What is Omnichannel Retail? Past, present and future.

I’ve put together a slideshare presentation regarding omnichannel retail. It focuses on the events that lead to the adoption of omnichannel, the challenges and several ideas that will help you understand the concept.

Demand Sensing is a $1.1 Trillion Opportunity for Retailers

Consumer demand is the one thing that can decide whether a retailer is successful or not. Of course, there is a whole field of marketing studies to determine how we can influence consumers to purchase. But a really important aspect of how good retailers fare in the market is their ability to “sense” demand, not just influence it.

In a recent study, IHL Group claims Overstocks and Out-of-Stocks cost retailers almost $1.1 trillion world-wide. To put it in perspective, that figure is the size of Australia’s GDP.

What that means is that Overstocks and Out-of-stocks, collectively defined as Inventory Distortion, are a problem that cost retailers world-wide 7.5% of their gross revenue.

The most important overstock causes

The figures translate into poor performance, decreased customer satisfaction, decreased sales and increased costs of inventory warehousing and inventory spoilage. Basically there are two really simple outcomes:

  • Either retailers stock up on too much inventory which turns to increased warehousing costs and spoiled products.
  • …Or they don’t and they miss on sales opportunities

Either way, one thing is for sure: Inventory Distortion leads to poor retail performance.

How do you solve Inventory Distortion? (Not exactly) Simple: Demand Sensing

Demand Sensing is a concept and set of technologies that make use of analytical and prediction models to estimate … well … demand. Imagine a retailer that runs a network of 10 stores, one online store and has a mobile app that drives sales also, along side a call center.

Said retailer probably has an inventory management system, an warehouse management system, a sales reporting tool and probably some type of integration with suppliers and manufacturers.

Let’s imagine this retailer selling a type of red shirts that is available in one of the 10 stores and that inventory is not available online. If a customer will visit 3 of the stores in search of that particular red shirt and then search for it online and still not find it, it will probably consider it to be out of stock and the retailer would lose a sale opportunity.

You probably see where the problem lies: even though the product was available, it was not available to the customer and opportunities were lost. The same thing goes for products that are not exposed to the customers, or they are, say, unreachable on the shelf or unfindable on the web store if the search engine is not fit for the job.

The opposite situation, where demand is not correctly estimated and out-of-stocks become a reality, are just as bad as sales opportunities are lost.

The solution lies in gathering enough data across all sales channels, compiling this data and using models to predict demand. That easier said than done because …

To make demand sensing a reality, inventory transparency has to be achieved

As you are reading a blog on omnichannel retail, the term was bound to appear somewhere along the line. So here it is. You can’t have Demand Sensing without a connected sales operation and inventory transparency. All inventory sources have to be connected and data should be generally available. So should sales data across channels.

The picture below shows an example of omnichannel supply chain, one where all the operational pieces work together and share data. When such a structure is implemented, demand is easily “sensed” and estimated and thus inventory distortion can decrease.

So now we have the data. Implementing omnichannel retail can lead do a better demand sensing and therefore improve inventory distortion, a small glitch in the global retail system costing “only” $1.1 trillion.

3 Factors Slowing Down Omnichannel Adoption

Across the globe, retailers have picked up on the omnichannel trend and try to give the customers what they want: the same level of service across all sales channels.

Some are doing better than others but everyone’s trying. Especially for multi-channel retailers, the switch is essential in keeping up with an increasing competition from online pure-plays.

The switch is not easy and certain bottlenecks stand out:

1. Omnichannel is sometimes treated as a marketing or tech buzzword. Hint: it’s not

When you say omnichannel, you have to think of all the sales and distribution channels. Hence the “omni”. That certainly looks like a marketing area and to a certain degree, it is.

But to make omnichannel a reality instead of long consultative talks, you have to go beyond marketing and into the dark woods of technology systems and process management. That’s the hard part. The change comes when companies and especially executives leave aside their differences and interact to connect cross-department processes.

Yes, omnichannel is marketing driven but it needs inventory transparency, it needs technology investment and updating and it needs a change in internal processes and culture.

Yes, culture because…

2. There’s a lot of sales cannibalization between channels

Mid to large retailers that switched from brick and mortar to multi-channel did this by adding silo-ed sales structures one after another. First came the brick and mortar operation, then came the online store, the call-center, the mobile sales and so on.

