Opportunities for omnichannel and the importance of retail stores

by | Nov 2, 2017

Our annual benchmark report, Retail Insight: Moving Beyond Omnichannel, looks at several different trends that are important in the retail arena, affecting retailers, distributors and manufacturers. We’ve been publishing this report every year for the past five years, tracking what’s happening in the retail and retail supply chain industries.

In the most recent report, we were surprised to see that e-commerce sales were prioritized over brick-and-mortar retail stores. After all, e-commerce still only accounts for 11 percent of sales, while 89 percent still happen in retail stores.

We weren’t sure if it was a fluke, or the start of a change in attitudes. It turned out to be the latter, as that trend only strengthened from last year. Across the entire ecosystem, all three partners agreed that their top priority for 2017 was to focus on “growing e-commerce sales” — 66 percent for retailers, 65 percent for distributors, and 62 percent for manufacturers.

However, when it came to “improving and reinvigorating the in-store experience,” only 45 percent of retailers were committed to the idea, as were only 12 percent of distributors and 21 percent of manufacturers. That’s a problem, because a weakened in-store experience affects everyone. As we noted in the RSR:

In the United States, the fall of sporting goods retailer Sports Authority became an instant case study on why retail partners should prioritize the success of the store. Sports Authority’s demise had many causes, but a big part of it was a completely irrelevant store experience that stood no chance with an increasingly digital shopper. Why should a manufacturer care? After Sports Authority declared bankruptcy, some of its major suppliers took a serious hit on the news of slower growth and lower margins – solely due to Sports Authority’s closure.

In other words, “whither goest the retail store, so goes the manufacturer’s market share.” While it’s understandable that manufacturers and distributors don’t think they have a vested interest in a retail consumer’s in-store experience, if a company as big as Sports Authority can go out of business, the distributors and manufacturers will feel the pinch as well. And there’s usually not enough e-commerce transactions to boost the lost sales.

Mismatch in retail industry priorities

But how many of the three partners’ other priorities are affected by major store closures or ignoring the in-store experience? Remember, only 45 percent of retailers made that a top priority; the other 55 percent did not believe improving their own retail stores was a top priority.

Here’s how the rest of the data broke out on the priority of our trading partners:

Of course, we expect the priorities to be different for each of the partners. Retailers are going to be more invested in improving their stores and “growing their in-store digital engagement,” while distributors are definitely more concerned about their retail partners “discovering unique assortments.” But it’s also important to recognize that these top three priorities are directly impacted by the performance of a brick-and-mortar store.

Not to mention that other top concerns related to e-commerce — “Grow e-commerce sales,” “Streamline fulfillment,” and “Improve e-commerce profitability” — can all be enhanced with the presence of physical retail stores.

Tides changing for retail stores

E-commerce by itself isn’t the only influencer impacting the fate of brick-and-mortar retail stores. From the 1990s right through the beginning of the Great Recession, retail overbuilt. Shopping centers and strip malls were constructed with the expectation of demand that fizzled, first with the e-commerce boom and then when the markets started crashing. As a result, excess retail space has led to a drop in sales per square foot. (On a related note, an excesses of square footage space for the grocery store sector is also a looming crisis on the horizon.)

Instead of closing stores, though, consider looking beyond the four-walled square-foot metrics and rethink their place in the retail supply chain. For example, retail stores can be act as mini distribution centers. “Fulfill from store” processes make use of inventory already available, utilizes inventory closest to the customer and can get the delivery to customers faster — two-day and same-day shipping. That makes the customer happy and more likely to buy in the future, which is of course beneficial to all of the partners in the supply chain.

Consumer spending habits have also changed drastically. Sure, there’s the Amazon effect, but now retailers are also competing with rising healthcare costs, education expenses and tech that can make other products obsolete. Additionally, many consumers in the group with the largest purchasing power – Millennials – are spending more of their money on experiences rather than things.

When consumers do want to buy things, they want a good experience and they want more ways to by. They don’t want to pay full price. They do want shipping that’s cheap and fast. Free and there is 2 days is better. They want a seamless shopping interaction, whether the item is bought online or in a brick-and-mortar location, whether the order is drop shipped from a vendor or fulfilled from a store. Though e-commerce looms large, they still like the instant gratification of buying from a store and bringing their purchase home that day, so they want more “buy online, pick up in store” options.

Important of the retail store

Stores are very much still a vital channel for retail sales and for delivering on the expectations of the modern consumer.

Ultimately, retailers, distributors and manufacturers all must recognize that their own success as individual entities is directly tied into the success of the other links in the supply chain. Manufacturers who ignore retail in-store performance risk losing important market share. Distributors who can’t provide the needed services or transparency on inventory hurt the retailers’ e-commerce experience, which in turn hurts the manufacturers.

Whatever affects retailers can have a ripple effect on the rest of the supply chain. For the entire chain to succeed, each partner needs to work toward the common goal of selling more products to consumers and making them happy, which is what consumers now expect from the modern retail omnichannel environment. While companies are focusing on e-commerce, they shouldn’t neglect the in-store experience. A strong combination of both can lead to more success for retailers, distributors, and manufacturers.

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Peter Zaballos

Peter Zaballos

Senior Vice President & CMO at SPS Commerce
Peter brings more than 15 years of experience in product development, marketing and business development in enterprise, mobile computing and consumer internet businesses. At SPS Commerce, Peter leads the product strategy and marketing programs to support the company’s growth and presence in the retail supply chain market. Additionally, he serves as an advisory board member for two consumer web service firms, Glad2.com and SquareHub.com, where he focuses on branding, positioning and message development.
Peter Zaballos

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