its the TV in the living room, speakers, headphones or
even a ring to open the doors, everything will be NFC enabled and ready*.

* Source: http://blog.laptopmag.com/10-best-nfc-gadgets

12

Apples iBeacon
The iBeacon is an indoor proximity
system, trademarked by Apple. The
technology works on Bluetooth Low
Energy (BLE) - also referred to as Bluetooth Smart. The iBeacon is Apples
response to NFC (near field communication). When an iOS 7 device comes
within range with an iBeacon, it emits a
BLE response. Since the technology was
launched, together with the iOS7, Apple
has been implementing iBeacon in all of
its stores.
When walking past such a device, iOS
users will be notified of additional information they can read and save on their
mobile devices.
The technology will offer in-store analytics to Apple, push ads and info to customers, assist in queue lines at the genius

bar and of course help with purchases

and payments.
Numerous other possible uses come to
mind, mostly location based enhancements: Things like door opening for the
blind, customized ads, personalized offers
and many others.
But its not just iOS devices that can use
the iBeacon. Android phones can receive
advertisements also yet cannot emit
advertisments. Although Google bet on
NFC, it did open its gates to BLE systems
since Android version 4.2.

13

NFC and the iBeacon are somewhat

competing technologies. There are many
similarities. To name two - both allow
cashless payments and both are aimed at
newer smartphones. However youll find
the two technologies are different:
- first of all the beacons are wireless
sensors working on BLE, whereas
NFC works on short-range radio
waves, allowing two devices exchange
of data when in proximity to one
another;
- this means most devices are
already Beacon compliant, as most
mobile devices are Bluetooth enabled,
but NFC still has a long way to go until
adoption;
- although security and encryption have
been enabled on both technologies, the
NFC has the upper-hand, as it works
together with the SIM card (already
secured) and needs a closer distance to

work, thus making interception harder

for hackers. BLE, on the other hand
works on larger distances (up to 50 m /
164 feet) and is easily interceptable;
-in terms of message initiation the
Beacon works as a broadcaster and works
best for advertising and communication
purposes. NFC being a non-invasive
technology, works best in response
to an action initiated by the consumer.
Both technologies show promising
features for omnichannel retailers. The
iBeacon is closer to a mass communication tool and better suited for the iOS
devices. An additional point in favor of
the iBeacon is that the technology is
basically a set of specs that Apple published and allows any developer to
licence it and build beacons according to
the specs...

Using the iBeacon

One of the companies developing iBeacon hardware is Estimote. Beacons built
by Estimote have recently powered an
experiment in the Heathrow airport,
headed by Virgin Atlantic. The company has a policy to test upcoming technologies and has previously tested the
Google Glass and Sony Smartwatches, in
a program to see which of these technologies are ready for the market.
Virgin built an app that combines the
BLE features and Passbook. An Upper
Class passenger that has his ticket saved
in the Passbook will be greeted by an
automated signal from the iBeacon. The

mobile app will pull out the ticket from

his or her Passbook and allow quick
check in.
Using the iBeacon and BLE enabled
application, customers can receive promotional offers and a couple of incentives, such as commission free currency
exchange or their favorite complimentary
cocktail.

14

Its not just ticketing application being

tested on the market. The Crown
Estate, owner of famous London
commercial area Regent Street is
launching an app* that allows
stores such as Hamleys, Armani or
Hackett to connect to passers by
using Beacons.

gies and has began trialling beacons in

one of its stores. The beacons will connect to Tescos MyStore application and
greet consumers with information
regarding placement of products inside
the store. Customers can thus bridge the
gap in omnichannel retail using the
mobile.

The app will allow stores to push vouchers, special events info and discounts.
Over 100 stores have been fitted with
Beacons but all stores in the street are
expected to switch over to the new tech.
Usage will be encouraged using both
offline and online marketing. Local
busses, street signage, flyers and in-store
displays will be used to communicate
benefits offline and social media will be
the main driver in online communication.

Just like the other brands mentioned, the

company is testing the waters but is
careful not to scare customers away and
will began full scale adoption when the
market has grown accustomed to the the
technology.

Tesco, just like Virgin Atlantic, has

a policy of testing all upcoming technolo-

Mark Cody, senior group marketing

manager for mobile at tesco declared for
Marketing Magazine** that "the
opportunity for payments and
travel is there [with NFC], but in
the UK we are probably a couple of
years away from it really taking
off."

Regent Street stores will begin using iBeacons to engage consumers

* Source: http://www.marketingweek.co.uk/sectors/retail/news/hamleysarmani-and-hackett-to-use-ibeacons-for-personalised-marketing/4010686.article
** Source: http://www.marketingmagazine.co.uk/article/1288355/tesco-trials-ibeacons-rules-marketing-messages-use

15

Omnichannel Payments
One of the things that make convergence to omnichannel slightly uncomfortable is the
way customers pay for merchandise. Right now the way we make payments online and
offline doesnt allow a quick integration of payment services, mostly due to legacy financial systems.
However some companies seem to ready to take on the challenge. Probably the most
prominent is Ebay subsidiary PayPal.
The company is dead serious about taking on a $10 trillion market: the Crosschannel Payments Market. To do so it will have to prove its worthiness against older
companies, especially in offline commerce.

MULTICHANNEL PAYMENTS
With more than 140 million registered
users already, PayPal has the sweetest
spot in the online payments today. Its
acquisition of global payments company
Braintree secured an additional 35 million registered users. As PayPal
(ex)President David Marcus put it this
is a part of an effort to redefine money
and payments into what he calls
Money 3.0 a new way of looking at
payments and how customers use them.

tech, operational management and marketing vendor for the likes of ToysRUs,
Radioshack, Sony and many others.
Between these two, the payment processing subsidiary PayPal leads the way in
online payments. The company is Ebays
most promising subsidiary, growing at
20% in 2013. As of 2011, it decided to
go offline also, allowing customers to
handle their money, cards and PayPal
wallets in one place.

PayPal owner-company Ebay is at the

front of what some would call a commerce revolution led by technology. Its
three main branches (The Marketplaces,
Ebay Enterprise (former GSI Commerce) and PayPal) all work together in
this changing landscape.
The Marketplaces (including Ebay.com,
Shopping.com and Rent.com) enable
C2C Commerce, while Ebay Enterprise
caters end-to-end multichannel commerce technology. Ebay Enterprise is the
A steady increase in Ebays revenue. Biggest cash cow
PayPal, 41% of total revenue.
* Original Article: http://netonomy.net/2014/04/16/paypal-to-process-more-offline-payments/

16

POS SOLUTIONS
To increase offline usage, PayPal now offers point-of-sale solutions, mostly targeted at the
new tablet-based counters. Store owners can easily implement its apps and start charging
right away.

In an effort to increase adoption, PayPal started integration with third-party store management solutions such as ShopKeep POS, Booker, or Leapset.
Among its benefits for store-owners, Paypal lists security, quick implementation and an
all-in-one approach to accepting payments, scanning barcodes, tracking inventory and
sending invoices.
Customers willing to take their PayPal Wallet to an offline store account can pay by
swiping their PayPal paycard, using their account or by paying online and picking up in
store. Having a larger pool of companies accepting PayPal payments allows the company
to securely handle all transactions, customers to receive loyalty points and retailers to
securely handle all customer personal information.

17

[...] we have moved aggressively to leverage

PayPals integration with eBay to expand
PayPals reach to millions of online retailers and
to offline transactions. PayPal remains one of the
fastest growing elements of the company which
helps explain why others are targeting the
payments business but are far behind PayPal.
John Donahue, Ebay CEO*

GOOGLE WALLET

pay to any PayPass point.

But its not just PayPal that wants to play

an integration role. Google is pushing
Google Wallet as a customer friendly
concept unifying payments, offers
promotion, voucher redemption
and store payment acceptance
solution.

Initial partners Citi (issuing bank), Mastercard (initial payment network) and
Sprint (first mobile carrier) were the first
of many to come. Today Google Wallet
supports all major credit and debit cards,
many types of loyalty programs and can
easily be extended to even more partners.

After closing Google Merchant on November the 20th

2013, Google started marketing its Google Wallet. The
product integrates offline, online
and mobile shopping and aims to be the
leader in omnichannel customer identification.
It has been a bumpy road for the product
since its 2011 launch but ultimately the
company did built a solid product that
now allows easy storage of credit and
debit cards, loyalty cards and gift cards.
It works as single point of identification
and by using NFC it allows touch-and-

* Source: http://investor.ebayinc.com/releasedetail.cfm?ReleaseID=835257
** Source: http://netonomy.net/2013/10/07/google-checkout-checks-out-closes-november-2013/

18

Among the companies now accepting

Google Wallet youll find the likes of
Expedia, 1800 Flowers, Uber, ToysRUs
or Booking.com. Results seem to be
satisfying, as Google Wallets website
boasts a 400% increase in purchase
conversion for Rue La La Android users.
So - what is the point in investing so
much in a technology even Google
Wallets VP says is slow to take off ?
Besides the obvious financial reasons
(payment management monopoly is a
great spot to be in) and less obvious
omnichannel dominance there is one
other hidden reason.
The omnichannel payment processors
will become our online and offline identifiers. These systems will collect personal
and purchase data and will be key to
retail in the future. Yesterdays retailers
would offer vouchers and discounts to
enlist consumers in their loyalty programs. Tomorrows retailers will rent or
buy loyal customers from Google (which
plans to offer the Google Wallet freely, in
exchange for permission to show ads) or
PayPal, for a percentage of money spent
with their stores.

So it would make sense that the biggest

innovator in online retail would jump on
board. Amazon has recently launched
Amazon Payments, a direct hit to
Ebays PayPal. Amazon now allows

One-Click payments integrated to third

party merchants, money sending and
card processing.
So the 200 million + customers that
saved their credit cards with Amazon will
now be able to pay on other online
stores, without entering their data again.
Amazon Payments works online and on
the phone.
Pay with Amazon works just like we
came to expect after implementing Facebook Connect. The Amazon endorsed
and backed payment service allows merchants to implement a quick payment
system that works cross device and allows
a quick login and profiling for users
already signed up with Amazon.
Facebook is yet another key player in
the omnichannel payments. Its wide
adoption and increasingly mobile usage
make a great potential omnichannel
payment processor. The company
recently recruited former PayPal president David Marcus.
Apple also stores a large number of
credit cards from its registered users and
has embedded its keychain technology in
the iOS devices, beginning with iOS 7.
Combining the credit card data, keychain technology and NFC payments or
iBeacon integration would allow Apple
to open a new chapter in its development
by bridging the gap in omnichannel
payments.

19

Big Numbers and Big Data analytics

Ecommerce brought an unmatched number of products to consumers worldwide. Where
previous brick and mortar retailers had a limited shelf space and could stock a very
limited product inventory, online retailers could display a virtually unlimited shelf.
A paper published in 2003 by prof. Erik Brynjolfsson, Yu Jeffrey Hu, Michael D. Smith ,
showed that cost savings online retailers provided were just the first big incentive to consumers. The biggest change and increase in consumer welfare was in fact the new found
product availability.
The authors showed that Amazon was able to provide consumers with a far larger inventory than its brick and mortar competitors. A book, for example could have a shelf live
of up to 6 months, thus increasing cost for book sellers and making an inventory anywhere close to Amazons impossible.

Table 1 shows the outstanding difference between the typical large brick-and-mortar
store and Amazon.com in terms of product inventory. Even more so - the paper showed
that even internally, retailers that at the time (2003) embraced ecommerce, were showing
unbalanced inventory between their online and offline stores.
The largest Wal-mart store was no match in terms of product availability when compared to Walmart.com. The online store was 6 times bigger than its older and more
established offline channel.

