What it Takes to Build a Modern Retail Organization
Most retailers recognize the importance of combining the best of digital technologies and physical stores to profitably create a seamless and consistent customer experience across channels. There’s a good reason for this. Their most valuable customers are engaging with them across all channels: store, mobile, social and online. Some retailers find that these omnichannel customers spend two times to five times more than customers who buy in only one channel.
But many retailers tell us it is difficult to build the right organization to deliver on their omnichannel strategy. It’s easy to make mistakes that have disastrous consequences.
Consider the rough path taken by an early leader in omnichannel. The retailer recognized the need for highly aligned assortments and chose to make every merchant an omnichannel merchant, with responsibility across both physical stores and digital channels. While the principle of alignment and shared vision was right, most of the merchants found the small digital business to be a distraction from the physical stores. Many had no experience with digital and ignored the business altogether. Digital growth stalled, even while the online market expanded by 15%.
When the leadership team recognized the error, it moved quickly to reinstate a digital team, this time setting goals to dramatically accelerate digital growth. However, a year later, the company found itself with highly divergent assortments, poor communications around key programs and events, and misaligned incentives around inventory management. Growth stalled for a second year.
Where did this retailer go off course? It had twice tried to use structure to solve a problem without making the corresponding investments and clarifications in capabilities, alignment and decision rights. By the time the retailer addressed these issues the following year — the third reorganization in as many years — it had fallen from first place to third place among its competitors in digital sales.
This is not an unusual experience, and it highlights the dangers that retailers encounter by not making the right organizational changes required to support an omnichannel strategy. For every company that loses its place in digital sales, we see a rival that moves up the ranks, using the disruption presented by digital retailing to gain market share.
Our analysis and work with hundreds of clients across retail sectors to navigate the omnichannel journey has helped us identify the three rules required to build a modern retail organization.
Be a Silo Buster
Many retailers have long been organized in a siloed way, often with infrequent collaboration across channel teams or across functions such as merchandising, stores, IT and supply chain. This model makes it easier to run the business, but it doesn’t make it easier for customers to shop seamlessly across channels.
To deliver on new omnichannel strategies and meet the expectations of today’s customers, retailers have no choice but to work more effectively across functions and channels. The first step is having a clear strategy for critical omnichannel capabilities, acknowledging that those capabilities span multiple functions or channels and require well-defined accountabilities, decision roles and processes to coordinate effectively across channels.
Take the example of “buy online, pick up in store” — or “click and collect.” This capability calls for coordination and quick decisions across e-commerce, supply chain, brick-and-mortar stores, as well as across planning, merchandising and marketing functions, among others. The online channel needs to know that inventory is available in the local store to offer to a customer.
Stores need to successfully receive the order, reserve it for the customer, and provide great service when the customer comes to pick it up. Supply chain and planning need to have appropriate visibility into the movement of inventory, and marketing needs to be involved to effectively showcase the offering to customers.
Go Beyond Structure
Changing organizational structure alone won’t give a company the muscle to develop omnichannel capabilities. All elements of a retailer’s operating model need to align with its strategy. This includes structure, accountabilities, governance and essential behaviors, as well as the way people, processes and technology are deployed.
Some omnichannel leaders have focused on designing effective processes with clear decision roles on how functions should work together. Others have found that co-location of people from different functions and channels helps establish learning and trust-based relationships. Some are redesigning metrics and incentives to encourage the right behaviors from their team.
For example, one major retailer integrated online sales into store budgets and made store managers into “trade area managers,” measuring them on sales across all channels for everyone who lives in the store’s trade area. Retailers are also defining new career paths that build cross-channel capabilities and develop the next generation of omnichannel leaders.
A caution: When companies evaluate possible operating model changes, they can’t make their choices by simply trying to replicate competitors. There’s a danger in relying on benchmarks. Operating models need to be tied to a retailer’s unique strategy. A company aiming to differentiate on shipping speed and reliability will have different answers than one aiming to excel on in-store experiences.
The same caution should apply when retailers decide on the capabilities they develop. There are essential capabilities, but we counsel retailers to clearly define those that will be most important to win. A retailer that chooses to win on the basis of a highly personalized experience may invest in different data and analytics capabilities than one that's focused on the lowest-cost supply chain. Success or failure of an omnichannel strategy can rest on deciding which capabilities will differentiate the company and which will be on par with competitors.
Have bold ambitions — and be deliberate about how you get there
Finally, it’s important to get the timing right. Integrating too swiftly can stifle digital growth. Moving too slowly can leave a retailer stuck with disparate customer experiences across channels while competitors surpass them in omnichannel capabilities. The correct choices will depend on a retailer’s strategy and level of systems integration and digital maturity.
In our experience, retailers at the early stages of building digital capabilities should have greater functional and channel separation to foster innovation, yet phased evolution toward a more integrated operating model is essential to becoming an omnichannel retailer.
Beginner-level retailers typically have distinct cultures and metrics within channels, heavy investments in older technology and one- to two-year investment horizons. In contrast, expert-level retailers have more unified cultures, integrated systems and tools, and five-year-plus investment ambitions.
The radical change sweeping across the retailing world brings with it tremendous opportunities for growth and profits — but only for companies that are willing to reimagine organizations that are fit for the future.