Each of these channels eventually developed into a full-fledged sub-organization. It is not uncommon to see, for example, ecommerce departments with full operational structures from purchasing, warehouse management, picking and packing, sales, marketing and others.

When such structures emerge, a certain type of independence emerges also and this can lead to channel cannibalization. Simply put it’s one channel stealing sales from another, instead of working together for the customer and the common (company) good.

That’s why a change in culture is much needed when striving to implement omnichannel retail policies. Any customer should be encouraged to buy from any channel, as long as it stays within the retailer’s domain.

3. BAGA is a lot more complicated than it seems

BAGA stands for “Buy Anywhere, Get Anywhere“. Buy online, pick up in store. Or at home. Buy in the physical store and receive at home. Place an order on the phone and pick up in store.

It’s complicated just working with two or three of these scenarios. When you add general inventory transparency, cross-store orders and supplier availability it gets a lot more complicated.

That’s why a BAGA policy should be built after implementing:

  1. inventory transparency policy and technology. This should spread across the full inventory spectrum including warehouses, stores, in-movement goods and suppliers.
  2. customer master-data management. The customer is the same across all channels and should be recognized and its treatment personalized on demand. Think of this area as a CRM on steroids that spreads across all channels.
  3. product master-data management. Product information should be available on all channels, when needed and in the right format.
  4. cross-channel marketing policies. Think marketing independent of channel and at the same time available on all.

These are just three of the most important factors that slow down omnichannel adoption. The fourth is probably the fact that some companies are just so tired of working their way through ecommerce adoption that they are unwilling to move forward.

It takes willingness to discover the benefits and what omnichannel is. For many, the switch is rather simple in terms of technology. It does bare costs in willingness to learn new concepts and implement these concepts within the company.

Omnichannel retail will transform distribution

A very important part of retailing is pricing and the most important part of pricing is the cost. To get a complete view of how much a product would cost, retailers think in terms of net landed cost.

The net landed cost is the sum of costs associated with manufacturing and distribution. When thinking in terms of net landed cost you have a better chance of understanding your total cost.

A common fallacy is thinking of costs just in terms of manufacturing, either from a purchase only point of view (how much you pay your supplier for a given product) or a more inclusive manufacturing point of view. The manufacturing point of view assumes that even if you are not manufacturing the product yourself, you still have the liberty to choose another supplier or change merchandising altogether.

The most important advancements in retail, in terms of supply and cost effectiveness, have focused largely on manufacturing costs in the past decades. This has lead to increasingly efficient production lines, a more competitive manufacturing market, shifting manufacturing overseas and many others.

A key to Walmart’s success is selecting suppliers with an optimum manufacturing cost / quality

This manufacturing improvement trend has had beneficial results on the customers life through more accessible, more diversified merchandise. It also meant companies managed to sell more, to more people. Companies such as Walmart have grown to their existing magnitude thanks to a wide network of suppliers, providing them with products manufactured at the best possible cost.

Distribution lagged behind

As retailers improved on the manufacturing, there was one part that has been left mostly untouched. That was the distribution. Distribution costs have decreased but not dropped.

To get a better view of why, get a glimpse of what are the factors that weigh in the distribution costs basket. Here you have costs associated with getting a product from the manufacturer to the customer. This includes freight, stocking, customs, costs associated with store development and maintenance, marketing costs, customer support and others. This is a very large area and a lot of work to be done.

Distribution is changed by technology, data and omnichannel retailing

Today, distribution is changing, and it’s changing fast. As a result, the associated costs will follow.

At the forefront of this change we have several factors, one of which is omnichannel, another being technology and the third being data. This is how they weigh in and these are the areas that will be soon transformed:

Improved logistics

Logistics have not been fully transformed by technology. For example, freight has been virtually unchanged in the past decades. Think about it this way: cargo ships are still loaded after excel files are checked, faxes are sent and handshakes seal deals. For a large part, the industry is archaic and it’s but a question of time until it will be transformed. There is a lot of room for disruption and companies such as Freightos have challenged the status-quo and promise 10-17x ROI. In weeks.

And it’s not just freight. Fleets of small vans contractors have taken up the Uber model and are now roaming the streets of Hong Kong to deliver goods the likes of DHL and UPS can’t.

GoGoVan is a Smart Logistics company, connecting individual contractors to larger companies in need of their services

Omnichannel retail decreases distribution costs

Omnichannel makes possible and desirable a few things the previous retail models couldn’t. First of all it allows for a better inventory transparency and improved shipping effectiveness.

