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In Age Of Click-And-Order, Brick-And-Mortar Is Still King

As we settle into the new year, our Sourcing Summit Companion Report looks ahead at ways to optimize processes and performance.

While the retail industry continues to adjust to the new opportunities and challenges omnichannel access presents, the cornerstone of the market is still brick-and-mortar stores.

Retail giant Saks Fifth Avenue discovered this, paradoxically, while investing heavily in shifting its traditional business operations into omnichannel platforms. The deeper analysts delved into the data the more clear it became that in-store sales were still the prime driver of their profitability. As CIO Michael Rodgers put it, the physical store is “still the Big Kahuna.”

The persistent centrality of brick-and-mortar sales, however, doesn’t mean that online retail is a negligible component of any sound business strategy. Rodgers found that, far from functioning as a future substitute for traditional retail, an emphasis on omnichannel is best understood as a mechanism for integrating all the discrete parts of a business into a coherent whole.

For example, there is remarkable synergy between Sak’s online marketing and in-store sales. Email marketing produced $5 of in-store business for every $1 customers dropped on web products. Besides making it easier for Saks to identify its customers and track their shopping preferences, the close connection between online and in-store success makes cross-platform marketing strategies more viable. Rodgers called this approach a “business transformation enabled by technology.” The lesson he drew in looking at omnichannel expansion is a powerful one: “Don’t view it as just an IT project.”

Keith Pickens, senior vice president and CIO of Express, agrees wholeheartedly with Rodger’s interpretation. “At the end of the day, I think brick-and-mortar and e-commerce become one channel,” he said.

Express, a $2 billion company with 600 stores throughout North America, is now integrating all its business platforms with Oracle’s Fusion suites. Pickens foresees the collaboration with Oracle as the key to growing both its online and in-store sales simultaneously by more closely coordinating their activities. He remarked, “We really see Oracle’s ATG e-commerce engine being where the consumer comes in and interacts with us. It’s where they go in and get electronic coupons, it’s where they get their sales’ histories. Today, it is where our loyalty is.”

Still, some retailers have been discouraged that their transition to  omnichannel operations hasn’t been immediately transformative.  The Edgell Knowledge Network (EKN) conducted a study of more than sixty retailers, 41 percent of which specialized in apparel. The results indicated that consumers typically demonstrate a ready willingness to alter shopping behavior, quickly adopting new technologies as they arise. More and more, shopping is moving out of physical stores, shifting to mobile devices and laptops.

The EKN study revealed that 63 percent of the retailers surveyed identified their biggest concern as the accelerated adoption of new technologies by both customers and competitors. Moreover, 42 percent complained that their companies suffered from a lack of an IT department skilled enough to meet these challenges, and 48 percent worries that investment in new technologies wouldn’t produce an adequate rate of return.

Nevertheless, technological advancement is no guarantee of commercial success. EKN research director Guarav Pant explained that investment in omnichannel strategies is just one part of the retail puzzle. He said, “People think that if you put all of the technological bells and whistles in the store, it will be the best store. But it may end up being a mausoleum of technology. If [some technology] doesn’t work for the brand, it doesn’t make any sense.”

The trick seems to be to see each as an indispensable compliment to the other, rather than competing alternatives. Paul Coby, CIO of John Lewis, captured the dynamic relation between the two in a recent speech. He said, “If you put a good online and store experience together, you’ve got a bit of magic.”

 

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