* Source: Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers - http://papers.ssrn.com/sol3/papers.cfm?abstract_id=400940
Erik Brynjolfsson
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research
(NBER)
Yu Jeffrey Hu
Georgia Institute of Technology - Scheller College of Business
Michael D. Smith
Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

20

The biggest change, the paper argued, a

change that is not yet fully understood,
was the fact that product availability was
a far greater factor to consumer welfare
than cost savings. The authors found a
way to quantify the value in product
availability, a value previously ignored.
The results showed that consumers favoured product availability
over cost savings. The impact on
previously hard to find items was
seven to ten times larger in terms
of consumer welfare.
The same team also authored the first
paper on Long Tail, the model we now
take as given when defining online business models.
The whole idea behind the Long Tail is
that a previously untapped market was
now at hand with online distribution.
The previously mentioned hard to find
items where a whole new market, unavailable to consumers at the time online
retailers began to emerge. Such items
could not be stocked, could not be
displayed on the shelf due to increased
cost in physical inventory and ultimately
- could not be purchased.
Brick and mortar retail was based on
selling relatively few items in very large
quantities. Just as Ford sold the Model T
in any color so long as it is black , so
did brick and mortar retailers when it
came to the goods they displayed.
But then came the likes of Amazon. A
whole new concept started to gain traction. As digital shelves could host a virtually unlimited number of products,
online retailers started filling up their

stores. Previously unknown and unmarketable products were now available.

The concept of Long Tail was made

Traditional retailers were focusing on the left hand of the curve,

with many sales of popular items, whereas online retailers had
no problems shipping less popular items (those on the right).

popular by Chris Anderson, a

british-american author and
entrepreneur, author of The Long
Tail: Why the Future of Business
Is Selling Less of More *. Anderson
cited early works of Erik Brynjolfsson,
Yu Jeffrey Hu, Michael D. Smith, and
showed the future of retail will be
determined by a granular, personalized
merchandise display.
After these findings, the new everything store started gaining traction
yet some bumps were due to show up.
As the products piled up consumers
found they needed ways to make sense
of all the products available. Focus
shifted from increasing inventory and
product availability to search, recommendation, curation and now personalization.

* Source: http://en.wikipedia.org/wiki/The_Long_Tail_(book)

21

Amazon was again one of the first to

innovate new ways of finding the right
product, creating automated recommendation and search. One of the first things
the company introduced were the customer reviews, in 1995, allowing consumers to share their experiences with
others and creating a democratic product
recommendation system.
In 1995 the company introduced product
recommendations. Its algorithmic
recommendation system is still one of the
most useful innovations when it comes to
online shopping. The system is based on
item-to-item recommendations*, rather
than those based on other users pur-

chases. By taking into account previous

purchase history, Amazon recommends
products users tend to buy together.
Amazon was the spark that lit a fire in
terms of user profiling and content
recommendation. The company was
then followed by the likes of Google and
Facebook, which based their business on
large data collection and analytics
systems. Recommendation systems are
now widely available and used by almost
all B2C online businesses.

* Source: http://www.cs.umd.edu/~samir/498/Amazon-Recommendations.pdf

22

As a result of retail evolution, the long tail got longer. A 2010 study on the evolution of
the way we purchase products showed that Amazon sold more books in the Long Tail
category. By 2008, niche books accounted for 36.7% of Amazon's sales. Compared to
their 2003 study prof. Erik Brynjolfsson, Yu (Jeffrey) Hu, and Michael D. Smith, found
two very important things:
1. Amazons Long Tail is getting longer - there are more products and most of
them add to an increase in sales. The Long Tail phenomenon is not something temporarily but a new market constant
2. Long tail products have a specific force pressing them down: As long tail
product sales increase, the overall growth speed decreases, thus limiting Amazons ability
to increase sales in niche categories.

These changes caused several shifts on the market:

- a new breed of online-only retailers showed up and gained traction
- brick and mortar retailers developed online stores and shifted to a multichannel approach in retail
- consumers now had a variety of products available at their fingertips and
the tools to find the best price

* Source: http://infolab.stanford.edu/~ullman/mmds/ch9.pdf
** Source: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1679991

23

With more products available than ever

before and retailers battling for customer
acquisition new tools appeared that
allowed consumers to find their best
options. Data analytics evolved and as
big data made large scale comparison
possible, consumers were empowered by
technology.
It is not uncommon for users to now
browse books in bookstores, scan their
barcodes and then purchase the product
on Amazon. Neither is testing a product
in one shop, searching for it online and
then purchasing it in the store next door.
The practice, commonly referred to as
Showrooming is popular among

smartphone users, a growing segment of

consumer population.
Retailers too found big data and big data
analytics useful. By storing multichannel
user interactions data they can provide
the user with an appropriate response
based on profile, location and preferences.
In a 2013 study* by MIT Sloan Review,
in partnership with SAS, retail executives
where among the top industry leaders
favoring the need for stronger analytics
for their companies.

An increase in the number of online retailers

helpedshowrooming, a practice where consumers would
experience the product offline and buy it online.

* Source: http://sloanreview.mit.edu/article/raising-the-bar-with-analytics/

24

The study, ran on 2037 executives,

showed that more than 90% of all retail
respondents agreed that the organization
they lead should step up its use of analytics. The executives surveyed also agreed
that companies do share their data inside
the company, with partners and suppliers, targeting a stronger focus on innovation.
Only a small portion (2%) of those interviewed say their companies use only
external data. Most companies that have
some kind of big data analytics project
(88%) use mixed data intake from internal and external sources. Of those that
dont mix internal and external data sets,

using internal data only is prevalent

(10%). Of course this should be taken
with a pinch of salt as those activities
that fall under external data only are
closer to the Business Intelligence area, a
not often publicly discussed analytics
usage.

25

Omnichannel retailers can benefit

greatly from usage of internal and
external data. One of the simplest
and most efficient ways to leverage
analytics data is price matching, for
retailers considering the Showrooming phenomenon.
By analyzing external and internal
data, Amazon changes 2.5 million
prices everyday, in its path to stay
relevant and competitive against other
retailers. As opposed to Amazon, the
likes of Walmart and Best Buy, only
manage to change 50 000 prices
everyday. Of course, the brick and
mortar channel is the biggest drag but
that will probably change in the near
future.

* Source: http://blog.profitero.com/2013/12/profitero-reveals-that-amazoncom-makes.html

Omnichannel Building Blocks

When it comes to basic building blocks for omnichannel retail there are two perspective
companies need to adapt in order to serve customers: logistics and technology. These
areas overlap to adjust the way we look at retail operations today.

Omnichannel retail facilities

Omnichannel dissolves the limits
between brick and mortar and online
retail. Neither the old offline retailers or
the upcoming online-only retailers are fit
for an omnichannel world.
This means that companies should strive
to get the best of both worlds. (Most)
offline retailers already developed online
shops and some are getting ready for
mobile commerce by developing mobile
applications or responsive online stores.

Kindle
It was probably Jeff Bezos visionary strategy
that led the company but it also had something to
do with established industries refusing to change.
It was Amazon that bet big on eBooks and
eBook readers but it was the lack of competition
that made it so successful in that department.
While the team at Lab 126, Amazons Kindle
research team, was working hard to launch its
first viable product, the competition was ignoring
or at most distantly observing the emerging
market. It took Barnes&Noble 2 years to launch
Nook, after the first Kindle hit the market.
After eBooks proved to be such a successful story,
Amazon moved on to selling what the market
demanded tablets that run an Android powered, Amazon flavored operating system. This
allowed the company to research consumer

On the other hand online retailers were

quicker to implement mobile applications, mobile versions of their stores or
even apps and devices, yet not so quick in
adopting a physical presence to enhance
brand experience. Amazon has famously
launched its Fire Phone with a built in
scanning feature that allows customers to
scan products in offline stores and buy it
on Amazon. Its Kindle product has
been a success in terms of adoption and fulfillment strategy for
digital content.

26

27

preferences (by analyzing Kindle Fire web traffic),

and most important sell apps. As a direct result of
this move Amazon is now the largest Android apps
seller, closing in to the iTunes AppStore.
According to mobile analytics company Flurry,
Amazon generates 89% of iTunes App Stores
revenue.

However, online retailers were slow to

move in the offline world and for good
reasons. As established retailers such as
JC Penney or Sears had trouble keeping
open their stores, it might be a while
before anyone will bet on the brick and
mortar channel.

ior, retailers need to provide the customer

with a full experience. Empowered customers increasingly demand a 360 experience across all channels so those embracing omnichannel need to develop
and constantly improve on an integrated
retail network including:

But the omnichannel experience needs

an integrated experience. Customers
need to feel and see the products they are
buying and it wont be long until the
surviving brick and mortar giants turn
Showrooming into an advantage.
Already Walmart is aggressively fighting
both online and offline competitors with
a price matching policy and application.

1. online stores: for a very long time

brick and mortar retailers used to consider their online store a nice to have
feature but those days are long gone. The
online stores are now the building block
in digital retail;

Walmart rolled out Savings Catcher in

March and now its pushing it to be used
across US. The tool allows users to compare prices on Walmart.com to those of
its comepetitors. Any difference found is
stored as store credit for the customer.
Because of changes in consumer behav-

2. mobile features: ranging from a

mobile version for the store, a crossdevice mobile application or in-store
checkout or inventory checking mobile
app, the possibilities are limitless. Todays
consumer uses its mobile device (be it a
smartphone, tablet, smartwatch or any
upcoming technology) to get information
and purchase products;

28

3. offline facilities: whether were talking about a store, pick-up hubs, showrooms
or pop-up stores, customers need and want to be engaged offline. Retailers need to
develop new ways to interact with consumers in the real world.

Inventory consistency
Although retailers did implement multichannel sales points (offline stores, online
stores, mobile apps) most of these channels work in separate silos. This means
separate teams, separate sales policies
and most important separate inventories
that rarely communicate.
The first thing brick and mortar retailers
decided to do when confronted with the
new reality of online retail was contain it
in a separate structure. They built a new
department, a new team or even a new
company. Walmart famously decided to
spin off the Walmart.com webstore into
a new company, move it across the country in San Francisco, and allow omnichannel integration through its Siteto-Store eight years after launching the
online store.
Of course, at the moment that seemed
like a good idea. Ecommerce seemed like
just another buzzword the media and
Silicon Valley entrepreneurs tried to
pushed. But the trend gained momentum
and then new options developed. Mobile
started gaining traction and retailers that
previously separated the ecommerce
team were now trying to adapt to mobile

by doing the same team. Along came

social media and social shopping, facebook commerce and plenty of other
options that no longer seemed viable as
separated operations.
Cross channel walls started to emerge.
Offline store teams, online store teams,
mobile commerce teams, social media
teams - they were all trying to get customers to buy from their channel. Each
protected its turf and thus customers
were getting frustrated as well.
The biggest issue in the multichannel
approach was inventory. With inventory
split across channels, in different silos,
customers could go to the B&M store,
test the latest TV or try on a nice sweater
but couldnt later buy it online. They
could also browse for a product on the
online store or on the mobile app but if
they wanted to try it on at the closest
store, inventory information would not
be possible.

29

Inventory consistency across all channels

Sourcing

Supplier 1

Supplier 2

Supplier 3

Warehouses

Warehouse 1

Warehouse 2

Warehouse 3

Warehouse 4

Stores

Store 1

Accesses
mobile app

Web store

Visits
store

Store 2

Mobile
store

Browses
online store

Customers view of inventory availability

permeates channels

Phone order
operations

Places
phone
order

30

Omnichannel retail is a customer centric approach so the inventory needs to be fully

accessible to the consumer. Whether the customer visits an offline store or the online
store, the mobile app or talks to a phone sales assistant, the inventory needs to be fully
addressable. The customer should be able to access information regarding product availability within the company.
Whether the product is available in the closest store or in the warehouse across the country, both customers and company representatives should have access to consistent, crosschannel inventory data.

Supply chain integration

Its not just inventory that needs to be
consistent across channel. Supply chain
integration with retail flow should run
seamlessly. Supplier and retailer systems
should be integrated to improve stocks
mobility and increase customer satisfaction.

With seamless supplier-retailer integration, actual product inventory on stock

should be kept to a minimum. Best sellers
would be those holding the larger warehouse space. The less popular items, the
long tail, could be displayed but not
stocked.

As mentioned earlier, the omnichannel

customer expects the company offer to
be vastly increased. Amazon and other
leading online retailers have made possible what we might call the infinite
shelf . As online commerce needs no
real-life shelf space, it has virtually no
costs associated with products displayed.