Customers that would otherwise expect orders placed online to be shipped at home with the respective costs and operational challenges, can now just pick up orders in store. Or better yet, they can have the closest store ship these items at home, instead of mixing the order in a large, central warehouse.

Omnichannel also makes possible having just a limited number of products in store and keep the most either in the warehouse to be shipped when convenient or with a supplier. By reducing store footprint companies can reduce fixed costs associated with marketing and distribution of products, thus decreasing costs.

And it’s not just these, the many aspects of omnichannel retail all converge to a decrease in distribution costs and more efficient ways to handle product demand.

Macy’s growth versus JC Penney and Sears.

Improving marketing and advertising with data

John Wanamaker was a retail innovator. He is credited with the fixed price and money back guarantee marketing concepts. Wanamaker was one of the pioneers of the department store and loved advertising. He is also credited with the famous saying :

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

Good thing that was more than a century ago.

“Show me your budget.”

Marketing is now changing rapidly and unfortunately for some advertising agencies, long gone are the days when the Mad Men of advertising charged millions for concepts that could or could not work.

With the rise of digital commerce and omnichannel retail and the smartphone to bridge the gaps, data is all around. Marketing is now data driven and the half of budget Wanamaker complained about can now be easily tracked. Companies such as Macy’s are investing heavily in omnichannel policies and marketing. The results are clear. While their competition is diving, Macy’s business is on the rise.

Advertising is data driven and marketing costs are constantly improving.

By improving distribution and decreasing distribution costs we have two very important things happening. The first is that companies engaged in improving this area will be more profitable and more inclined to continue on this path.

The second thing is that lower distribution costs mean better prices for the consumers, therefore an improved appetite for consumption. Improved profitability and decreased prices – these are two very strong forces that will shape tomorrow’s retail. And it’s happening today.

Three Luxury Retailers Shinning on Instagram

They say a picture is worth a thousand words. Add a cool filter in Instagram and it may be worth more. So luxury retailers have taken up on the chance of showcasing offline products in the most popular photo-sharing app in the world.

It’s definitely worth it. With more than 300 million Instagrammers, the social network is a colorful powerhouse, just waiting for fashion retailers to tap into it. And it’s not just the numbers. From Taylor Swift to Robert Downey Jr everyone who’s anyone is walking the red carpet of Instagram.

Along these stars came the most popular and desired luxury brands in the world. With social incentives, aspiring fans can become customers and customers will become brand lovers. So photo sharing on Instagram is a go for brands looking to connect online and offline sales and marketing.

Let’s have a look at these three most effective brands on Instagram:

3. Hermes

Hermes on Instagram
Hermes on Instagram

Hermes is unconventional and creative, focusing on outlining the brand identity without being too pushy. It’s rather “modest” fan base of just over 670k followers shouldn’t be bigger either. After all, Hermes addresses a special kind of audience – the kind that doesn’t come busting doors in look for discounts. They discreetly shop online for $11.300 leisure bicycles and $7.600 bags.

2. Tiffany’s

Tiffany's on Instagram
Tiffany’s on Instagram

You’ve spotted that special kind of turquoise and the must-have diamond ring that’s globally recognized. 1.8 million Instagrammers are constantly connected to the stylish social media outlet Tiffany’s employs.

The Instagram page is a mix of colorful illustrations, products showcased in glamorous yet simple and stylish photos and fashion advice from models and designers. The whole philosophy is outlined by Francesca Amfitheatrof, Tiffany & Co. design director: “I believe there is great power in simplicity.” 

Just like its brick and mortar stores, as well as the online store, the Instagram page is a stylish, simple and elegant work of art.

1. Burberry

Burberry
Burberry on Instagram

Burberry is almost unbeatable in terms of using technology to connect to its esteemed audience. Digital retail is so important to Burberry that they’ve designed a flagship store that resembled their website, in 2012. Talk about omnichannel.

Digitally connecting to their customer has been the main ingredient to Burberry’s recent growth and Instagram was not bound to be left behind. The 2.4 million followers can get a glimpse in the lives of the rich and beautiful through Burberry’s Instagram channel.

Models, carefully crafted products and celebrities all mix to give followers, customers and aspiring Burberry product owners, that warm “I’ve got to have this” feeling.

And once that feeling kicks in, the monogramed scarf is just a step away in the online store, ready to be picked up in the closest store. Or sent home. Worry not, there’s free shipping and returns.

