SPECIAL REPORT
By Steve Banker and James A. Cooke
STORES: THE WEAK LINK IN
OMNICHANNEL DISTRIBUTION

FOR RETAILERS, OMNICHANNEL COMMERCE BECKONS
BRIGHTLY. BUT OUR EXCLUSIVE STUDY SHOWS THAT MOST
HAVE YET TO MASTER A KEY PART OF THE EQUATION.

It’s a rare retailer these days that relies solely on business transacted in brick-and-mortar stores. Many, if not most, have hopped on the multichannel bandwagon, selling
merchandise through both physical and digital (e-commerce)
channels. And the evolutionary jour-
ney is by no means over. Many of the
leading retailers are now well down
the road to what’s become known as
“omnichannel commerce.”
What’s omnichannel commerce?
Definitions vary, but for purposes of
this article, we’ll use the term to refer
to retailers’ efforts to integrate their
store and e-commerce selling chan-
nels to work seamlessly together. The
overarching idea is to enable cus-
tomers to shop by any channel they
choose and even use more than one
channel to execute a single transac-
tion. For example, a customer can go
to a store, see something he or she
likes, and order it for home delivery
or order it online and pick it up at a
store. More than likely, he or she will
have similar options for returns.

The emergence of omnichannel commerce is not news, of course. The trend has been under way for some time and has been well documented in both business and consumer media. What often goes unaddressed, however, is the impact on the back end of the operation—the retailer’s order fulfillment and delivery activities.

To get a better understanding of where things stand from a distribution perspective, ARC Advisory Group and DC VELOCITY

teamed up to do a study. The research, which was conducted among 177 executives at retailers that sell goods through both traditional brick-and-mortar stores and websites, sought to answer a number of key questions: Just how far down the omnichannel road have retailers gotten? How have they altered their operations to meet the new demands? And perhaps most important, how well are they meeting the omnichannel distribution challenges?

MULTICHANNEL VS.
OMNICHANNEL:
OUR DEFINITION

STANDING UP TO AMAZON Conventional wisdom holds that the omnichannel revolution was sparked by traditional merchants fighting back against incursions into their market by the likes of Amazon.com. Then last year, Amazon turned up the heat when it announced it would build out a distribution network that would allow for same-day deliveries in certain parts of the United States.

The pressure felt by retailers is reflected in the responses to our survey question on why their companies engaged in omnichannel commerce. Although study participants cited a number of reasons, the majority (78 percent) said it was to increase sales, and nearly three-quarters (73 percent)

said it was to boost market share. (See Exhibit 1.) Other reasons cited included increased customer loyalty and higher margins, which helps explain why leading retailers are spending billions of dollars to improve their capabilities in this area. (By way of demographics, about a third – 33 percent – of the survey

People tend to bandy about the terms “multichannel” and “omnichannel” as if they were interchangeable. But for purposes of this research, we’ve drawn a distinction between the two. We use the term “multichannel” to refer to companies selling goods through multiple channels – i.e., stores, distributors, e-commerce, and so forth. The term “omnichannel,” however, refers to a special form of multichannel commerce practiced by retailers who sell goods both through stores and over the Internet. The aim of these retailers is to integrate operations so as to provide a seamless shopping experience for customers.