When these products are ordered in the

online store, retailers connected to lean
suppliers could automatically place an
order and receive electronic data on
delivery time from the suppliers. Data
would be based on previous purchases
and possible shipping combinations that
should keep the costs to a minimum.

Personalized retailing
Omnichannel engagement, together with
emerging tech trends such as NFC, Beacons or omnichannel payments, as well
as external insights such as social media
activity, would allow improved profiling
of the customer and creation of personalized retailing programs.
Based on customer actions recorded
using a company-wide omnichannel
CRM software and policy, the retailer

should create a contextual and personalized buying experience.

Information tracked and stored across
channels is of course, just the trigger in
engaging in a personalized experience.
Based on collected information retailers
should offer customers tailored and
automated experiences such as:
1. loyalty programs - customers

31

should be able to get the same treatment

across all channels. Loyalty points and
benefits should be available in the store,
online, in the mobile app or while talking
to the call center operator;
2. personalized pricing - based on
context retailers should employ software
capable of offering on the fly offers,
dynamic promotions and prices based on
customer loyalty and previous purchases;
access to special products and events the personal touch can be applied to
product availability just as well as pricing.
Loyal customers could be notified of
limited stock special offers and could get
access to them when logged in with the
webstore. Special sales offline events
would be available to the these loyal
customers also;

3. gifts and perks - as lifetime customer value is easier to track with the
omnichannel approach retailers can
estimate the right perks for each customer group. Whether it is a small gift or
a perk such as free delivery, different
customer groups could be incentivised
this way;
4. targeted communication - information is a special kind of incentive
when it comes personalized. Amazon
does a great job personalizing the customer experience based on previous
activity and other customers purchase
history. Omnichannel retailers can do
this cross channel using NFC-responsive
advertising and info points.

Seamless commerce
Seamless channel integration allows
retailers to create a simple and fun
buying experience. Customers could
purchase online and pick up in store or
they could order in the brick and mortar
store and receive items ordered at home.
They could just as well get information
on product availability over the phone,
experience it in the B&M store and later
on purchase online.
These channel jumps should be at least
frictionless, if not fun. To understand the

concept we should treat the customer

journey as a cross-channel order placement. The customer can start the order
on any channel and finish it on any
channel.
Online influenced purchases are key
factors to improve customer retention
and to increase sales. Online and web
influenced retail sales are expected to
reach $1.8 trillion in 2017 from $1.3
trillion today.

32

Seamless commerce across all channels

Online
store
Need/
Want

Oine
store (s)
Attention/
Interest

Experience

Mobile

Purchase

Customer can jump channels to get informed,

experience, purchase and receive merchandise.

In a 2014 Forrester study* retailers list

Buy online, pick-up in store as
their most important omnichannel program, closely followed by Buy instore, ship to customer. However,
respondents mark as very important an
option to allow real-time in-store inventory available online, as well as creating
the necessary operational adjustments to
allow customers to buy online and ship
from the store.

Customers are more likely to visit a store

that lists its real-time inventory on the
web store. However, should the inventory
be marked as low-availability, intention
to visit the store drops. Retailers need to
juggle between showing in-store availability in real time and figuring what is
the lowest inventory level where customers are willing to visit stores.

* Source: Customer Desires Vs. Retailer Capabilities: Minding The Omni-Channel Commerce Gap

33

When juggling channels, customers need

to feel they are in control. Among the
most important options in enjoying a
seamless buying experience customers
list:
1. Picking alerts - when considering
buy online / pick up in store options,
customers need to be informed on the
status of their orders. When store associates have picked products and the order
is ready for the customer, alerts should be
automatically issued. The time factor is
also very important as customers expect
orders to be available for pick up in less
than 2 hours.
2. Pay in store, at pickup - customers
purchasing online feel safer when
allowed to pay for merchandise in store,
after ordering it online. This preference

may seem like a problem to retailers

because customers could potentially
order merchandise, thus reserving inventory, and not show up for pickup. However only 15% of customers feel they
dont have any obligation to pick up
ordered merchandise. Pay at pickup is
due to customers fearing ordered merchandise not actually available, as
in-store inventory is not yet 100% accurate for all retailers.
3. A guaranteed product availability - customers list on top of their concerns the fact that products, although
ordered and displayed as available, may
sometimes be out of stock. Retailers
report between 2% and 10% of all
orders cannot be fulfilled due to
failures in inventory reporting.

34

4. Alternative fulfillment options customers feel the need to choose between

different fulfillment options such as alternative pickup locations, slot-based home delivery or pickup in specially designated facilities
such as postal offices.
5. Omnichannel informed sales associates - customers expect sales associates to
have a good understanding of products sold
both in-store and online, offer information
on inventory across multiple locations and be
ready to offer to ship products home, for free,
if the product is not available in the store
inventory. Although several key tasks the
sales associate used to have are now obsolete,
customers still prefer interacting with one
instead an app. However, the sales associates
role shifted from a responsive to an engaging
position, and customers are now expecting
the person in front of them to be a brand
ambassador, connected and informed, ready
to tackle the companys IT structure to
improve the buying experience.
Providing B&M store fulfillment
options is a must for offline based
retailers that have moved into digital
territory. Among the benefits in using

stores as fulfillment hubs retailers will find

the ability to deliver faster and at
lower cost at the top. With stores close to
the customers retailers may deliver products faster than by using a third party logistics option or shipping from the central
warehouse.
Another benefit would be that by using
stores as fulfillment hubs, customers can get
reconnected to their proximity store and in
the future increase propensity to buy.
A third benefit is a possible improvement in stocks rotation. As stores in
different areas have different stocks turning
speeds customers can be pointed to the
closest store having problems in selling the
product ordered. Minor inconveniences in
proximity for the customer could mean
increased sales and higher profits for the
retailer.
Retailers can also keep obsolete stocks
to a minimum and lower overall
inventory levels, both important in
improving customer satisfaction and profitability.

35

Building a B&M store for the omnichannel future

Brick and mortar stores have not radically changed in the past century and for
quite some time a lot of tech experts
expected them to just go away and leave
everything to online stores.
That didnt happen and apparently it
wont happen for the foreseeable future.
However stores do change and those
resisting change will have to reconsider
their options sooner or later (see Brick
and Mortar retailers closing
stores).

Customers still like visiting and purchasing from a proximity shop. They also
want to pick up merchandise in store,
even if they dont necessarily purchase it
there. Even millennials prefer B&M
stores over online stores. A 2013 Accenture publication* shows 82% of millennials would rather shop in an
offline store. 91% of them would
rather shop in a drug store and
80% would choose B&M apparel
shops over online-only.

* Source: "Who are the Millennial shoppers? And what do they really want?" from Outlook 2013, No. 2, an Accenture
publication.

36

But customers expect more from the

offline shop. As discussed above, they
expect sales associates to be ready to
answer their questions, to be fully
equipped to navigate other stores, warehouses and online inventory. They also
expect them to act as brand ambassadors
for the store they represent.

The B&M store of tomorrow will

feature the information, simplicity
and convenience an online store
has. Just as well, it will keep the
comforting feeling of experiencing
a product before buying it. The
buying process and the experience a
customer will have will have to be vastly
improved.

Beyond the legacy POS

Omnichannel leaders have improved the
checkout flow in store by replacing the
outdated cash register. Mobile tools now
allow sales associates to both help guide
customers and make payment easier than
before. One of the fastest growing retailers in the US, Alex and Ani, improved its
POS policy by enabling associates to
handle transactions through a mobile
POS solution installed on iPod devices.

The source was found to be the

companys outdated POS software.
Since then the new CIO, previously an
analyst for US Department of Homeland Security, US Department of Justice
and the US Secretary of Defense, has
taken on the task to improve company IT
infrastructure, with an investment of over
$100 million.

The mobile POS is one of the biggest

trends we are going to witness in the
future, as more than 85% of all large
retail chains will be providing mobile
checkout solutions to customers, in the
next three years.
Such endeavours cannot be built on
outdated infrastructure. The biggest
concern for retailers dealing with outdated POS systems is security. Last year
Target reported what was at the
time the biggest security breach in
retail history, leaving behind 110
million compromised customer
records.

Last years Target security breach

left the company with hundreds
of millions in loses

The largest security breach, caused by

outdated POS software
In 2013 american retailer Target was the
victim of a security breach. The hack
compromised personal data for over 110
million customers. What is now known to
be one of the biggest security breaches in
corporate history has not left the company unscathed.
On December 13th, 2013, Target
executives met with the US Justice
Department. The reason: discussing a
hack that exposed credit and debit card
data for over 40 million customers. On
December 18th security analyst Brian
Krebs breaks the news. The Secret Service is involved and Target gets investigated.
On December 27th, 2013 words out
that PIN numbers for the stolen cards

Surce: washington.cbslocal.com

were accessed. Target acknowledges

PINs were accessed but says they were
not decrypted. Meanwhile Russian
forums get flooded with millions of credit
cards.
And then it gets worse: Target declares
an additional 70 million customers were
affected by the security breach. The
company reveals poor Holiday sales.
Lays off 475 employees and reports costs
associated with the data loss topping
$200 million.
The breach left Target in a disastrous
situation as profits dropped 46% in the
last quarter (-$440 million), compared to
the year before. As a result both CIO
Beth Jacob and CEO Gregg Steinhafel
left the company.

37

The store as a personal shopping hub

By placing the customer at the center of
the stores purpose and importing several
online concepts the store experience can
change dramatically. But first retailers
need to return to the basics and push the
functions the online channel can do
better - online.

Fewer products, improved experiences: interactive experiences should

not be reserved for the online store or
mobile apps. Stores can provide interactive media outlets, showcasing product
usage, manufacturing information or
product endorsements.

For example an appointment to try on

shoes or test a new mobile phone can
work great in the offline channel. Showcasing all the products could be better
left for the endless store display in the
web store.

Personalized coupons and promotions on arrival: customers need

relevant information. A coupon pushed
by a nearby beacon with some useless
promotion can seem too much. However
customers can ask for the daily personalized promo code or voucher for products
they browsed online and are available in
the stores inventory.

Below youll find some of the concepts

that will transform the brick and mortar
store into a personal shopping hub:
Encourage cross-channel identification and check-in: by allowing the
customers to identify themselves, retailers
can provide contextual and customer
relevant information. These relevant
information can be provided either at
store digital kiosks, beamed directly to
mobile devices, using QR codes near
product displays or at the counter, by an
informed sales assistant.

These are just a few options to transform

the shopping experience but make for a
great start. Bottom line is retailers need
to rethink the shop in order to provide an
improved experience and focus on
making the customer return.

38

The store as a fulllment hub

As mentioned earlier in the report ,companies can decrease costs and improve
delivery time by using stores to ship
orders to proximity customers.
But the B&M store will play a bigger part
in the fulfillment area for omnichannel
retailers. Implications go beyond just
delivering the purchased products to
nearby customers. Retailers using
extended networks of small to medium
shops will be able to improve fulfillment
operations.
Pick up and delivery
Customers can pick up ordered products
from the closest store and store employees can deliver goods in a timely manner,

without increased costs from shipping

partners.
Return operations
Product returns are a burden for both the
customer and the retailer. Free returns, as
nice as they might sound carry associated
costs. With nearby shops providing
return options, customers can feel safe to
purchase.
Inventory distributed according to
local demand
With stores spread across the most
important areas, retailers can stock merchandise according to specific local
demand. With cross channel shipping
costs can be decreased.

Supply chain management

implications
In the past three years omnichannel went from being an ideal structure for retailers to a
key factor in market leadership and, in the long term, survival. The silo structure that
previously kept operations separated no longer works for the new retailer. Multiple channels work together to convert visitors to buyers. Retail management is increasingly aware
of the shift happening, but still battles supply chain difficulties.
In a 2014 RSR Research report*, executives were asked to list the the top opportunities
in leveraging omnichannel retail. The most important opportunity was the opportunity
to improve costs allocation for fulfillment operations. Second and third opportunities
listed were a better supply chain conditions monitoring and fulfillment optimization
based on inventory status.

