Disrupting the Downturn — Avoiding the Lost Sale
By Farla Efros, HRC Advisory
Despite the impact of fast-moving competitors like Amazon and the power of today’s digitally savvy consumer, many retailers are still planning and managing their businesses based on traditional brick-and-mortar practices. Importantly, this is making it difficult for them to provide a seamless omni-channel shopping environment--something today’s customer has come to expect and demand. The changing dynamics of today’s retail environment require new approaches to meet the challenges and opportunities presented by today’s consumer, and retailers need to update and integrate their organizations accordingly to avoid the lost sale.
HRC Advisory, a unit of Hilco Global, recently conducted a study of senior merchandising and planning executives from department stores, specialty retail, big box, and discount/off price sectors, which found that traditional organizational structures and outdated processes, non-integrated IT platforms and a lack of a clear roadmap are major barriers preventing effective enablement of retailers’ omnichannel efforts.
So how can retailers avoid the lost sale?
Leverage customer data to provide a more relevant product offering.
The most crucial tool in avoiding the lost sale is ensuring that what the customer sees and experiences in both the brick-and-mortar store and online is compelling and relevant, yet only 9% of the retailers surveyed are effectively leveraging their vast amounts of customer data in a structured way. The importance of understanding what motivates the customer to make a purchase and the identification of opportunities to grow that basket/average order value is vital through the visibility of customer behavior across channels.
Ultimately, by informing merchandising decisions with customer data, retailers should experience a more focused assortment in stores (e.g. right mix of styles, colors, sizes), which should result in an overall sales and margin lift.
Offer the convenience of anytime/anywhere inventory through the implementation of new fulfillment options.
Macy's' CEO recently stated that the company’s “click to collect” service (currently in pilot) results in the customer spending 125% of the intended order amount.* Of the fulfillment capabilities being delivered by retailers, most are focused on the ones that have high customer visibility and demonstrate their omnichannel capabilities--similar to the Gap’s game-changing “reserve in store program” that launched in 2013.
However, without effectively designing and implementing the appropriate changes to back-end planning and inventory management practices, these capabilities can have a significant impact on a retailer’s cost structure. Fulfillment from the store is a way for retailers to contain fulfillment and return costs, as well as avoid markdowns and product liquidation. Not only do fulfillment capabilities have the ability to protect sales, but they also have the potential to increase average order value (“AOV”).
Find the right balance between online exclusives and product availability in all channels.
“Exclusive” product plays a key role to increasing market share from all channels. Customer behavior for the online channel is highly measurable (such as conversion rate, average order value, shopping behavior). As a result, assortment expansions online provide an important way to test new products. When coupled with store-level localization initiatives and supported by additional fulfillment capabilities, the expanded online product assortment can be used as a tool in-store to capture sales and maximize inventory productivity.
Ensure the organization is operationally structured for omni-channel.
Retailers must build an organizational structure that aligns with how their customers view their business, and focus on system integration to deliver the promise of a seamless customer experience.
The process required to get an item ready for sale online and in stores demands a much higher degree of planning and coordination across several areas of the organization in order to make sure all the necessary components related to the item (e.g. content, images, inventory location and pricing) are in place and product is available wherever the customer wants it.
Focus on flexibility in all changes to the organization, role, process and technology. One of the primary reasons why retailers have not fully integrated their organizations or migrated to a more “responsive” process (e.g. one that allows the retailer to plan the level of detail and cadence according to the business and channel) is due to inflexible systems and organization structures.
Given the rapid pace of change, any new system must have the ability to be flexible as the business continues to evolve. When faced with a system selection, consider how customer and process needs will change as e-commerce becomes an increasingly significant part of the business.
Retailers are increasingly recognizing the meaningful shift in power towards the consumer resulting from today’s numerous ways of purchasing and much increased price transparency. In order to mitigate this shift and maintain market share, retailers need to adequately differentiate on the right combination of unique and/or exclusive products that are valued by the customer, while providing exceptional service and a compelling in-store experience that can’t be matched by newer pure play online competitors.
Farla Efros is executive VP/COO of HRC Advisory, a leading strategic retail advisory firm and unit of Hilco Global. Contact her at [email protected].
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*Macy’s CEO Terry Lundgren in a presentation for investors at the Goldman Sachs 21st Annual Global Retailing Conference, 9/4/2014
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