Who’s sick of the term “omnichannel?” I for one certainly am! We’ve been haphazardly tossing this term around for the better part of the last five years in the retail space, and yet, as an industry we are still, for the most part, not close to achieving the true essence of the terms definition. That’s not to say we aren’t making strides – there are plenty of retailers that are connecting the dots to build a seamless supply chain. But even the best have not fully integrated across their distribution, e-commerce, and store networks.
While the rate of penetration of e-commerce differs greatly based on retail category, I think we can safely put to bed the notion of physical retail being doomed. The e-commerce boom has been significant, averaging double digit growth rates for the past 15 years in terms of sales. Yet, that growth rate has slowed significantly and has been cut in about half since 2004 (31 percent Q1 2004 vs 15.1 percent Q1 2017) and e-commerce sales still sit at less than 10 percent of total retail according to the U.S. Census Bureau.
But while the e-commerce picture is starting to become a bit clearer now, over the past decade it was not nearly so and a lot of over-reaction took place. I have had retail executives from large companies tell me that they were spending roughly 90 percent of their capex on e-commerce platforms and distribution – even though it represented at best 10 percent of their sales. Think about that for a moment – the industry was dumping huge sums of money to upgrade the systems for a channel that brought in one-tenth of their income, while allowing the channel that brought in the remaining nine-tenths to languish from a capital expenditures standpoint. So, it’s no wonder retail stores felt old and tired – because they were! We weren’t spending any money on keeping them fresh. As the picture comes more into focus, I expect that trend to reverse significantly – and it is already, as more retailers are focusing on upgrading their experiential offerings.
While many things have changed over the last decade plus when it comes to e-commerce, one thing remains constant – the fundamental economics of the last mile equation. The solution presented by the retailer needs to cost equal to, or less, than what the customer is willing to pay. Conventional wisdom would dictate that as technological advancements happen exponentially, a retailer’s ability to provide a cost that is acceptable to the consumer while not causing harm to their bottom line should have become greater. But as retailers competed in a “race to the bottom” to win customer share on e-commerce platforms – that has not been the case. If anything, the last mile equation has become more complex and has put many retailers in a position where their e-commerce is unprofitable as shoppers now expect “on-demand” solutions for minimal to no cost.
But what if we were sitting on the best solution to the last mile equation this entire time? That’s right, the same physical real estate that went unnoticed or underappreciated for many retailers over the past decade provides the best ability to serve as the crucial last step in the distribution chain between e-commerce and the consumer.
Growing in popularity, the concept of buy-online-pickup-in-store is one-way stores are serving as a centralized distribution hub for e-commerce orders. Stores are better located to then most warehouses when it comes to proximity to the shopper. As long as the item is in-stock, the turn-around time is a couple of hours if not shorter and allows the consumer to use the hyper-focused aspects of online shopping with the near instant gratification of in-store. Additionally, by having the shopper pick-up the item, it eliminates the costly last mile conundrum for the retailer. Some retailers are taking it a step further, offering curb-side pick-up of online orders for even greater customer ease.
Another way retailers are testing to solve the last mile is through crowdsourced delivery options. Providers like Deliv are attractive to retailers because it allows them to still own the customer relationship while helping them provide the coveted same day delivery. Cost will be the factor to note in these cases, but giving the customer the option is what makes this attractive. Time-pressed shoppers may very well opt for same-day delivery over picking-up in store, especially if it is more cost-effective than traditional delivery options.
Of course another huge advantage that stores can lean on is their large employee base and Walmart is testing that theory for last mile shipping. The program pays employees extra to deliver online orders to customers that are on their normal route home. According to a blog post by president and CEO of Walmart eCommerce U.S., Marc Lore, the retailer’s store network “puts us within 10 miles of 90% of the U.S. population.” By leveraging their stores and their employees, Walmart has found a new way to make same-day delivery work. Again, while not as fast as in-store or curb-side pick-up, this method allows the retailer to bring its pre-existing assets to bear in the quest for the elusive last-mile solution.
So, are we ready to finally retire the “omnichannel” crutch-phrase? Unfortunately, not quite yet as solutions are still being worked through and retailers are finally spending on upgrading their physical infrastructures once again. But I can see it, it’s not that far off I promise – the day when we can back to just talking about “retailing” again.