The 6 Key Factors in Implementing Omnichannel Fulfillment

Ecommerce is growing at double digits and people are spending more and more online. US Customers, for example, have spent $322 billion online in 2013 and figures add up to even more this year.

So why not bet everything on ecommerce? Why change direction again and include those “old” brick and mortar stores, and warehouses and such? Why build omnichannel retail facilities?

Short answer: because the customer is not a robot. The customer does not have to shop online. It will shop online when it feels better.

Only 2% of retailers believe their companies are highly competent in managing omnichannel retail. Source.
Only 2% of retailers believe their companies are highly competent in managing omnichannel retail. Source.

Ecommerce is indeed a revolution in the way we do business and indeed it has changed the retail landscape but consumers still exist in the physical world. Consumers do spend time online but they also walk by store fronts, they like to touch the products they buy and they like to see how fashion items, for example, look like in real life.

That means that real life stores will continue to exist. But so will online stores, sales call centers, interactive kiosks and marketplace outlets.

Retailers need to figure out how to connect all these channels. This new wave of customer centric retail is called omnichannel retail. The term means that no matter the sales channel, everything behind the scenes is connected. The inventory is universally available to all stores. The customer info is available on all channels also, so he or she can be instantly recognized and offers personalized. Product info is also available cross channels but most important – Fulfillment can be managed on all possible points so as to serve the customer in the timeliest and most effective manner.

Managing Omnichannel Fulfillment

One of the biggest challenges in omnichannel retail is fulfilling orders cross channels. Today, retailers that deal with both online and offline sales have to split fulfillment in two separate areas, each with specific operations.

Customer service is the top priority in omnichannel fulfillment. Surce.
Customer service is the top priority in omnichannel fulfillment. Source.

The first is offline fulfillment, namely what happens in brick and mortar stores. Offline sales have been optimized to run on a pretty specific supply chain, not very flexible. It starts with the manufacturer, continues with forwarding merchandise to the wholesale buyer and then products end up stored in the retailer’s warehouses and stores.

Because ecommerce came as an addition to existing sales channels, it was added to the existing supply chain as a type of extra store, with its own specific operations.

However things got complicated when the web store had to split into the mobile store, the interactive kiosk, the marketplace outlet and others. Then customers wanted to buy online and pick up offline. But they didn’t stop here: they wanted to order in the store and receive home, ask for inventory info in the offline store and more. Pretty soon they started demanding it so now omnichannel retail is a question of customer service.

Retailers realized that what the retail world is facing is both a huge challenge in terms of customer demands and a huge opportunity. Those companies shifting their business strategies to fit the new, empowered consumer, will be the leaders of tomorrow.

Macy's has developed great omnichannel retail policies.
Macy’s has developed great omnichannel retail policies.

But to do that, retailers need to develop new order management software hubs. These order management hubs need to connect all fulfillment options to all sales channels. That means that all stores, all warehouses, all suppliers, all drop shippers need to be connected and managed by an order management tool that filters orders from all stores, both online and offline, interactive kiosks, call centers, mobile apps and others.

Some companies are handling omnichannel orders just great. Others need to improve their policies and most of all their IT infrastructure. To do that they have to figure out what factors need to be taken into account when fulfilling orders. Here are the top 6 most important:

Most important factors in omnichannel fulfillment

1. Proximity to customer – this obvious indicator will track which is the closest fulfillment outlet that can ship orders to customers.

2. Inventory levels across all fulfillment outlets – that includes inventory levels in the warehouses, stores, goods in consignment, drop shippers or even supplier and manufacturers. Yes, sometimes it can be more effective to ship directly from the manufacturer or the supplier than it would if the goods were shipped from the store or the warehouse.

3. Order split costs – orders that have more than one product per customer sometimes need to be split to multiple locations that have the products in stock. Products can be shipped individually or shipped to a single fulfillment facility (store or warehouse) and then shipped to the customer. Ideally, orders are fulfilled from the same point but sometimes that is not possible. In this case, the order management software should recommend the most efficient route products should take to the customer.

4. Information on customer history – fulfillment has to factor in the customer previous purchases and behavior. Retailers have loyalty programs that offer better costs and features to more loyal customer. A speedy fulfillment, complimentary gifts or just a thank you note may be outputs from the customer history.