* Source: Retail Supply Chain Strategy: The Next Big Thing / Benchmark Report 2014

39

40

Market leaders seem to be inclined to

optimize existing supply chain operations
rather than to rethink and redesign them.
Challenger companies are inclined to
shift to different models in their supply
chain management policies (39% as
opposed to 25% of leading companies).
In order to improve supply chain conditions, retailers need to improve costs but
more importantly - improve delivery
time. The main reason is the changing
landscape of retail. Endless aisles provided by digital channels force retailers to
extend their offers. Although omnichannel retailers still need to stock on bestsell-

ers, they can increase the number of

listed products and only marginally
increase inventory.
However, increasing product offer without increasing inventory costs means that
manufacturers should ship faster.
To do so, both market leaders and challengers focus on sourcing closer to the
source of demand. 71% of surveyed
market leaders are more inclined to
improve fulfilment flexibility by holding
more work-in-process merchandise than
finished products. This is made possible
by higher volumes than their challenger
counterparts.

Sourcing manufacturing has some disadvantages as retailers need to balance local government regulation on work, improvement in productivity and cost, as well as manufacturer accountability.

41

Yet improving supply chain operations to answer to todays retailing challenges is a must.
Companies strive to find lower cost manufacturing as well as improved flexibility from
the production line. An evolutionary approach is more suited than a revolutionary one.
Continuous improvement rather than total redesign is key in attaining supply chain
efficiency.

Omnichannel Supply Chain

With classic retail the supply chain was
somewhat linear, starting with the Manufacturer who would sell merchandise to
the Wholesaler and products would then
arrive to the Retailer. The retailer would
then stock inventory or place it on the
shelf in its stores, additionally creating
silo structures for separate digital commerce inventory.

supply chain should now ideally be interconnected and communication / operations should work seamlessly. In addition
to what an responsive supply chain,
medium and larger retailers
should strive to improve their
mass customization and ondemand retail facilities (see Mass
Customization).

Omnichannel changed this, as customers

expect retailers to provide the market
with responsive supply chains working
both downstream as well as upstream
and sideways. All key sections of the

Such mass customization and ondemand facilities could mean keeping

more work-in-progress production to
allow customization, 3D printing factories or on-demand book printing systems.

Manufacturer
Wholesaler
Retailer
Ecommerce op.

B&M store op.

Home delivery
The linear supply chain

42

Large scale
manufacturing

Work in process
manufacturing

Wholesaler
Customization

3D printing
Retailer

Ecommerce op.

B&M store op.

Home delivery
Omnichannel supply chain

Logistics partnerships
3PL (third party logistics) companies
become increasingly efficient in delivering logistics operations to omnichannel
retailers. Therefore strong partnerships
and logistics outsourcing and in-sourcing
(see Omnichannel Retail In-sourcing)
could be essential to improving delivery
time and costs, both important in
improving customer loyalty.
Although retailers will shift more and
more fulfillment operations to stores, it
will not make sense to keep all fulfillment
operations inhouse. As eFulfillment
becomes increasingly popular, especially
with SMB retailers, as well as online
retailers working on further decreasing
costs, more and more fulfillment, as well
as CRM operations will be shifted outside the company.

Such operations may include:

1. order management - managing
orders, finding the best solution in fulfillment and preparing the order for picking;
2. pick and pack - after orders are
placed operators in the warehouse should
find the most efficient way to track products, pick them from the shelf and then
prepare the package for shipping;
3. shipping, tracking, returns companies such as DHL or FedEx
become increasingly efficient in shipping
orders so it makes sense to outsource
shipping operations to those with the
know how, IT and transport infrastructure.

43

Some companies provide a full assortment of these types of operations. Sometimes, retailers have large enough logistics operations to allow other companies
to use it. Such is the case with Fulfillment
by Amazon, an operational base companies can outsource to Amazon.
In this case small and medium retailers

can send their inventory to Amazon, the

company stores their products and allows
for better visibility on the Amazon Marketplace. When an order is placed on the
customer webstore, Amazon picks, packs
and ships merchandise to the end consumer. When such a service is needed, it
is Amazon also that provides customer
support and handles returns.

Supply chain performance inhibitors

Of course, omnichannel retailing implementation does not happen in a vacuum.
In a perfect world companies could
decide to become omnichannel ready,
plan for the future and implement. Unfortunately, among other inhibitors such
as organization resistance and omnichannel software scarcity, the supply chain
improvement is also slowed down by
some internal and external inhibitors.
Among the top supply chain inhibitors,
retailers will find the inability to evaluate
success. Remember - retail companies
have been built on a linear supply chain
model. To switch to a flexible structure is
virtually impossible without changing
KPIs. For example an attribution model
was previously used in multichannel
retail where channels providing the most
sales would receive greater attention and
company resources. A company employing the a B&M channel, an online store
and a mobile sales app would find most
of its sales come from the B&M channel
and therefore discourage online sales.
Attribution to the offline store would not
work, however in omnichannel retailing.
Customers browse online, compare on
their mobile phone and end up purchas-

ing in the B&M store.

By discouraging omnichannel permeation and working in silo teams, such
retailers would be inclined to discourage
inventory consistency and customers
browsing the online store would not be
informed on the available stock in store,
they would not test the merchandise and
they would not purchase.
Another often listed inhibitor is the
inability to determine optimal cost product location. We discussed earlier the
opportunity in using multiple shipping
points, including warehouses, stores or
even suppliers. By using real time inventory, software and algorithms designed to
estimate best case scenario for shipping
purposes, retailers can find the best
locations to ship orders. Companies can
also determine whether shipping can be
replaced by customer picking and advise
customers to do that.
Not fast enough shipping is one of the
most important issues retailers face. This
inhibitor is caused by inventory and
product location inconsistencies and poor

44

communication or integration with shipping partners. Customers came to expect

fast deliveries and retailers have a hard
time delivering on customer expectations.
Poor visibility and control outside the
company can cause problems as well. The
supply chain, as mentioned above spreads
outside the companys walls. IT systems
should be integrated with suppliers
(wholesalers and manufacturers), as well
as service providers (3PL partners) and in
the future on-demand manufacturers (3D
printing and customization factories,
on-demand printers and others).
Providing return and service support for
customers is one of the often ignored
inhibitors yet a strong cause for customer
frustration. Imagine customer X, previous
happy buyer of the product Y. The product is now broken and should be fixed in
the service, as the warranty covers repairs.

Customer X has a near-by store, and

thinks about placing the product at the
store, in service. However, the store does
not provide support for the product and
the sales associate instructs the customer to
drive across town to the designated service
facility. Needless to say, such problems
occur often and are a cause for customer
frustration.
However, when it comes to larger retailers
the main supply chain inhibitor is that
stores were just not designed for omnichannel operations. Some can be
adapted but some have to be closed, redesigned and reopened.
These factors, as well as others often pose
threats to company-wide omnichannel
retailing adoption. They can be mitigated
and resolved with a continuous improvement policy. Evolution, rather than revolution is the best option for management.

Implementing omnichannel retail

When shifting from multichannel retail to omnichannel retail, companies will need to
focus on several key factors, such as cross channel team cooperation, adopting the optimal software solutions, training employees and improving supply chain operations.
However, the process is not frictionless and the enemy is usually within. Internal factors
such as management buy-in or shift in company culture are of the utmost importance.
Omnichannel adoption within the company is usually a question of continuous improvement tactics. However, the decision to tackle change is a strategic decision and starts with
the top management.
Company executives, as well as external consultants need to approach the omnichannel
adoption from a top-down perspective, starting in the boardroom.

Stage 1

Board room
Buy-in
Stage 2
Executive Management
adoption and coordination
Stage 3
Company wide adoption and
implementation
Stage 4
Communicating change to customers,
evaluation and improvement
Implementing omnichannel retail
in the organization

45

46

Stage 1: Boardroom buy-in

Medium and large retailers are governed
by an overseeing group of directors at
the top, in charge of providing company
guidance, strategic vision, as well as
selecting, supporting and evaluating the
chief executive. Board members are in
charge of planning and approving
annual budgets and are accountable to
stakeholders for the companys performance. As such, Boardroom buy-in and
support in addressing change to an omnichannel model is essential. The Boardroom is where the company vision is
formed and strategic investments are
approved or disapproved.

1.identifying
supporting
board members
To get initial approval and include
omnichannel developments on the list of
company objectives, board members most
supportive to the concept must be identified. Following the identification phase
information must be provided on current
state of internal, as well as market situation.

4.providing
competitor success
stories
Although competitors may not always
provide the full picture, business intelligence on market developments is now
easier to gather than ever. Omnichannel
success stories are increasingly common
and you can find some in this ebook.

Adopting the omnichannel model is a

strategic decision that needs a company
champion behind it as well as medium
and long term directors support.
Addressing change is never an easy or
short term task. In successful cases the
company executive heading such effort is
usually a senior management representative such as the CEO or a board
member.
To get traction on favourable decision
making one must insure the following
actions are taken:

2.providing
information
Further on, board members should be
educated on the topic of omnichannel
retailing, as well as the current state of
company developments (sales trends,
customer experience) and market opportunities.

3.providing
external ndings
As board members may be unconvinced
by inside interpretation only, a good
practice is either employing external
consultants or providing independent
studies on the matter.

47

Once the board room approves strategic adoption of the omnichannel model, the company is ready for the next stage, Executive Management adoption and coordination.

Stage 2: Executive Management

adoption and coordination
Executive management, or senior management as is sometimes referred to,
deals with day to day operations and
implementing the company strategic
vision. Implementing the omnichannel
model will be effectively managed by this
team.
When implementing a company-wide
reform such as this, companies should
take into account the human factor.
C-level executive (the CEO, CIO, COO)
are most likely strong individuals, each
managing their team and guarding their
influence. To reach successful change,
several company executives need to
cooperate and create cross-channel communication and coordination:
CEO: the chief executive officer is the
top manager and is responsible for the
companys overall performance. His role
in the new models adoption is one of
company-wide support and crossdepartment implementation;
VP of Supply/Procurement: the
executive responsible for sourcing, procurement and supply chain management.
He will tackle the Supply Chain Management implications mentioned above;
VP of Merchandising / COO:
depending on the company structure this
executive will handle operations inside

the company, such as marketing

(including merchandising), sales and
personnel. He or she will be responsible
for company omnichannel policies adoption, personnel training and cross-store
communication;
VP of Technology / CIO: the chief
information officer handles company IT
systems, data interchange within and
outside the company. His responsibilities
in such projects would cover selecting the
right type of technology vendors, testing,
implementing and optimizing company
technology usage.
VP of Marketing / CMO: larger
companies employ chief marketing
officers as part of the senior management team. The CMOs role during the
omnichannel model adoption would be
to insure an informed flow of data from
the market to guide decision making.
After the company has successfully
implemented the new structure, he will
be responsible for communicating across
channels.
These team members should formulate a
clear cross-departmental plan and establish an action plan that later on can be
implemented in the third phase:
company-wide adoption and implementation.

Stage 3: Company wide adoption

and implementation
Based on the plan decided and outlined by the senior management team, execution should
focus on three important areas, when implementing:

1. Implementing
omnichannel technology
Technology is the backbone of any efficient omnichannel operation. A 2013
Internet Retailer study* shows retailers
are spending more to improve on existing
infrastructure. 68.5 % of retailers
plan to increase technology spending in the next year, with top three
priorities being Ecommerce platform
(62.6%), Mobile commerce (46.5%) and
Email marketing (40.4%).
Although companies struggle to tackle
the ever changing retail landscape,
several factors seem to be slowing down
technology adoption. Most important are
the lack of experienced staff (54.5%) and
lack of funds (50.5%). Legacy systems
play a large part in updating IT infrastructure as 27.3% of surveyed respondents list too many older systems to
integrate as a tough challenge. Management approval, a point debated in this
chapter is a concern for 20.2% respondents.
Just like retail operations, technology
should not be siloed either. Choosing the
right vendor and technology is a complex
feat that should be carefully studied.
Upgrading existing IT infrastructure or
implementing new technologies is not a
short term project. It should be consid* Source: 2013 Leading Vendors to the Top 1000 E-Retailers

ered a long term project that does not

end when a solution is delivered. Many
factors should be taken into account.
Some of them are customer needs, existing systems, existing data and future
developments.
When selecting vendors, companies

48

49

should keep in mind that although there is

a myriad of technology enablers, only a
few have the expertise to tackle omnichannel retail implementation and even fewer
have solutions flexible enough to build on
top of current structure.
Selecting the right vendor to implement
omnichannel retail technology is a process
that involves four important steps:
1. Defining requirements - by defining
existing company context and expected
future developments, decision makers can
outline what needs to be updated, what
new features should be developed and
what is the budget. Ranging from implementing a new order management system,
redesigning the relationship between channels or implementing a new omnichannel
retail platform - the requirements should
be outlined as clearly as possible. If such
documentation and planning know how is
not available in the company, retailers can
outsource requirement documentation to
outside consultants.
2. Selecting a vendor list and communicating the Request for Proposal - after Requirements are defined
and reviewed, a list of potential technology partners should be outlined based on
marketed abilities and the RFP should be
communicated. Based on responses
Requirements could be further developed
to respond to vendor additional questions.

