As the MCA’s Year of Digital is showing, Digital is driving relentless change across all sectors of the economy. Nowhere more so than in retail.
Retail has always been dynamic. But the pace of change is accelerating. Innovations in technology, customer service and order fulfilment set new standards – and drive new expectations. Some retailers are forging ahead to become integrated omni-channel businesses. Some are happily doing their own thing. Others are struggling to keep up.
For its new report, The Omni-Channel Dilemma, LCP Consulting researched a broad spectrum of 100 retailers from the UK and the USA.1 The report looked at current activity and future plans and identified five key findings.
1. Customer expectations around personalisation, convenience and consistency of service continue to drive change.
The LCP research identified the need for retailers to understand where they sit in the marketplace, what they should focus on and the best model for them to adopt, using Four Retail Archetypes© defined by LCP as:
- Omni-channel Pioneers
- Optimised Multi-channel or Pure-Play Retailers .
- Omni-channel Followers
- Challenged Multi-channel Retailers
The Omni-channel Pioneers™ are resetting customer expectations and raising the bar for the whole of retail. They have fully committed to transforming their businesses to give customers a seamless experience. And it’s not all about speed. The growth of click-and-collect in the UK shows that the customer is sometimes choosing convenience over speed.
2. The omni-channel future is not inevitable for all: Different strategic positions are emerging with omni-channel pioneers and optimised multi-channel/pure-play retailers the likely winners.
While Omni-channel PioneersTM, who are typically larger retailers, are breaking new ground, not everyone can or should follow them. Optimised Multi-channel or Pure-play RetailersTM make a strategic decision not to use all channels. Whether focused on physical stores or online, they are capable of being leaders in their own markets.
By contrast, Omni-channel FollowersTM are late adopters of an omni-channel future. They want to develop a seamless service. But they have not yet achieved a fully integrated business model to do so. As a result, they are at risk of not establishing the core systems and embedding the transformational change needed to succeed.
Our final category, Challenged Multi-channel RetailersTM, are trying to adapt to a multi-channel world by flexing their bricks-and-mortar infrastructure. With no apparent plans to invest in the necessary transformational changes and capabilities, they face the greatest risks.
3. Boards need to be clear about which retail opertaing model they want to build and must fully understand the implications of the choices they make.
Boards need to know what sort of business they are, how they relate to omni or multi solutions. The lack of a properly target model will mean insufficient investment to deliver the required changes. And if a retailer just getting to grips with these issues wants to make a step change, it will need to mobilise resources right across the business. Moving towards the Omni-channel Pioneer position requires massive transformation and must be led actively from the top.
Businesses also need to be aware of what their immediate competitors are up to. There are sustainable strategies for multi-channel and pure play. However, if retailers maintain such approaches in a retail subsector where omni-channel competitors are raising service expectations, they could be at risk.
4. For those retailers pursuing an omni-channel strategy, the key message is that back-ebd capabilities must be alighed with front-end customer promises.
A critical finding in our report is that if retailers primarily focus on a marketing agenda they may fail to deliver on their customer proposition and brand promises. A retailer adopting an omni-channel strategy must significantly increase the number of choices of service offerings available to customers. This inevitably drives up operational complexity. Legacy systems and capabilities are generally unable to cope. So comprehensive transformation of the operational backbone of the business is central to sustainable success.
5. Omni-channel pioneers who have realigned their business operating models are reaping the benefits in three areas.
The first area is growth. Some pioneers are experiencing sales growth of 10-20%. The second is differentiation and enduring competitive advantage. Pioneers have been able to respond with agility to ever-increasing customer expectations. And the third is consistent delivery of the customer promise, critical to keeping customers loyal.
As we have seen, the successful omni or optimised multi models are resource intensive. But investment is essential. Any misalignment between marketing-led customer promises and operational delivery will devalue the brand. Managing the change means dealing with potentially difficult decisions, such as a complete overhaul of IT infrastructure. But the rewards in growth, differentiation and enduring competitive advantage, are worth it.
Moves to omni-channel in retail continue to gather pace. If retailers haven’t yet made a choice of model, they will find their competitors soon will. Of course, once their choice is made the implications for the whole business need to be fully understood. The chosen model can only be realised through complete cross-functional transformation and organisation-wide commitment.
By Phil Streatfield and Stuart Higgins, LCP Consulting. Written for the MCA Year of Digital.
For further information about the report or to receive a copy and schedule a presentation of the findings please call 01442 872298 or email: Jessica.Bayat@lcpconsulting.com
1 LCP Consulting commissioned market analysts, Research Now, to research Retail Board Directors and department heads operating in the UK and US. Out of the 100 interviewed, half worked for retailers with more than 5,000 employees and more than a quarter for retailers with more than 25,000 employees, all with an annual turnover in excess of £50million.