From In-Store to Digital Sales: 2016 Marks a Strategic Shift

If you're finding your priorities shifting from in-store to digital sales, you're not alone. According to the fourth annual industry benchmark survey by Retail Systems Research (RSR), commissioned by SPS Commerce, 75 percent of retail respondents ranked growing e-commerce sales as their top priority for 2016.

This marks the first time in the survey's history that digital sales outrank the in-store experience as a priority and signifies a significant shift in the retail ecosystem, which up until now has been focused on the supply chain side of omnichannel.

What's driving this shift to digital sales? Fashion, of course. It has become increasingly clear over the past 12 months, even to consumers, a large amount of online activity is focused on order fulfillment, including ship to store, ship from store and even automated reorder. This activity has been driven primarily by a desire to capture online orders that have typically been lost when the e-commerce distribution center was out of stock or didn't carry the inventory.

Other top retailer priorities include improving/reinvigorating the in-store experience (53 percent) and streamlining fulfillment (49 percent). And while retailers and distributors have typically been aligned in terms of their investment priorities, this year's survey indicates a split: as retailers shift their focus from the supply chain side of omnichannel to the digital selling side, 80 percent of distributors continue to rank streamlining fulfillment as their top priority.

This will, of course, help retailers capture more e-commerce sales and enable them to better compete with Amazon and its relentless pursuit of speedy delivery. Streamlining fulfillment also helps retailers better meet rising consumer expectations, which include everything from low prices to product availability, hassle-free returns and multiple shipping options.

Omnichannel: by executive order
The entire ecosystem still has a long way to go when it comes to achieving omnichannel maturity, and progress remains at a snail's pace. In fact, only 8 percent of survey respondents rate their omnichannel strategy and execution as advanced, though retailers are clearly feeling farther along than the rest of the ecosystem: 42 percent of them report that they have achieved moderate progress. And fashion remains the one of the most successful industry segments.

But while such progress may have been acceptable in the past, it appears retailers may be losing patience as 52 percent of retail respondents report having received an executive mandate to truly deliver — once and for all — on their omnichannel strategy. With Target and some other leading retailers missing their own forecasts and reporting less-than-expected e-commerce growth in late 2015, my prediction is that we'll see even more of these C-suite mandates in the coming year.

That's good news for those who are responsible for implementation. But there's some bad news as well: only 20 percent of retail respondents say they are getting increased budgets. What's more, some of the same factors that have hindered omnichannel execution in the past continue to be problematic. Take legacy systems, for instance: 59 percent of retail respondents report that their existing systems remain an obstacle, up from 43 percent just one year ago.

Cautious optimism: the key to a successful future
Despite feeling hamstrung by inadequate budgets and legacy systems, a clear majority of respondents — 84 percent — predicts that 2016 will be better than 2015. Where does this cautious optimism come from? My guess is that, like so many of us, retailers see the exciting potential of the digital revolution, a revolution that will continue to get more exciting, and more wild, in the years ahead. Here are some ways to prepare:

Don't assume you'll make it up in volume. The retail ecosystem has been leaking gross dollars for several years by making the cross-channel experience appear more seamless for consumers than it really is. In other words, to deliver earnings, you're going to have to spend money.

Warm up to drop shipping. Absent rapid implementation of omnichannel technologies, you may be best served by increasing the percentage of orders you pass on to vendors and logistics providers to drop ship.

Take global economic conditions into consideration. Whether online or in high traffic areas, the brands shoppers have come to love are available everywhere. But with global political conditions somewhat unstable, now's an ideal time to gain the efficiencies of joining a retail network.

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Peter Zaballos is CMO and senior vice president at SPS Commerce, which is helping retailers and their trading communities meet consumer expectations by using the industry's most broadly adopted retail cloud services platform. Share your digital retail insight with him at @peterzaballos.
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