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01/24/2007

AMR Tackles Cross-Channel Challenges

More than 50 retail executives rolled up their sleeves to participate in a unique interactive workshop at the RIS News fall Retail Executive Summit. Moderated by Rob Garf, retail research analyst at AMR Research, and co-moderated by Debbie Hauss, the session offered the opportunity for retailers to literally rub elbows with each other while discussing cross-channel strategies.

The interactive workshop offered retailers the opportunity to uncover best practices and lessons learned in the areas of operational integration and technology, as well as training, incentives, and metrics.

Following the event, Garf filed the following report, titled "Retailers Discuss Achieving Seamless Cross-Channel Operations":

Why the increased focus on cross-channel? Cross-channel consumers are extremely valuable, and that's why retailers should strive to create a superior shopping experience. Our surveys have shown that these shoppers typically spend nearly 30 percent more than their single-channel counterparts. Customers that order online and pick up in store on average will increase their market basket by 58 percent.

Past operational and technology decisions, however, may hamper many retailers from establishing a seamless cross-channel shopping environment. In the late 1990s, companies rushed to build e-Commerce applications to meet growing customer demand. Unfortunately, the long-term multichannel vision was often not part of the initial design. Independent online business units were governed by a conflicting set of business performance metrics, incentives, and operating models from their traditional brick-and-mortar peers. With the pressure to quickly create a Web presence, retailers invested in rudimentary, standalone, first-generation e-Commerce software.

As retailers now attempt to create a seamless cross-channel experience, many look to next-generation software platforms to ultimately fulfill customer expectations. In fact, 72 percent of respondents from the "Retail IT Budget Benchmarking Study, 2005-2006," conducted in conjunction with the NRF, have budgeted to improve or replace existing e-Commerce/multichannel management systems.

Retailers reveal successes and pitfalls

While workshop participants represented organizations with varying degrees of cross-channel maturity, most of these top retailers are not as advanced as one would think. Regardless, a majority of them are on a mission to revamp their cross-channel operations. Here are the three key topics that the group discussed:

1. Operational integration
It's no surprise that retailers had diverging philosophies and strategies regarding how multiple channels should operate and intersect. There were several different models discussed, and it became obvious that there isn't a one-size-fits-all approach. That being said, here are a few insights regarding the roles of various departments in cross-channel operations:

Marketing - Most agreed that marketing should be centralized and act as one group that services all channels. This will ensure that branding is consistent. Pricing and promotions was cited as a huge challenge across channels. There was no agreement on whether pricing and promotions should be consistent across channels, but one retailer offered up a best practice of honoring the lower price when the customer identifies the discrepancy.

IT - Interestingly, several retailers indicated that e-Commerce reports into IT. Others, however, said that IT provides the technical resources to maintain and enhance the Web site, but online operations are owned by someone from the line of business. When asked, it became clear that only a few of the participating retailers have one individual that is solely responsible for cross-channel operations, so it seems like IT has become the de facto leader to drive innovation.

Merchandising - Most retailers really haven't figured out the most efficient way to manage cross-channel merchandise planning. In their defense, it hasn't posed a big problem yet as online sales is such a small part of overall sales. But all agreed that as direct sales grow as a percentage of revenue, it becomes increasingly more important to share forecasts, sales, and allocation across the various channels.

2. Technology
While there was a focus on e-Commerce platforms that act as catalog management and order capture systems for various touch points (Web, kiosk, handhelds, etc.), the largest technical priority discussed was the ability to synchronize information (inventory, product, and order information) across the various channels in real time. Most retailers are not synchronizing information in real time, and others question the accuracy of the data that's being moved around. Participants fear - and rightfully so - that poor integration and synchronization internally will also limit their ability to foster business relationships with third parties. Opportunities related to inventory and order management were also continuously brought up. One retailer discussed success with in-store kiosks that provide access to an endless aisle of products that are either out of stock or not physically sold at a particular store location. Retailers that run channels independently shared that the systems and processes in place thwarted their ability to provide this service.

There was a lot of interest from retailers to offer cross-channel inventory visibility and customer order fulfillment functions to ensure customers purchase products - even if the merchandise is from other locations or channels - before they leave the store. Based on the enthusiasm, don't be surprised to see retailers implementing more advanced capabilities to automate processes.

We also explored other enhanced capabilities, including cross-channel stored-value cards, loyalty, and marketing. The one thing everybody agreed on is that none of these will work without a central repository of customer, transaction, and product data. In addition, retailers want to leverage the deep product information in e-Commerce platforms and provide store associates with instant access. This allows store associates to be on a level playing field with customers that have done extensive research online.

One challenge that was raised is the ability to track customer buying behavior across channels.

While many retailers are proficient in interpreting Web site analytic tools, it becomes more difficult to track and analyze in-store browsing and purchasing patterns for specific customers, especially if they don't identify themselves. Although important, it seems that most are not putting this at the top of their priority list because of the operational limitations to execute.

3. Training, incentives and metrics
One thing that all participants agreed on is that direct channels cannot be successfully leveraged in stores without the proper associate training and incentives. For example, it was loud and clear that retailers wanting to implement pick-up at store must ensure a well-defined process for fulfilling the order in store is in place.

Discussions focused on basic activities: getting product from the shelf into an easily accessible storage and retrieval location; ensuring swift checkout for those that have preordered online; ensuring employees are scheduled properly for peak pick-up times; alerting employees to new orders, and providing visibility to management around compliance; and providing the proper performance incentives for store employees to make sure they take equal care of these customers.

Regarding other incentives, retailers should obviously credit the store where a direct order is initiated, but retailers warned that the stores doing the fulfillment of merchandise should also be rewarded for executing this activity. This will help encourage store associates to look outside the box of their store and understand the importance of overall company performance. Also, participants insisted that organizations must train and empower store employees in each channel so they are aware of updated policies and procedures. This will not only improve employee morale, but ensure customer satisfaction.

Retailers were very encouraged by the growth opportunities available when channels are synchronized. It was repeatedly echoed that ship to store creates a cross-sell opportunity for the store associate, and incremental sales are even a possibility when a customer returns a product.

We also talked about key metrics that are used to measure success. Much of the conversation revolved around the perfect order as the moment of truth. There was debate about whether a retailer should define the perfect order from the customer's or retailer's point of view. While most typically aim at fulfilling the order in the right quantity, perfect condition, and within the expected time frame to satisfy the customer, retailers must not ignore the cost implications as part of the equation.

Step Back and Evaluate
With higher expectations for the cross-channel experience, retailers must step back and evaluate how they want to interact and service customers. Fortunately, consumers have given us a chance for a do-over, and we must take advantage. We learned from the workshop that during this period of increased consumer spending, retailers have an opportunity to focus on different and innovative ways to run their cross-channel operations. Retailers should engage each other in a dialog on best practices and lessons learned.