Hot Topic: The promised land

Omnichannel represents the ultimate shopping experience. It's also a difficult, not to mention costly, concept to get right. Who is leading the way in OP?

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Not so very long ago, multichannel was the word. Now you increasingly hear another one – omnichannel. What’s the difference? In short, multi means ‘many’, omni means ‘all’, but that doesn’t necessarily explain much. 

It’s interesting that, in OP terms, multichannel used to imply – and still does in many markets, especially emerging ones – that companies operated in several distribution channels serving different kinds of customers, be that retail, B2B delivery, wholesale or manufacturing in any combination. Now it increasingly means reaching the same customers through any number of platforms, these days with a huge focus on e-commerce, m-commerce and social media.

Omnichannel is becoming the natural extension of multichannel and that means not only offering these channels to customers, but seamlessly integrating them in a 24/7 ultimate customer convenience fashion. And that is complicated and costly.

In KPMG’s 2014 Retail Outlook Survey, 53% of retail executives surveyed said that the cost and complexity of technology upgrades in an omnichannel adoption were of one of the main challenges they faced. When asked which three channels they have increased spending on this year, 67% cited their company website, 47% physical/permanent stores and 46% social media platforms as the most important areas.

And arguably it is the retailers that are at the forefront of the omnichannel trend, with players such as Walmart and Starbucks frequently mentioned in best-in-class lists.

Overall in omnichannel terms, parts of Asia – Japan, South Korea (see also ‘The rise of the virtual store’, page 28), Taiwan and China spring to mind – lead the way, followed by the US and the UK in hot pursuit. Continental Europe, Australia and the rest of the world are very much lagging behind. But as ever, it’s the exceptions – in OP and otherwise – that prove the rule.

Interestingly for example, 35% of online shoppers in the UK already use click & collect services, compared to only 13% in the US and 5% in Germany, according to Planet Retail. That figure, the research company says, will more than double within the next three years, with 76% of online shoppers in the UK self-collecting by 2017.

Omnichannel trailblazers

Predictably, two of the biggest names in OP – Staples and Office Depot – are also the trailblazers with their omnichannel efforts, at least in the US, where Staples is ostensibly pipping Depot to the post with its initiatives.

Both players launched their omnichannel campaigns last year, with Staples opening its first two omnichannel stores in June 2013. Staples recently announced further enhancements to its offering. From in-store touchscreen kiosks and reserve online/pick up in-store facilities to its brand new mobile payment system and iPad app, all these features are designed to boost customer interaction and increase conversion rates.

Says Faisal Masud, EVP of Global E-commerce at Staples: “Our kiosks have gone through multiple iterations of the software that powers them and they seem to be doing really well for us. Every store has a kiosk already, but we’re rolling out more and more of the newer touchscreen ones now. These touchscreen kiosks are not like our standard website, but more a store look-and-feel site which is geared towards the customer coming in and with their fingertips deciding what they want to buy. It’s also a support tool for our associates, enabling them to find items that are either out of stock or not available at that store, to be fulfilled direct to the customer for free.

He adds: “We can’t talk revenues, but we’re seeing significant double-digit growth in the business usage of the kiosks and also in their transactional activities. We see the kiosks as a stop-gap towards a future where we will have handheld devices, but at this point customers like having this anchor in the store where they know they can always go to get stuff done. We’re fairly open to any permutation of the kiosk and basically want to do whatever our customers appreciate the most.

Office Depot declined OPI’s request for an update on its omnichannel efforts, but where Staples is arguably already in a stronger position is in the fact that it has historically focused much more on the SMB customer than Depot which has had more of a focus on the large corporate client. And it is that hard core SMB customer that still uses the OP superstore for convenience, says Jefferies & Company’s Managing Director Dan Binder. But, he adds, “the ease of ordering on the web has led to leakage over the years and with everything so focused on margins, that gets amplified even more in a shrinking industry”. 

Growth in store traffic?

Does the growing focus on directing customers to retail outlets and offering more store-based convenience – click & collect or order in store/delivery to the home/office – have any impact on store footfall? This, after all, is what so many retailers – and the OP superstores particularly so – are struggling with.

The answer is a resounding ‘no’ it appears. All these features are simply something that customers increasingly want and come to expect, but it’s unlikely to substantially draw new customers to stores. What it might do, however, is improve conversion rates because of the convenience offered. And that, in turn, improves store performance.