5. Fulfillment capacity per location – estimating the maximum fulfillment load for each location can help prevent overload situations where store associates have too much orders to fulfill and can’t manage their day-to-day tasks. It can also prevent overloading several warehouses and leave others with zero workload, just because a specific area has placed more orders.

6. Seasonal fluctuations – stores get really crowded on holidays and store associates are way better answering customer questions than they are packing orders. Seasonal fluctuations need to be taken into account when implementing omnichannel retail.

 

 

 

Macy’s Strategy for Omnichannel Success

Think about this – is there actually such a thing as an online customer? Or an offline customer? Or even a mobile customer? Definitely not. Consumers like to skip sales channels and fulfill their goals in the best way possible. Your customer can research for products online, ask friends for references on social media, test them in the brick and mortar shop and finally purchase in the web store. So it makes no sense treating customers as stuck in a sales channel. The Omnichannel experience, where every consumer can use given sales outlets as she sees fit, is now pretty close to utopia for many retailers.

macysBut others are dedicated to making omnichannel a reality for their customers.

Meet Macy’s.

“Our goal remains to help our customers shop whenever, wherever and however they prefer, and to use the entire inventory of the company to satisfy demand,” Terry Lundgren, Macy’s CEO

As other retailers are facing declining sales and decrease in customer loyalty, Macy’s seems to be thriving. The company has seen recent increase in sales overall and a sharp increase in online sales (48% in 2013).

How did they do it?

Improve customer experience with technology

Macy’s has lots of experience in customer service but the digital revolution took most retailers by surprise. Macy’s has dedicated a large portion of its yearly budget to improving customer experience through technology.

Macy's Flagship store in New York
Macy’s Flagship store in New York

The company’s cost of sales rose to $139 million in 2014 second quarter. This increase was caused by “omnichannel business and the resultant impact of free shipping” which means Macy’s is betting big on its customers’ experience.

The results are great. Just short after Apple Pay was announced, Macy’s announced it will implement the technology in all stores. The company already allowed customers to store their coupons on the Mobile Wallet, that could be accessed anywhere – online, on mobile devices or in store.

Macy's mobile wallet
Macy’s mobile wallet
Using shopBeacon in-store
Using shopBeacon in-store

Macy’s also partnered with Shopkick to increase brick and mortar traffic in its New York and San Francisco stores and now the company is rolling out the shopBeacon technology. The beacons give retailers the ability to push information directly to the consumer’s mobile device. It can welcome shoppers as they walk inside Macy’s stores, send out specific deals and recommendations and can be used as a way to redeem loyalty rewards.

Macy's Beauty Spot kiosk
Macy’s Beauty Spot kiosk

Interactive kiosks were used to improve customer experience throughout brick and mortar stores. The kiosks vary in size and complexity, ranging from simple browse and order applications to more complex features. The “Beauty spot” kiosk, for example, improves Macy’s cosmetics section with an electronic make-up consultant. The system advises potential buyers on makeup and skin products that are best fitted for their needs.

Even store associates are empowered when answering customer needs. The company is now testing mobile and tablet POS that can connect to real-time inventory and offer quick responses to customer needs.

And if we’re talking about real-time inventory, you should know that Macy’s has been working hard at improving cross-channel operations:

Improve fulfillment and inventory management

In 2010 Macy’s piloted a store-fulfillment program in 10 stores. The idea was that if the company can connect inventory from individual stores, it can manage inventory better. As merchandise was sold sold online, stores would be able to ship orders directly, depending on their inventory levels or allow for in-store pick-up.

The program was a success and the company increased the number of stores that could ship orders. 13 more stores were added to the program in 2011. In 2012, 292 stores were shipping orders. In 2013 – roughly 500. The process will be finally completed in 2014 when all 800 stores will be able to fulfill customer orders.

In-store fulfillment increased rapidly since 2012.
In-store fulfillment increased rapidly since 2012.

As these stores began fulfilling orders two things happened. First – orders could be shipped faster, with the ultimate goal of same day delivery, thus improving customer experience. The second big change in Macy’s fulfillment was that using stores meant inventory turnover greatly improved.

With store associates empowered with real-time inventory data, orders began to increase. The store associates could locate items in other stores, and ship that item from that point, directly to the consumer’s requested address.

Macy’s discovered that the nearest store may not always be the best choice to ship the product. Sometimes a product sold in point A could have a really slow turnover so it should be shipped whenever possible. On the other hand, the same product could be in high demand at point B, closer to the customer.

