Five Common—and Costly—Omnichannel Mistakes
Brick-and-mortar retailers collectively have staked their claim online, accounting for at least half of U.S. e-commerce sales. The trouble is, most of them are losing money at it.
The answer to that dilemma for retailers is to assemble a smoothly operating omnichannel network of stores, distribution centers and suppliers, each optimally placed so that any item can be whisked from inventory to wherever a customer wants it in minimal time and at least cost. It’s a daunting challenge — so much so that we at CBRE found that less than 20% of retailers we’ve surveyed are delivering omnichannel service profitably.
Mastering the fine points of omnichannel distribution comes only with years of practice and deep analysis of reams of consumer data. But, before that, the fundamental steps come in avoiding the most common and costly mistakes made by retailers when building their networks. Let’s examine a few, as well as strategies to avoid them.
Mistake 1: Poorly balancing cost and service
Same-day delivery is expensive, especially if the customer isn’t paying much, if anything, for it. Then again, today’s customers usually aren’t willing to wait a week or more for their order to arrive by cheaper means. Striking the right balance is key for profitability and growth.
Consider these steps to start: Map out what will be required of your business going forward re-examine your existing network, its challenges and its advantages map out your optimized network and apply your future business requirements and variables to that baseline. That should provide a sense of the tipping points for your cost-service balance.
Additionally, your cost-service balance can be reinforced with a strong focus on hiring, training and recruiting of store and warehouse employees who understand the bigger picture of how consumers want to shop across channels.
Mistake 2: Making every store an e-commerce-equipped store
Shipping e-commerce orders from stores can hasten delivery and limit costs. Similarly, encouraging customers to pick up their online orders in stores can cut delivery costs. That’s why it’s tempting to enable every store with these capabilities.
The catch, though, is that both programs can be expensive if introduced in stores lacking enough demand to support them.
Handling online orders from stores requires investment such as installing specialized systems for managing orders between stores and online and providing materials, personnel and adequate backroom space for packing and shipping. In many cases, only high-volume stores can support that investment.
Additionally, stores with the greatest range of inventory are the most cost-effective option for handling multi-SKU orders, which ideally are bundled into a single shipment to the customer rather than multiple parcels from different locations.
Mistake 3: Ignoring the unknown
E-commerce and retail in general have evolved so rapidly that previous benchmarks and expectations no longer apply. Planning an omnichannel network must include a degree of flexibility to best handle unanticipated and potentially costly changes.
Those changes go beyond advancements in logistics technology and shifting customer tastes. Retailers also must draft contingency plans for how to adjust if one or more of the major online players moves into their niche.
Techniques in planning for the unknown include examining your business by various segments, such as product types, SKU velocity and cube size, which can reveal which SKUs are relatively predictable in order flow and which are constantly changing. Cookie-cutter approaches then can be applied to the predictable SKUs, while more creative strategies must be devised for the irregular SKUs.
Mistake 4: Mismanaging comingled SKUs
Storing and delivering both e-commerce merchandise and store-bound merchandise from the same distribution center should save time and money — in theory.
In practice, a lot of effort, time and warehouse space gets wasted if a warehouse’s inventory flow isn’t carefully mapped out with ideal locations for both single-item orders popular in e-commerce and for bulk pallets often destined for stores.
Some retailers address this issue by clustering their single-item, e-commerce SKUs in their own easily-accessible section of the warehouse. However, that approach can cause issues with inventory management, especially if that fast-pick, e-commerce stock gets suddenly depleted and must be replenished from the warehouse’s store-bound inventory.
Solutions can include installing warehouse-management systems that allow for sharing inventory between e-commerce and retail operations as well as the ability to pick single units from the same rack for all channels. These approaches sometimes require additional space.
Mistake 5: Underestimating automation
Automation brings substantial upfront costs. But long-term returns in terms of efficiency, shorter order cycle time and cost savings are possible. That’s why the biggest names in retail are spending massive sums to test and implement robotics and other automation technology in their distribution centers.
Granted, substantial order volume is needed to justify automation in many cases, and volume fluctuates throughout the year. Some retailers address this by using their automation throughout the year to handle e-commerce orders and then opportunistically during peak season to help with orders from other channels.
