I t’s a rare retailer these days that relies on a single chan- nel to generate sales. By now, many, if not most, have mbraced the omnichannel model, selling everything
from groceries to consumer goods to apparel via brick-and-mortar stores, websites, and catalogs and call centers.
But in the rush to meet customer demand for swift delivery, some retailers forget about their own bottom lines.
“People are shooting themselves in the foot because
they’re so eager to sell the product. They think they have
to keep up with Amazon to the point where they erode
their profit,” said Zach Zalowitz, practice lead for omni-channel supply chain at the Boulder, Colo., consulting firm
SCApath LLC.
Many retailers like the idea of fulfilling online orders
from their brick-and-mortar stores but are dismayed to
find the practice can be very expensive. “The second you
start fulfilling from more than one store for the
same order, your profitability is shot, because
there are twice as many hands touching
it, twice as many boxes to pack, twice
as many internal invoices to track,”
Zalowitz said.
While customers may love it,
there’s no denying that omnichan-
nel is expensive. Whether a retailer
is mailing online orders from retail
storefronts, arranging to have
orders drop-shipped directly from
suppliers, or holding online orders
in stores for pickup, those services
cost money to provide. Converting
a conventional retail operation to an
omnichannel one can require investments
in new software or material handling equip-
ment, corporate realignment, specialized consultants,
changes in transportation routes, DC redesigns, and
retraining for store staff.
The pain is real: Many retailers are seeking to offset their
rising fulfillment costs by raising prices elsewhere in their
operations, according to a recent survey of retail and con-
sumer goods CEOs conducted by PwC on behalf of JDA
Software. As for specifics, the PwC study, CEO Viewpoint
2016: The Journey to Profitable Omni-Channel Commerce,
found that commonly used strategies included raising the
minimum order value for free home delivery, raising the
minimum order value for free click-and-collect orders,
raising product prices, increasing the cost of home delivery,
charging for click-and-collect orders, differentially charging
based on customer profile, and charging for returns.
Those strategies can help cap the expense of fulfillment,
but some experts say there’s a risk inherent in shifting costs
to fickle consumers. Another approach for keeping omni-
channel operations affordable is to seek out and
leverage the hidden benefits and eliminate
inefficiencies. Here are three approaches
for squeezing the most from your invest-
ment in omnichannel operations.
1. SEGMENT YOUR INVENTORY
One way to keep a lid on spiral-
ing fulfillment costs is to avoid
omnichannel entirely … for cer-
tain products, that is. Retailers that
keep a close eye on their costs know
that there are some items that can
never be profitably shipped to the
consumer from a retail store. By the
time a heavy tent or bulky flatscreen TV
reaches that store, it has already accrued so
much shipping and handling cost that a retailer
could never recoup those fees at a reasonable sales
price, SCApath’s Zalowitz argues.
Retailers strive to meet customer expectations in the age of Amazon
without breaking the bank on omnichannel fulfillment.
BY BEN AMES
Three ways to make
omnichannel affordable