3. Evaluating offers and solutions vendors will return with a bid containing
capabilities, timing and costs associated
with previous defined requirements.
Companies implementing new technologies should take into consideration that
the business relationship with such vendors is most likely long term. Evaluation
should consider pricing, delivery time,
previous implementation, company
culture as well as post-implementation
support and costs.
4. Decision and planning - the final
phase is deciding between offers. Decision will most likely be based on negotiated pricing, as well as committed deliverables. After a decision has been made,
implementation should be thoroughly
planned before execution.
When considering technology implementation IT representatives need to
build a must-have matrix, in terms of
solutions that should be present in the
company, implemented or updated. No
matter the choice, it is important that
these technologies work together seamlessly. For reference, below youll find a
figure describing the necessary tech
matrix in order to allow optimum performance for omnichannel retail.
First, you see potential channels. Not all
must be present and some may not apply
to all retail segments. However, the most
important three should be present: Retail
store, web store, mobile apps / commerce outlets.

50

Webstore

Catalogues

Customer interaction
Mobile

Social
Media

Home
appliances

B&M
Store

Interactive
Kiosk

CRM
Unied DB

Order
Management
System

Upcoming
innovations

Real time
Real time
Inventory
Supply
Management
Chain
System
Management

Integrated
Omnichannel
Marketing and
Sales

Omnichannel technology

The Omnichannel Retail

Landscape

51

Omnichannel Retail Technology

Of course the range of technologies available on the market is large and growing
fast. Not all are , however, useful or
needed. Tech requirements for fashion
retailing is different from those in computer and electronics, but some will be
needed, no matter the vertical. The minimal systems retailers would have to implement, update and integrate are:
1. CRM - customer relationship
management with unified customer
database - the customer expects seamless
experience across all channels. Although
experiences cannot be identical (ex.: its
harder to search in store than it is online),
the average customer expects at least
pricing consistency and discounts across all
channels.
Customers feel the need to be treated
consistent across channels, and they need
to have the feeling that they can jump
channels, as long as they identify themselves. For example a customer might see
an ad on TV, add the product to its shopping cart on the mobile version of the
store, further inspect it on the extended
webstore and finally purchase it in store,
after testing the product. By uniting customer databases and allowing channel
identification customers can feel valued
and empowered.
To allow this, retailers need to implement
a cross-channel customer database that
allows customer interactions to be
recorded and loyalty programs to permeate channels. For example loyalty points
and discount should be easily collected
both online (when logging in) and offline

(using NFC identification systems, loyalty

cards or just simply common identificators such as phone number or email
address);
2. Order Management System The order management system sits at the
heart of marketing, sales and fulfilment
operations. It includes order information, product availability (whether in
stock or with suppliers), order entry and
customer service (including returns),
financial processing (payments, invoicing), fulfillment operations (operational
support on product selection, picking,
packing and shipping).
More advanced order management
systems provide sales and order analytics
as well as financial reporting.
It is important that the OMS works
seamlessly with the CRM and can provide inventory information in real time
and across all channels. The optimum
solutions can provide suggestions on
location and method for the best fulfillment patterns;
3. Real time inventory management system - managing inventory
across all storage points (stores, warehouses, webstore inventory) is a must
when implementing omnichannel retailing.
The inventory management system
should provide real-time data and feed
this data into the Order Management
system for order processing.

52

4. Real time supply chain management - The supply chain management

system handles the product flow within the
company and outside of it. Data integration with suppliers provides an accurate
perspective for retailers on how goods
move from manufacturing to the end
consumer.
5. Integrated omnichannel marketing and sales - Omnichannel retailers

should strive to reach consistency across

channels in terms of merchandising, pricing,
inventory information but also very important - the way all these add up to the customer experience.
Marketing systems that feed promotion,
discounts and other marketing mechanisms
to the consumer, should allow marketers to
form a consistent strategy.

Omnichannel tech spending

Although development pace was slower
few years, companies, especially B&M
retailers, have understood the need to
change. Spending has increased steeply,
especially in terms of IT infrastructure,
analytics and operational management.
In a 2013 report by consulting company
LCP*, it is shown that spending has
increased to up to 3% of gross turnover
(80% of retailers), with an ambitious 20%
of retailers spending more than 3%. The
US being a more mature market, retailers
increasingly recognize the need for om-

nichannel investments.
Operational investments in areas such as
merchandising, supply chain, distribution
and logistics and store operations will all be
receiving investments in the near future.
17% of surveyed executives list above mentioned operations as very important to the
future of omnichannel adoption.
However, no area in omnichannel retail
seems to be more important than IT.
23% of executives listed IT as being critical
to the success of a omnichannel retail implementation.

* Source: Retail Supply Chain Management: The Omni-channel Revolution

53

2.Shift in company culture towards an unied

omnichannel identity
Company culture and human resources
are still blind spots when it comes to omnichannel implementation. Although
processes can be easily designed and
planned, a shift towards an ideal retail
structure is often influenced by the existing
company culture.
For example, a shift towards omnichannel
may mean closing stores, reassigning workforce and dealing with inherent cross
department competition. In some unfortunate cases (See below Brick and Mortar
retailers closing stores), it could also mean
jobs are lost.
It is, obviously, easier for online-first retailers to adopt an omnichannel operation
than it is for B&M retailers. They are
usually more flexible, have an IT infrastructure in place and the know-how on
offline operation is easier to acquire. But
just like offline retailers, they have to empower their HR management to handle
change.
Omnichannel is a very sensible environment, as consumers are further empowered and expect personalized, spotless and
informed customer support. Employees
need to be empowered as well as connected with the overall company vision.
As the omnichannel is less about a specific
type of channel, store associates need to
adopt a focus on informing and servicing
the customer, as opposed to increasing
sales. The actual conversion can happen

everywhere in the customer journey and

as customers place value in their favorite
brands, they need to feel they are not
sold to.
The most important actions retailers
take to assure company wide adoption
are:
Promoting and incentivising integrated thinking - it might sound
obvious but companies need to act as a
whole. A certain hive-mind attitude is
needed to insure cross-channel, crossdepartment competition does not arise
and staff place the customer first and a
specific sales channel later.
Providing staff with an unified
vision on the company - using technology, omnichannel retailers need to
allow associates to understand crosschannel operations. To do so, they need
to see beyond their specific point of sale.
B&M store should be able to place
orders online for their customers, phone
operators should be able to plan in-store
pick up and so on.
Training staff to inform rather
than sell - as mentioned above, the
store associate is there to provide more
information and connect to the consumer. The magic should be preserved
and store associates should inform and
allow customers to place orders on their
own, as retail operations will become
increasingly frictionless.

54

3. External Factors Negotiation

Omnichannel processes are not reserved
strictly for the company. They spread
outside, towards suppliers and partners. As
the supply chain management is essential
to omnichannel retail success, external
factors must be brought on board.
Of course, third-party buy-in is not an
easy feat and usually takes time. Partners
need to update their processes and infrastructure also. A certain collaboration is
needed and know how sharing is important.
For example a manufacturer that previously shipped more finished goods to the
retailer will have to change its policy and
hold more work-in-process merchandise,
in order to allow product customization or
improve inventory speed for the retailer.
Different types of partners would also

have to adapt to a more unified vision for

the company. It may be the advertising
agency that now needs to think in terms
of cross-channel marketing (most already
do), the third party logistics company
that needs to become more flexible or
the ERP vendor that needs to update the
software to allow data feeds from an
increasing number of channels.
Management will have to negotiate shift
inside the partner companies or change
this partners. Without resonating operations inside and outside the company
processes may be slowed down. Usually,
this isnt a problem: with economies of
scale and a focus in the outsourced process, partners are faster to adapt than
retailers as survival depends on being
prepared for the next step in their
respective fields. And now its omnichannel.

Stage 4: Communicating change to customers,

evaluation and improvement
Consumer insights

Supply chain

Marketing

New products
improved fullment
Real-time,
personalized marketing

Webstore

Mobile

Oine store

Once strategy is adopted, omnichannel

tactics are put in practice, technology
implemented and the company culture
shifts towards omnichannel, there is only
one thing to do: communicate change to
the market.

New product development - by using

insights from the customers, merchants
can either develop new products, add
new brands to the shelves and increase
inventory based on different trends
across locations, channels and time.

Although communication is seen as a

marketing department related task, this
time is best to happen organically. Before
announcing omnichannel abilities with
bells and whistles retailers need to trial-test
their new operations. By testing, analyzing
and improving, errors previously invisible
can become clear.

Personalized communication although communicating to customers

on a one-to-one basis may seem impossible, personalized communication is
possible with the help of marketing
software. Using mobile, direct marketing,
social media as well as offline marketing
tools, marketing can become a source of
contextual information rather than a
mass market shouting tool.

There are several areas where big-data

management can provide insights, thus
improving customer satisfaction:
Product assortment - after omnichannel technology is implemented, data
regarding product sales, product choice
depending on locations and inventory
availability should be analysed. By analyzing these indicators, retailers could gain
insights on what products to purchase,
where to stock and how to market these
product to the consumer.

In conclusion, change should be communicated through product assortment

improvement, a responsive marketing
and personalized communication. There
is no point in shouting We are doing
omnichannel as from the consumers
point of view, it is nothing but a buzzword, until retail operations can provide
a better service.

55

56

Fastest growing omnichannel retailers

Among the top 5 fastest growing retailers in the US, no.3 and no.1 are omnichannel retailers and they show an outstanding growth rate, due to an innovative approach to retail and a
fast adoption of the omnichannel model.

ALEX AND ANI

GROWTH RATE 250%
Alex and Ani was founded in 2004 by
Carmen Rafaelian. The company designs,
manufactures and sells its own line of
bangles, earrings, necklaces and rings.
A factory originally built by Rafaelians
father in 1966 was home for the first
manufacturing operations. Now Alex and
Ani has 40 brick and mortar stores and an
online store that reported a 250% increase
in YoY sales.
A factory originally built by Rafaelians
father in 1966 was home for the first
manufacturing operations. Now Alex and
Ani has 40 brick and mortar stores and an
online store that reported a 250% increase
in YoY sales.
The one thing that sets the company apart
from its competition is its focus on a virtuous company ethos. Alex and Ani, originally named after its founders two daugh-

ters, takes pride in designing and manufacturing long-lasting, beautifully

designed, hand-made jewelry. The products are somehow filled with positive
energy, using carefully designed symbols
that carry their own energy and are
accompanied by thoughtfully crafted and
meticulously researched meaning.
Buyers are of course empowered by the
jewels, which reflect the unique qualities of the individual. All materials and
manufacturing is Made in America
With Love. And positive energy.
The company is definitely ahead of its
game when it comes to customer experience. Besides adopting a omnichannel
approach to product sales, Alex and Ani
adopted a mobile checkout process in
store. The company partnered with
Mobiquity to create a mPOS (mobile
Point of Sale) solution that lets store
associates handle payments and answer

Alex and Ani Sales Figures

customer questions independent of fixed
POS. The hardware solution is part iPod and
part mobile payments processor. Each Alex
and Ani store now comes equipped with up
to 25 such devices. As a result store associates
(or Bangles Bartenders) can bond with customers and quickly answer their needs.