Determining what format and level of automation is best for each retailer requires thorough analysis of variables such as volume profiles, trends, SKU affinities, SKU velocities, each product’s cubic volume for packing, and on-hand profiles, among others.
The answer to that dilemma for retailers is to assemble a smoothly operating omnichannel network of stores, distribution centers and suppliers, each optimally placed so that any item can be whisked from inventory to wherever a customer wants it in minimal time and at least cost. It’s a daunting challenge — so much so that we at CBRE found that less than 20% of retailers we’ve surveyed are delivering omnichannel service profitably.
Mastering the fine points of omnichannel distribution comes only with years of practice and deep analysis of reams of consumer data. But, before that, the fundamental steps come in avoiding the most common and costly mistakes made by retailers when building their networks. Let’s examine a few, as well as strategies to avoid them.
Mistake 1: Poorly balancing cost and service
Same-day delivery is expensive, especially if the customer isn’t paying much, if anything, for it. Then again, today’s customers usually aren’t willing to wait a week or more for their order to arrive by cheaper means. Striking the right balance is key for profitability and growth.
Consider these steps to start: Map out what will be required of your business going forward re-examine your existing network, its challenges and its advantages map out your optimized network and apply your future business requirements and variables to that baseline. That should provide a sense of the tipping points for your cost-service balance.
Additionally, your cost-service balance can be reinforced with a strong focus on hiring, training and recruiting of store and warehouse employees who understand the bigger picture of how consumers want to shop across channels.
Mistake 2: Making every store an e-commerce-equipped store
Shipping e-commerce orders from stores can hasten delivery and limit costs. Similarly, encouraging customers to pick up their online orders in stores can cut delivery costs. That’s why it’s tempting to enable every store with these capabilities.
The catch, though, is that both programs can be expensive if introduced in stores lacking enough demand to support them.
Handling online orders from stores requires investment such as installing specialized systems for managing orders between stores and online and providing materials, personnel and adequate backroom space for packing and shipping. In many cases, only high-volume stores can support that investment.
Additionally, stores with the greatest range of inventory are the most cost-effective option for handling multi-SKU orders, which ideally are bundled into a single shipment to the customer rather than multiple parcels from different locations.
Mistake 3: Ignoring the unknown
E-commerce and retail in general have evolved so rapidly that previous benchmarks and expectations no longer apply. Planning an omnichannel network must include a degree of flexibility to best handle unanticipated and potentially costly changes.
Those changes go beyond advancements in logistics technology and shifting customer tastes. Retailers also must draft contingency plans for how to adjust if one or more of the major online players moves into their niche.
Techniques in planning for the unknown include examining your business by various segments, such as product types, SKU velocity and cube size, which can reveal which SKUs are relatively predictable in order flow and which are constantly changing. Cookie-cutter approaches then can be applied to the predictable SKUs, while more creative strategies must be devised for the irregular SKUs.
Mistake 4: Mismanaging comingled SKUs
Storing and delivering both e-commerce merchandise and store-bound merchandise from the same distribution center should save time and money — in theory.
In practice, a lot of effort, time and warehouse space gets wasted if a warehouse’s inventory flow isn’t carefully mapped out with ideal locations for both single-item orders popular in e-commerce and for bulk pallets often destined for stores.
Some retailers address this issue by clustering their single-item, e-commerce SKUs in their own easily-accessible section of the warehouse. However, that approach can cause issues with inventory management, especially if that fast-pick, e-commerce stock gets suddenly depleted and must be replenished from the warehouse’s store-bound inventory.
Solutions can include installing warehouse-management systems that allow for sharing inventory between e-commerce and retail operations as well as the ability to pick single units from the same rack for all channels. These approaches sometimes require additional space.
Mistake 5: Underestimating automation
Automation brings substantial upfront costs. But long-term returns in terms of efficiency, shorter order cycle time and cost savings are possible. That’s why the biggest names in retail are spending massive sums to test and implement robotics and other automation technology in their distribution centers.
Granted, substantial order volume is needed to justify automation in many cases, and volume fluctuates throughout the year. Some retailers address this by using their automation throughout the year to handle e-commerce orders and then opportunistically during peak season to help with orders from other channels.
Determining what format and level of automation is best for each retailer requires thorough analysis of variables such as volume profiles, trends, SKU affinities, SKU velocities, each product’s cubic volume for packing, and on-hand profiles, among others.