Finding Profit in Omnichannel
With assortment changes considered in the stores' roles, retailers can shift their inventory allocations across their stores and distribution centers. More importantly, with advancements in AI they can continually forecast and anticipate customer demand. This constant realignment of inventory ensures inventory will be in the ideal location at the right time — creating fuller store presentations, fewer markdowns and lower shipping costs.
Omnichannel pricing is another opportunity for improving profitability. For years, price optimization has improved margins and sell-through, but with the added dimension of omnichannel store inventory is now used for fulfillment. After all, if you are making the described adjustments, you are allocating quantity for that purpose. And even if you didn't, online demand still exists. To avoid deep discounts, retailers must incorporate local demand, online demand and potential returns when making pricing decisions.
And finally, there is the fulfillment issue. Improving the upstream processes will increase profitability through markdown reductions, sell-through gains and lower shipping costs. Regardless of the setup, however, retailers can still improve decisions at the time of fulfillment.
These decisions are currently based on a combination of shipping costs, labor capacity, inventory availability and distance from the customer. In other words, they are made based on cost and ability to execute. Another element needs consideration: opportunity. Imagine a customer buys running shoes online for $100 and requests 2-3 day shipping.
- You have two stores (Store A and Store B) that can fulfill the order, and the shoe is priced at $100 at both locations.
- Both stores can meet the fulfillment request timeline.
- But at Store B, it will cost you $3 more to ship.
- Decision made. Go with the lower cost at Store A.
But that decision ignores the opportunity of those shoes. Imagine if you knew that to sell through all your inventory at Store A, you would need an average discount of 20%. But at Store B, you are going to need an average discount of 40%. Remember both are currently priced the same. But by predicting the future price requirements to sell-through your inventory, you can make a more profitable decision today in fulfillment.
Increasing profitability for omnichannel requires rethinking and retooling the merchandising and supply chain operations. The previous examples each improve margins through better inventory utilization and lowered shipping costs. However, there is a cascading effect that leads to each planning, execution, pricing and fulfillment improvement building on the previous ones to create positive momentum with each cycle.
Yogesh Kulkarni is the chief operations officer of the merchandising and marketing business unit at antuit.ai.