Alex and Ani opened their first retail

store in 2009. Sales that year were
$2.9 million
In 2012 sales had reached $79.8
million, showing a staggering 3 years
growth of 3569%
In 2013 sales reached $230 million

UNIQLO
GROWTH RATE 341 %
Mr. Tadashi Yanai is the wealthiest man in
Japan ($17.6 billion in 2014) and the
founder of Uniqlo, now the fastest growing online retailer in the United States.
It stands as a sign of the times that a
brand founded in Hiroshima went on to
become the leader in a redefining area of
retail, in the largest economy in the world,
almost 30 years since its birth date.
In may 1985, Unique Clothing Warehouse
was opened as a unisex casual wear store
in Fukuro Machi, Hiroshima. It later on
changed its name to Uniqlo, a contraction
of unique clothing and became increasingly popular as it opened store after store
in an effort to extend its retail reach.
Uniqlo, now a wholly owned subsidiary of
Fast Retailing, is a contender to global
casual wear behemoths GAP, H&M, Limited Brands (best known for Victorias
Secret brand) and Zara (a brand owned by

57

the Inditex Group). Its first urban store

opened in the fashionable Harajuku
district in november 1998. It was quickly
followed by approximately 780 stores in
Japan and later throughout the world.
The company entered the Chinese
market in 2002 and the US market in
2005. Since its debut in America, Uniqlo
continuously opened stores and plans to
open up to 200 locations by 2020, with a
sales target of $10 billion. Right now the
total store count is 18, way behind its
presence in Japan (790 stores) and China
(260 stores). Still not bad considering the
fact that many american retailers are
actually closing stores.
Uniqlo plans to become the biggest
company in its market, by growing at a
20% rate until 2020, when it expects to
report $61.2 billion in revenue. The
companys track record so far shows that
is possible.

Trends shaping the future of retail

Mass customization
Henry Ford* said People can have the
Model T in any color as long as its
black, in the early 20th century. Thats
when Fords innovation, the assembly line,
vastly improved productivity thus reducing
production costs. Lower costs meant companies could manufacture cheaper products and still be profitable.

The assembly line made possible the

mass production of goods. Things that
were previously custom-made and
unique soon became available to the now
emerging middle class. Clothing, food,
even cars and houses became accessible
to the mass market.

Customization no longer a problem for Ford.

Industries were built around product
manufacturing. The customer was no
longer the center of the universe. Companies focused on the product. Products were
manufactured in large quantities, distributed and sold, with a lot of help from
advertising companies. Even though
advertising was around, it wasnt the type
of organized industry we now know until
the television set became a part of consumers daily lives. By borrowing some

concepts used in WWII propaganda,

experimenting a lot and innovating,
advertising quickly evolved in a mature
tool to push mass manufactured products to the market, globally.
MASS MANUFACTURING BECOMES THE STANDARD
After 1970 two trends started to e
merge. First - the mass-manufactured
product becomes the norm. Faster

* Original article: http://netonomy.net/2014/04/03/mass-customization-future-ecommerce/

58

59

assembly lines, improved productivity

with better management and companies
going global it all lead to bigger manufacturing facilities and more money
poured into advertising. In the western
world people were spending earned and
borrowed money faster than ever before
to buy mass-market products.
The second trend was improving production with help from computers and networks. It all started small and kept growing. Innovation in the IT industry allowed
companies to improve manufacturing
productivity further. Soon cars stopped
being built by people and robots took
over. They were faster, better, less prone
to error and cheaper in the long run.
With automated assembly lines, the mass
produced goods could be reprogrammed
to build new products fast.
The product development cycle was
shortened. The fact that now BMW or
Mercedes are able to launch a new model
every month is possible because of
advancements in management and IT.
These companies can now target customer groups. Fords Model T was a
One Size Fits All product but now
automakers can split their customers and
they can build products for increasingly
smaller niches.
MASS CUSTOMIZATION BECOMES A REALITY
The internet changed everything. When
Michael Dell decided he would create a
special PC for anyone willing to pay for it,
he was rather focused on saving his company than revolutionising PC retail. Now
Dell is a global company and one of the

largest online retailers. When the company decided it was going to offer mass
market customization features, it seemed
like a really risky move. At that time,
computer manufacturers were already
engaged in a price war to market accessible computers. It didnt seem like a good
idea to turn a mass produced, mass marketed product in a customizable one.
Dell offered their customers what they
wanted: the ability to choose between
different options in terms of design,
software and hardware. The order, assembly and shipment processes were streamlined using software designed to minimize
human input and error. Todays devices
(be it desktop computers, laptops, tablets
or smartphones) are available in many
formats. Most of them are a hybrid
between mass produced and customized
products but the trend is pushing production further into customized, on demand
retailing.
A healthy contribution to this type of
retailing was brought on by the largest
online retailer in the world: Amazon.
AMAZON LEADS THE WAY IN
MASS CUSTOMIZATION WITH
PRINT-ON-DEMAND
First, Amazon made possible a type of
personalized experience for customers by
providing personal recommendations and
notifications based on purchase history.
Its second biggest innovation was print on
demand. With Amazon, books were no
longer published en-masse for long-tail
items. Rather, for a small amount of extra
cost, they were made available as items
printed on demand.

60

This innovation spawned a new breed of self-published authors, leveling the field for publishing. In turn, readers were now able to read books otherwise unavailable and writers
could skip pitching to publishing houses. The effect was so dramatic that some large book
retailers had to close their brick and mortar stores.
TOP ECOMMERCE COMPANIES SELLING MASS CUSTOMIZED MERCHANDISE
From shoes to t-shirts to art-prints it seems like anything is game when it comes to onlinepowered mass-customization. Many companies jumped the customization wagon, but few
stand out. Below youll find the successful models changing retailing:

Zazzle.com
One of the most popular platforms in the world for Built-To-Order, customized products is
Zazzle. Its mission: To Enable Every Custom, On-Demand Product in the World On Our
Platform. It is a mix between self-curated product designs that can be customized by customers, and a wide variety of products submitted by designers and entrepreneurs in the
marketplace.

The company partnered with large brands to provide customizable products for companies
such as Disney, Hallmark, DC Comics or even Google. It is growing fast, outpacing its
competitors and bringing mass customization for the wide market.
Zazzles success is based on two main factors. The first is its ability to customize products

61

that are manufactured separately and

customized at the end, with input from
the end consumer. This allows for a minimum slowdown in manufacturing capabilities.
The second factor helping Zazzle tackle
its competitors is a patented color print
technology that allows it to manufacture
multicolored items, without significant

increase in costs and manufacturing time.

It does also help that Klein Perkins Caufield & Byers, a well known Silicon Valley
VC firm, backed Zazzle with $48 million.
The VCs have also backed up a couple
of companies you might have heard of,
such as Google, Amazon, AOL or Electronic Arts.

Chicco Shoes
Founders Rumbert Kolkman and Judy Chin believed they could make shoe design a masscustomizable market. In 1999 theyve built a B2B company that would allow shoe retailers
and designers to access a rich supply chain with ease.

In 2013 theyve opened this option to the

public, unleashing the power of masscustomization to end buyers world wide.
Prices range from $230 to $1200 and
Chiko Shoes allows customers to chose
between 1300 material swatches.

The shop goes against luxury heavyweights dealing with customization, such
as Louis Vuitton Monogram or Pradas
Lettering Project.

62

Shapeways
3D Printing is one of the technologies expected to have a deep impact on the future of
retail. Among many other companies providing 3D printing technology, Shapeways stands
out as a potential market leader for 3D printed custom items.

The company was founded in 2007 in the

Netherlands. It then moved to NY, where
it received a $5 million funding from VCs
including Andressen Horowitz. Now
Shapeways runs a fully operational marketplace where designers can sell their 3D
designs and customers can create their
own.

As of June 2012 it sold over 1 million

user-created objects. Production was
provided by its Queens, NY 3D Printing
factory that uses 50 industrial printers to
manufacture millions of user designed
custom projects.

Fab.com
Fab started as a flash sales online store. Its approach proved very lucrative for a while. The
company decided to take another path by providing customized design options for furniture
and home deco buyers. Although the change affected only its european operations, it seems
the company is heavily interested in developing its customization options. It completely
stopped marketing its products and flash sales options in the EU and is fully engaged in
providing customized furniture.

63

The furniture is made-to-measure according to users needs. It allows customers to

design their own products in 5 main
categories:shelving systems, tables, sofas,
beds and wall shelves. A complex yet easy
to use configuration system allows potential customers-turned-designers to create
the perfect match for the home. Inputs
allow customization of size, materials,
colors, finishing and others. A 3D visualization engine allows customers to view
their newly created product before ordering.

This new pivot in the company was made

possible after Fab purchased Massivkonzept, a company founders declared
was already profitable and growing. It
seems Germany is a great place to look
for companies focused on customized
furniture design. Woonio, a german
ecommerce startup, offers customized
furniture like tables, beds, lounge stairs.

64

A need for improvement in the

attribution model
In the multichannel model, siloed operations would compete for the customer
attention and dollars. The B&M store
would try to attract foot traffic, the online
store would try to increase traffic and
conversions and call center sales would try
to increase phone sales.
The attribution model was developed as a
means to track optimum marketing actions
that lead to desired results. It was designed
and implemented once marketing spending started shifting from traditional to
digital.
The model would collect data regarding
different digital marketing channels that
would lead to conversions or actions.
Among such channels youll find paid and
organic search, display ads, email marketing, mobile marketing and others.
Attribution aims at creating a framework
where every impression is counted, analyzed and evaluated as to how much it
measures against proposed results. To
track effectiveness and ROI, marketers
could model their spending across digital
media using attribution patterns. Quantifying how much influence each impression
has on the consumers decision to purchase, spending could become more effective.
As great as the attribution is for onlineonly retailers, it does pose two major problems for omnichannel retailers.

Problem no.1: Collecting offline

data
The first problem is tracking instore purchases and connecting
data to digital channels data. Without such practice attribution is not only
incomplete but rather distracting. As
many retailers still rely on offline channels to sell and market their products, a
measurement of digital data sources is
not enough.
To make this possible, several companies
have tackled the challenge of tracking
customers offline as well. Stores increasingly use smartphone WiFi and Bluetooth* connections to track customer
movement. The number of companies
that provide tracking technologies is
increasing. One way this companies
track consumer behavior is by registering
the smartphones MAC address, unique
identifiers for the smartphone. Informations are usually anonymized
and encrypted. Using this data in
combination with existing digital analytics is possible, as most companies provide
a form of data export that can be used to
understand online-offline behavior.
PRIVACY CONCERNS
In 2012 Nordstrom decided to find out
more about its brick-and-mortar store
shoppers. They thought they can get

* Original article: http://netonomy.net/2013/11/22/tracking-customers-in-store-where-privacy/

65

valuable intel by tracking who comes in

the shop, which products customers buy
more, whats the return rate and others.
Things all online shops track so they can
improve customer experience and
increase sales. Except they did this by
tracking customers smartphones.

And companies such as Brickstream are

becoming increasingly common and popular with retailers:

Nordstrom did something that online

stores dont usually do they posted a
sign announcing shoppers they were
being tracked. Customers were outrages
and Nordstrom discontinued the program, fearing increasing frustration with
their tactics.

In-store traffic tracking is an industry lead

by the eight companies mentioned below,
with other minor companies quickly growing. The list is provided by Future of
Privacy, a think tank based in Washington
DC, focused on advancing responsible
data practices.

TRACKING IN-STORE TRAFFIC

WITH VIDEO CAMERAS

Brickstream
Euclid
iInside, a WirelessWERX Company
Mexia Interative
Radius Networks
SOLOMO Technology
Turnstyle Solutions
Aislelabs

Atlanta based Brickstream uses a 2d / 3d

type of cameras to track shoppers inside
stores, reporting on queue length and
customers behavior.
Brickstream uses path tracking to understand and report customer routes. It also
uses height splitting in order to differentiate between different demographics
(male, female, child) and 3D technologies
to see behind obstacles. Their video
intel is efficient. Used together with
mobile tracking - even more so.