The company didn’t stop here. With stores able to fulfill orders, the Order Online / Pick Up in Store program began in 2013. It was first tested in 10 stores during fall 2013 and began rolling out to all stores in 2014.

It’s not just the stores that improved their fulfillment functions. Macy’s is now expanding its direct-to-consumer fulfillment center in Goodyear to a mega-facility of 960 000 square feet which will be soon followed by an even bigger fulfillment center in Tulsa, in 2015.

So Macy’s is quick to implement omnichannel policies but is it worth it?

Macy’s is winning the retail game

It’s worth it, all right. As you can see in the chart below, Macy’s revenue has been steadily rising, as opposed to some of its main competitors. It seems that 2010 was a real turning point for the company. And what year is that? Right, the year the company began to implementing omnichannel retail.

Macy's growth versus JC Penney and Sears. Source.
Macy’s growth versus JC Penney and Sears. Source.

 

 

 

 

Is Mobile Commerce Taking Over Ecommerce?

A chart based on US Census Bureau and Comscore data was published by Business Insider. It shows Mobile Commerce growing three times faster than Ecommerce overall.

Is Mobile Commerce taking on "classic" Ecommerce?
Is Mobile Commerce taking on “classic” Ecommerce? Source.

The numbers behind it are very interesting:

  1. mobile commerce is on the rise and has registered a 48% YoY growth, in the second quarter. It now accounts for $8 billion in online spending.
  2. overall ecommerce (including mobile commerce) grew “only” 15.9% year over year in the second quarter and totals $70.1 billion in online sales.

However…

Stop betting on (just) mobile. We’re not there yet.

Smartphones and tablets have brought forth a revolution in computing and social interaction. Unfortunately for overenthusiastic mobile-only fans, mcommerce usage is lagging behind mobile device adoption.

If you look at the chart above you’ll see there’s a  linear growth in mobile commerce. Not a hockey puck growth. Not even an accelerated growth.

Even more – ecommerce accounts for only 5.9% of all retail. Mobile commerce itself is just 11.4% of ecommerce. This means mobile commerce, however ambitious is pretty much insignifiant. It accounts for just 0.67% of total US retail.

Smartphones and tablets are extremely popular. Mobile commerce – not so much.

And hey – it’s not the fact that people don’t like smartphones. Oh no. People love smartphones:

Growth in smartphone penetration in the US.
Growth in smartphone penetration in the US. Source.

 

 

They also love tablets. Almost 42% of all US adults own at least a tablet. Remember – this is a product that went on sale only 4 years ago, when Apple introduced the iPad. In just 4 short years, the tablet has become a virtually ubiquitous computing item for US adults.

Tablet penetration among US adults. Source.
Tablet penetration among US adults. Source.

So – people are buying mobile devices like crazy. PC sales are dropping yet the mobile commerce is just 0.67% .Why?

The short answer – there is no mobile commerce. 

Mobile is the bridge. It helps connect the physical world to the virtual world. The act of purchasing happens on multiple channels. Mobile is not “the future”. It is the present yet the present comes in a form we have not met before – a bridge across channels.

If we take the time to see matters from the consumer’s point of view things are not as black and white as we expect them to be. Few if any consumers think in terms of mobile OR desktop OR brick and mortar. The consumer will spend time in a B&M store, browse the web to search for the right products, do a little showrooming to find the be best pricing. In the end, the whole purchasing experience stretches across channels and some are more popular than others.

But the customer has only one perspective where channels blend in. The omnichannel perspective. To provide the ecosystem for this perspective, the new retailers will try to understand and implement omnichannel retail because mobile, however massive, is just a piece of the puzzle.

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.

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.

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 allows users to scan products (not just barcodes) and find the best deals online.

Showrooming around the world
Showrooming around the world

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. It’s not just a passing thing either. 33% of customers worldwide report being showroomers, with 21% using their mobile phones to do it ( Source ).

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.

As probably small to medium retailers won’t just roll over and disappear a new type of partner will probably appear in the near future

Showrooming markets as outsourced product display

Traditionally, retailers evolved to outsource everything that didn’t 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.

It’s 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 still 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 popular and outsourcing gains traction in the future product display in store will also be outsourced.

[Article extracted from “Understanding Omnichannel Retail”. Download the report here.]

Millennials as well as older demographics still favor B&M stores. They also like to see and touch the products they are buying. But they don’t 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.