COMPANIES PROVIDING INSTORE CUSTOMER TRACKING

TECHNOLOGIES

With the number of offline data analytics

companies on the rise and adoption increasing, with analytics software improving and
providing increasingly accurate attribution
stats, we might think we are closer than ever
to a perfect attribution model. However
there are several others that need to be

66

overcome before we reach complete

attribution modeling. Some just need
time to solve (for example integrating
offline and online analytics software and
methods).
Others may be harder to do, as there is a
strong backlash against tracking technology. Some, however, may be threats to
the overall concept and may require the
attribution model to be rethought when
large omnichannel retailers try to implement it.
Problem no.2: Bias and Errors
The attribution model is based on the
work of Austrian psychologist Fritz
Heider. His Attribution Theory sits at
the base of attribution modeling in
current marketing practice. His theory
explains attribution as the process by
which individuals explain the causes of
behavior and events.
Heiders work on attribution began by
observing the distinction between the
objective nature of objects and the way
they interact with surroundings, thus
creating an impression on the observer.
The big question Heider asked*, was
why do individuals attribute objects
properties that only exist inside the
mind. Color or texture exist only in the
mind of the observer, yet the observer
attributes these properties to an external
object.
He later extended his studies to
surrounding events and individuals. In
both cases the observer will try to put
oneself in the best possible light, thus

being subjected to bias and errors.

As such, if we were to adopt the attribution theory in the way we study retailing,
we should also take into account potential
bias and errors. As Heider noted our
perceptions of causality are often
distorted by our needs and certain
cognitive biases. By trying to find the
just cause of certain aspects, errors and
biases may point us in the right direction.
As those in charge with managing and
developing omnichannel retail operations
are still human, we should take into
account several potential errors that may
cloud our usage of attribution models:
Culture bias
A very important bias in terms of attribution psychological modeling, it stands also
when applied to omnichannel retailing.
The cultural bias is a probable aspect
because todays retailers are increasingly
multinational companies. Even when
operating within borders, most retailers
have to relate to an increasing number of
cultures.
A simple example is that of western societies (US, UK, Germany) and western
offshoots (such as Australia) that value the
individual and individual achievements.
On the other side of the spectrum we find
Asian, Central and Eastern European
countries and African societies, committed
to a more collectivist model of organization.
In terms of marketing it would work great
to push marcom messages that allude to
personal choices and feats. It would make
sense, for example to create personal

* Source: Forsyth Donelson. Social Psychology. Brooks/Cole Publishing,1987

67

choice marketing programs, pick up

options and product recommendations.
On the other hand culture more prone to
collectivism will be more inclined to
receive group-related marcom messages,
buy en-masse, and altogether act differently from the previous mentioned
cultures.
A western observer would find either
erroneous or misguided the practices his
Chinese counterpart would take.
Fundamental attribution error
The fundamental attribution error
appears when we attribute decisions or
actions based on personality or disposition, rather than situations. For example,
retailers might think that a neighbourhood housing mostly young families is in
need of baby-related merchandise. Such
potential customers would find their other
needs would be less likely to be served due
to this attribution error.
Google had corrected this error by employing a contextual ad serving solution
with its advertising program. The contextual advertising model improved on the

previous demographic model that split customers into groups with fixed needs based on
social status, education, social background
and others.
Dispositional attributions
Closely related to the fundamental attribution
error, the dispositional attribution means
judging a book by its temporary cover. For
example retailers might notice a certain customer has refused all incoming offers and
could decide not to send others.
In such a situation all factors could not be
taken into account and therefore the retailer
could not reach the conclusion that maybe
the customer was just not interested in the
type of offers received so far, but it might be
interested in personalized voucher or it had
mistaken the brand for another he or she does
not like.
These are types of errors and biases that arise
from a flawed attribution model that needs to
be addressed and corrected. The model
should take into account all channels, connect
and analyze data as a whole and take into
account inherently flawed measurements.

68

Predictive personalization
So far companies would collect data on
customers but few really used it properly
or even used it at all. Beyond several quarterly or yearly reports, most medium to
large companies could not consider data
aggregation and interpretation.
In the last years, however, more and more
technologies enabling retailers to handle
more than faster emerged. Companies
such as Google, SAP, SAS, IBM or Facebook have a lot of engineers at work to
provide insights and tools for their paying

customers.
With an improvement in database software came a new outlook on the world
of data. An improvement to existing
SQL (structure query language) allowed
software developers to handle data in a
way previously impossible. By using
multiple sources of data, with different
data structures, analysts could correlate
data to create new insights and even
develop patterns in customer behavior,
thus allowing prediction.

How does predictive personalization work ?

There are several steps in predicting consumer behavior through predictive analytics, and then acting on those insights.
The first step is gathering information
on a large numbers of customers, on all
channels. Discussed above was the need
for an improvement in attribution models
and this factor is essential to gathering
data correctly. All channels should participate in data collection.

prescriptions for the future.

Using big data mining resources, new
analytics software can predict market
evolution in terms of potential sales
forecasts, product assortment, customer
base growth and others.

Further on data mining will provide an

outline of the companys status
(where are we now?) and possible causes
(why are we here?). By assessing these
results, management can understand the
current company position on the market
and the factors that influence it.

By using a different assortment of indicators, analytics software can be used to

analyze different future scenarios that
can lead to different potential outcomes.
The job for tomorrows analytical
experts would be to use different sets of
assumptions to discover the best potential outcome for the company and, using
software, recommend the best course of
action for the management team to
implement.

This is where traditionally analytics would

stop, as data processing could no longer be
trusted to make the right forecasts and

This type of recommendations are usually referred to as prescriptive analytics. Using a combination of big data

69

Value

Prescriptive
Analytics
Predict
Evolution

Course
of
action

Analyzing
Data
Gathering
Data

Big data
Diculty
From data to prescriptive analytics
mining and prescriptive analytics, software vendors have devised applications that can
navigate through historical sales data, customer preferences, optimum purchase pattern
and recommend the right product assortment, pricing and fulfillment options.

70

Brick and Mortar retailers closing stores

With eCommerce on the rise, it just
doesnt make sense for large retailers to
keep up all of their existing stores.
Expanding the network is out of the question, especially in established markets.
China, for example, is likely to skip the
large store networks and jump directly to
eCommerce or omnichannel retail. Its fast
growth in terms of online retail will bring
$655 billion in online sales by 2020. The
secret lays in the large disparity between
the brick-and-mortar reach (13%) and
online retail reach (51%).

US, on the other hand, provides a larger

brick-and-mortar coverage (30%). US is
also the leader in terms of store square
feet per capita: 43. That is probably one
of the biggest issues in brick and mortar
retail: it has outgrown its limits.
As a result, a drastic change in the large
retailers strategy had to happen. The
likes of Sears, JC Penney and Staples
(which is also the second largest internet
retailer) started closing shops and
decreasing store footage. Jobs were cut
and loses reported. Here are the five
most prominent cases:

1. Sears is set out to close 100 stores

After a disappointing 2011 holidays sales
($2,4 billion in losses) , Sears Holdings
Corp., the corporation managing Sears
and Kmart decided its time for a change.
Theyve set out to close 100 shops, providing no details whether jobs will be cut.
Sears competition, Walmart and Target
have been eroding the companys sales. Its
stores are deteriorating, sales are dropping
by the month and even the store closure /
selling wont probably do any good.
Two years after the announcement and the
company has hardly seen any improvement. Sears Canada is laying off 1600
people, as a result of store closures, and
there is no clear strategy in sight.

The saddest thing: Sears started off as

basically the grandfather of eCommerce.
125 years ago, the company was but an
mail order by catalogue operation. Talk
about going back to the roots.

71

2. Blockbuster is closing all remaining stores in 2014

Blockbuster was just around the corner
not long ago. The company that introduced a new way of spending fun time at
home, watching movies, is now about to
close its remaining 300 stores.

brand, and we expect to leverage that

brand as we continue to expand our
digital offerings. said Joseph Clayton,
CEO of Dish Network, Blockbusters
parent company.

Heavy competition from digital streaming

from Netflix, iTunes and RedBox, made
Blockbusters model obsolete. After closing
the DVD-by-mail operations, the company
will have cut its links with the past.

For Blockbuster, this is definitely not a

happy ending. In 2004 the company ran
a network of 9000 stores and reported
$5.9 billion in revenue. After all is said
and done, RedBox may be the real
winner here, with the potential to attract
an additional $300 million in revenue
after Blockbuster is bust.

Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster

3. JC Penney is closing 33 stores and laying o

2500 people
JC Penny has had a rough couple of years.
Main reason: its former CEO Ron Johnson implemented the wonderful strategy
of keeping costs down as opposed to promotions and discounts, in response to
lower costs online. Revenue has plummeted and the company, with its margins
already stretched thing, needed a change.

Current CEO, Myron Ullman III,

expects these closures and layoffs to save
$65 million a year beginning in 2014.
Unfortunately, just like Sears, JC Penney
has no strategy but survive long enough
for a miracle to happen.

72

4. Barnes and Noble closed 51 stores since 2008,

plans to close an additional 20. Also
it will likely kill its Nook tablet
Barnes and Noble may be just another sad
case of ran-over-by-digital, just like
Blockbuster. In July, 2013 CEO William
Lynch Jr. stepped down without any additional information. Suspected reason: net
loss doubled to $119 million. Suspected
reason no.2: The Nook is taking a plummet, which accounts for the previous
stated net loss.
The fact is Barnes and Noble has no
chance of continuing without a clear

check on its business model. Its competition is not some previously defunct
Borders-like company. It is Amazon
the biggest online retailer and the fiercest
retail competitor.
Chances are that even if Chairman
Leonard Riggio, owner of 30% of B&N
stocks, does take the company private, it
will not do much. He is no Jeff Bezos
and the company is really late to the web
party.

5. Borders employed 19.500 people and operated

511 Superstores. It led for bankruptcy in 2011.

One of the saddest entries on the list is of

course Borders. At peak, the company
employed 19.500 people that handled each
and every customer with great care. People
loved the company. They loved visiting the
beautiful stores, browsing the books, chatting with store associates. They would than
buy the books online.
The harsh truth is Borders was killed by
showrooming, Amazon, iTunes and to a
certain degree its own inability to adapt
to the web.

The company was everyones friend:

people would see and feel the books,
even buy once in a while. But when it
came to the big shopping lists, orders
went online.
In 2011, despite an offering from an
investing company, Borders failed to find
a buyer acceptable to its creditors. Its last
399 retail outlets began liquidating on
July 22. Competitor Barnes & Noble
acquired Borders trademarks, customer
databases and the borders.com domain.

73

6. Radioshack closes 500 stores.

Tries to handle $625 million in debt.
Radioshack is an American icon. It operates 4500 stores nationwide and its now
closing 500 of them.

phones, a move that somehow misfired.

These low-margin categories caused a
decrease in net income by aprox. 300%.

Its shares plummeted in the past years, it

barely refinanced its $625 million in debt
and is now trying to figure out where its
headed.

In October 2013 Radioshack secured a

$835 million loan from a group led by
GE Capital, that freed up some cash and
managed to get the company back on
track, at least for now.

Radioshack bet big on tablets and smart-

Radioshacks Net Income is in an awful state

6. The Jones Group cuts 8% workforce,

closes 170 stores.
Clothing retailer Jones Group will cut
approximately 800 jobs and close 170
retail stores. The group handles sales for
some well known brands such as Nine
West, Stuart Weitzman, Easy Spirit, Gloria
Vanderbilt and Givenchy.
As of last year expected revenue was
slashed to $3.8 billion, as opposed to 2006
$4.7 billion.

Global competition, recession and an

increase appetite for brands bought
online pushed the company to change its
overview on brick and mortar retail. A
special factor in decreasing sales have
been flash sales sites such as Gilt or
Ebays RueLaLa. Brands bought online
on these sites have an increasing
customer-base and will continue to put a
dent in traditional fashion retail.

74

Showrooming markets
Showrooming is a trend more and more
retailers recognize. Most online retailers
piggyback on consumers trying on merchandise in physical stores, only to search
for the best price and then purchase the
product online.
Although hard to fight, the trend might be
actually beneficial for larger retailers that
need to attract customers to their online
stores and can afford price matching.

allows users to scan products (not just

barcodes) and find the best deals online.
In this battle the ones that suffer most
are the small retailers or retailers unadapted to omnichannel operations. This
companies cannot afford customers
trying on merchandise only to buy it
some place else, while still keeping the
shop open. Its not just a passing thing
either. 33% of customers worldwide*
report being showroomers, with 21%
using their mobile phones to do it.

On one hand we have large retailers fighting to keep customers purchasing.

Walmart for example, rolled out Savings
Catcher in 2014 and now its pushing it
across US. The tool allows users to compare prices on Walmart.com to those of its
comepetitors. Any difference found is
stored as store credit for the customer.

Even more, markets that are earlier

adopters of this trend seem to be even
more into it. 71% of shoppers in developed Asia, 60% in North America and
54% of European consumers report
showrooming practices.

The likes of Amazon are trying to allow

showroomers even more space to find the
best prices online. Its recently launched
Fire Phone has a built in mechanism that

As probably small to medium retailers

wont just roll over and disappear a new
type of partner will probably appear in
the near future.

* Souree: http://www.tnsglobal.com/2013/mobile-life

75

Showrooming markets as outsourced product display

Traditionally, retailers evolved to outsource
everything that didnt make sense handling
within the company. Things as manufacturing or logistics are now commonly
outsourced to reliable partners, companies
that handle more than one retailers.
Its not just manufacturing or logistics. If
you think about it, most retailers outsource
vital areas of their operations. Financial
reporting, IT services and sometimes even

human resources are outsourced to

partners providing reliable service and
economies of scale. Globalization has
helped push this trend as companies can
find cheaper, reliable work offshore.
But so far stores were pretty much left
untouched. Retailers feel the need to
control and manage stores as they see fit,
even if sometimes it is not the most
economically reliable thing to do. As
showrooming decreases the need and
efficiency for the self-managed store, as
online retail becomes increasingly popu-

76

lar and outsourcing gains traction in the

future product display in store will also be
outsourced.
As mentioned before, millennials as well
as older demographics, still favor B&M
stores. They also like to see and touch
products they are buying. But they dont
always buy from the shop displaying the
product. There is a solution that will
probably become commonplace in the
future, especially for small and medium
retailers.
As retailers need to optimize their pricing
in order to compete to only pure plays
and online retailers need to establish a
physical presence, a new type of company
will emerge. The showrooming market.
The showrooming market is a place that

aims to provide customers with extended

information on the product, as well as the
full product experience. The concept is
already available online, with markets
such as Ebay providing product display
space for smaller retailers, as well as
online pure plays willing to try an additional sales channel.
The primary function for the showrooming market is product display, rather than
sale. Its revenue sources would be retailers paying and competing for shelf space,
but generally paying less than they would
displaying the products on their on.
Retailers, on the other hand, would
benefit from an affordable B&M space, as
well as a logistic point in product delivery,
outsourced to companies that can do it
better, due to economies of scale and
process optimization.

77

Drop-shop / Pop-up Stores

Before we see large scale showrooming
markets, we can see right now online pure
plays adopting hybrid solutions to handle
offline activities.
These solutions need to combine the need
for an in-store pick-up option (which most
online pure plays dont have), an offline
presence for information and branding
purposes, as well as a way of pushing
best-sellers into the market. At the lowest
cost possible.
The drop shop
Not to be confused with the term drop
shipping, the drop shop is an offline
facility that handles first and foremost

package pick-up from customers. Such a

need arises when customers do not want
to subjected to shipping schedule but
rather decide when and where to pick up
ordered products. When dealing with
such customer requests, offline-first retailers have the upper hand, as the existing
store network provides support for customer pick-up options.
Slowly moving into the brick and mortar
territory, online retailers discover innovative ways to handle customer offline
interaction. One such example is the
Amazon Locker. Its function is to allow
customers to order products online and
then pick-up the package from a near-by
Locker.

78

As seen on the previous page, most

Amazon Lockers are not exactly located
in the most glamorous locations (here
pictured near the ladys room) but it does
the job.
Customers could select the closest
Amazon Locker, had their orders delivered there and then receive an email
announcing the order is now available. To
pick up orders, clients can either enter the
pickup code in the central-unit computer
or scan the mailed barcode.
So far Amazon tried its luck with the
likes of Staples (second largest
online retailer in the US), Radioshack and 7-Eleven. The
promise to these companies was
that Amazon has many customers and those that will want to
pick up their packages from the
Amazon Locker will probably
buy something else from the
store. The practice was not
exactly successful as both Staples and Radioshack eventually
dropped the project*.
However, Amazon and the likes
will probably not stop here, to
increase sales they need to
provide the customer with an
way to experience product, as
well as return and buy other
products from their B&M
operations. So far they didnt
need to, as others catered to the
showrooming need. Soon enough,
however, retailers able to price match will
either become serious competitors and

improve their online operations and then

online retailers will have to battle on
unknown land.
The drop shop will be a type of small to
medium shop, probably affiliated with
larger retail operations, providing customers for:
1. package pick-up
2. merchandise experience and
testing
3. returns and customer service
Online retailer Fleur de Mal
ad involving pop-up store conversations

The pop-up store

The concept behind the pop-up store is
a temporary location that exists for a

* Source: http://www.wired.com/2013/09/stores-boot-amazon-lockers/

79

short term, to provide marketing exposure

or sell limited inventory items. It is not
something that online retailers brought to
the market but there are a lot using it right
now.
Online stores that dont operate B&M
operations found the pop-up store an useful
way to attract attention. Its also a great way
to provide sales outlets to customers during
high sales periods, such as the holidays.
New brands, focused on retail online
increasingly find that using pop-up stores is
a great way to attract new customers. These
customer acquisition tactic allows potential
buyers to experience the brand, as well as its
products.
For online retailer Fleur de Mal, setting
up pop-up shops has been a great way to
appeal to their fashion savvy target customers*. Company representatives use pop-up
shops to showcase their organic fiber fashion items to potential consumers throughout
the US.

as store design. The biggest challenge is to

find the right spot to place the pop-up
shops. As most online pure plays have a
hard time navigating and understanding
the complex offline retail rent environment, a new startup decided to step in and
help small and medium retailers find the
right store spot.
Storefront is a company connecting
landlords to retailers. It works as a marketplace between the two types of users. As
pop-up shop demand has been on the rise,
the company launched a Pop-Up Shop
blog and an eBook detailing the inner
workings of setting up a pop-up shop***.
Both the drop shop and the pop-up shop
are hybrid solutions that point to the fact
that online retailers feel the need to set foot
in offline retail. The pressure to reach
omnichannel retailing efficiency is, thus,
equally felt by offline, as well as online
pure plays.

BAUBLEBAR, a fresh and innovative

ecommerce startup focused on jewelry has
seen brand recognition increase as soon as
they started opening pop-up shops. Katherin Hill, director of offline at BAUBLEBAR outlined the main incentive to open a
pop-up shop: We see about half of the
people who walk in to our pop-up
shops have never heard of our brand
before**.
There are, however, several obstacles that
need to be overcome, such as offline channel connectivity to the central server, as well

* Source: http://blog.fleurdumal.com/overheard-at-coachella/1_popsicle-2/
** Source: http://www.retailtouchpoints.com/in-store-insights/2796-the-rise-of-pop-up-shops
*** Source: http://explore.thestorefront.com/popupguide/

Omnichannel retail in-sourcing

Just as the previous revolution in retail was
pushed by outsourcing, a new trend of
in-sourcing seems to be gaining pace. Previously, retailers would outsource company
expertise to other companies that could
provide economies of scale, thus improving
productivity and margins.
Software killed the Ad
Agency

time and for each customer. Mathematics

have replaced, to a certain degree, the
flamboyant creative. Emarketer estimates*
that from the $11.05 billion spent on digital marketing by retailers in 2014, 70% will
go to performance based ads. That means
$7.7 billion will be directed towards mobile
paid search, classifieds, online directories

Although some areas are still

largely outsourced (such as manufacturing and logistics), some start
to make sense to handle within
the company. The change has
been brought on by improved IT
systems and software that provide
better results.
For example, marketing and
advertising used to be a service
that made sense to outsource.
Complex functions and creativity
favored working with outside
partners. As software improved
marketing efficiency, especially
online but increasingly offline,
companies started to adapt. Less
staff could do more, internally,
with help from software than
agencies could. Internal staff can
now also react faster than third parties.
Long gone are the days a campaign would
take months to be put on the market and
run on conventional media.
Now marketing executives need to decide
on how campaigns are being run in real

and paid ads embedded in email messages.

It is flexibility and speed that retailers need
in this area, rather than strategic insights
and creativity.
Retailers will be increasing their headcount in digital marketing and data analytics and ad agencies will have to shift

* Source: http://www.emarketer.com/Article/US-Retail-Industry-Maintains-Position-Digital-Ad-Spend-Leader/

80

81

towards a new model, based on software,

rather than Mad Men creativity.

operational support to companies that have

contracted their services.

WPP, one of the largest advertising

groups, has vastly invested in digital
marketing and results start showing up.
It is the companys executives and Sir
Martin Sorells vision that may have
saved the groups future. Now two of the
groups objectives list digital at their core.
Two of the main objective listed on the
annual report have to do with changes in
advertising and marketing landscape.

Friedman points to UPS, a $36 billion

company, operating a 270 aircraft fleet and
shipping 13.5 millions of packages daily.
UPS partnered with Toshiba to provide
logistics support. There was, however, an
issue with service support. It took too much
and it was too hard to repair a Toshiba
laptop. The buyer would have to ship the
laptop, which would be picked up by a
carrier, sent to a central repair station and
would come back after some time. Because
it took too much, the companies decided to
work together on redesigning Toshibas
repair service.

First objective is increasing new media*

revenue to up to 40%. Remember that
the other 60% includes TV, print, radio,
outdoor and other conventional media.
Second objective is increasing the share
in measurable services to up to 50% of
total service, focused on new technology,
big data and digital.
In sourcing logistics
A hybrid insourcing methodology will change the way
retailers and companies at
large will relate to their
partners. Although some
operations will still be left to
third parties, these parties
will work independent yet
within the company employing them.

The new partnership is a blend between

outsourcing (the process is operated by an
external company) and in-sourcing (the
company acts as an internal department to
the company).
UPS also helped improve the way Nike
fulfils its webshop orders. It is a UPS employee that picks, packs and delivers the
order to the final consumer.

For example Thomas Friedman lists how FedEx and

UPS have evolved to provide
not only logistics but also

* Source: http://www.wpp.com/wppataglance/2013/pdf/review/four-core-strategic-priorities.pdf

Conclusions

82

Omnichannel is the name we happened to put on this global phenomenon, changing retail
in a way previously unheard of. Name it any other way, its influence is just as disruptive. It
changes the way products are manufactured, asking for new ways to cater to increasingly
demanding customers.
It changes the supply chain, as we came to understand it in the past hundred years,
demanding faster and more flexible responses to the market needs.
Omnichannel changes the way retailers display products and the number of products available on the market. It changes the way consumers are engaged and the experience they
receive when dealing with retail brands.
Companies, policies, even the way store representatives respond to the market - none are
immune to change.
We are facing a revolution in commerce worldwide but that does not mean the shift towards
this new model has to be revolutionary. Provided in this book, youll find the necessary
steps, data and strategy to make the change to omnichannel retail. It doesnt matter if
youre reading this from a online pure play perspective, youve helped built a multichannel
retail operation or represent a brick and mortar retail chain getting prepared for the next
chapter. The market is pushing everyone forward and change can and should be done in an
evolutionary manner.
Evolution, rather than revolution, is the path toward omnichannel retail.

About the author

Mihai Dragan is the Managing Director of retail technology
and consultancy company Metromind.
He has over 10 years of experience providing technology
solutions and consultancy to retail companies.
Contact: [email protected]
Blog: www.netonomy.net
LinkedIn: https://www.linkedin.com/in/mihaidragan