But, says Arno Alberty, Managing Director of presentation products firm Medium in Germany, perhaps there’s a different type of retail concept on the horizon. “I don’t believe in the future of 400+ electronics stores [in Germany]. Consumer electronic products as well as commodity office products will increasingly be bought online I’m sure of that. The traditional model of the department store is also disappearing in my opinion. But what I can see happening is that these retail spaces could become marketplaces, strong shop-within-a-shop concepts within these department store buildings right in the city centres. I think the future of retail is to have more showrooms to show new product developments and to combine that with multifunctional and interactive displays. That will then result in end users making more impulse purchases.”

That sentiment tallies precisely with what Kaut-Bullinger in its retail stores in the south of Germany is planning to do and is one of the core strategic directions that new Retail Managing Director Christin Lüdemann will be driving when she starts her role in October.

Group Managing Director Johannes Peter Martin explains: “About 80-85% of the products we sell are commodity products. As such, we don’t have many impulse buyers. So we have to change the type of products that we stock and sell, and we also have to display and market them in a different way – more in in terms of ‘product themes’ and with a real lifestyle focus.”

That said, Kaut-Bullinger is a company that has already done a lot of work in making customers’ shopping experiences better and, according to Alberty, is the only operator – certainly in OP terms – that can justly be described as an omnichannel operator.

He says: “Kaut-Bullinger covers all the distribution channels and has, importantly these days, an excellent online business. But it also has sales reps, telesales, conducts massive marketing campaigns across the regions, and it does all that in a coordinated and measured way. This, in my opinion, is a real omnichannel business.”

And in a market that is woefully ‘underdeveloped’ in that way, that puts the company streets ahead of most of its competitors, even marginal ones. Media Markt, for example – part of the mighty Metro Group and hailed as ‘Europe’s number one’ consumer electronics retailer – is one company that hasn’t quite got it right and started the omnichannel journey far too late, according to an OPI source. “Media Markt in my mind is still at the beginning of a coordinated multichannel offering, let alone an omnichannel approach,” he comments. “It missed the opportunity to create a powerful online shop for more than ten years, started far too late and is now competing with other big online competitors.

“It’s the same in the grocery industry; it’s still traditional – you go to the store and buy your groceries. Yes, there are some online shops selling food, but so far they’re not really successful. So overall the Germans are a bit behind with the development of an omnichannel strategy – in any sector.”

Slowly, steadily

But, as has been proven in several other industries, although Germany may not be the fastest out of the starting blocks, it has phenomenal staying power, often coupled with financial success, once firmly established.

Kaut-Bullinger too is – or perhaps was – a very traditional family business, brought into the 21st century by the foresight of its current leadership team. Martin himself can attest to the long journey the company has undertaken on the road to becoming a true omnichannel operator. He says: “We started three years ago, in the widest possible sense, to work on our omnichannel concept when we began the development of our CRM platform. This is now a very powerful tool for us where all the information from all the various business units of Kaut-Bullinger is consolidated and accessible. At the same time, we installed a new content management system, a huge database with all the relevant information about all the products we sell.

“These two resources combined serve all the channels and platforms we operate in, be that in retail, B2B, Facebook, Twitter, advertising, online marketing, email marketing, prospecting, etc. We can draw from that resource and reach all our customers from this data pool.”

But it’s just the beginning and there remains much to be done, says Martin, with features such as iPhone payment options and click & collect still to be rolled out over the next couple of years. What’s important is that the concept gets the highest level buy-in and is driven all the way through the company. 

In Australia too, the concept of omnichannel is somewhat in its infancy and – perhaps unusually so – the OP space or, more to the point, the sector’s predominant retailer Officeworks, is doing a good job. Andrew Penfold, owner of Penfold Research, says: “Customers seem to increasingly value and are using store visits and online interchangeably. Apart from Officeworks, however, there is as yet a lack of substantial retailers with a wide-ranging online offering. Officeworks manages to take share because it does things well on multiple fronts.”

With its ‘every channel’ strategy and competition that is unlikely to replicate its offering – Staples and OfficeMax don’t have a retail presence and there are no significant Australian dealers with a balanced mix of retail and online – Officeworks is in a good position that bodes well for the future.

And Managing Director Mark Ward is confident in the company’s position: “We were early movers online, with a transactional online store dating back to 2000. We pride ourselves on delivering a seamless customer experience across channels – online, in-store, on mobile devices, even via fax and phone. Our every channel focus means just what it says – we don’t prioritise any one channel over another. In fact, we are completely agnostic about how, where or when customers choose to shop with us, so long as they choose Officeworks.”

The endless aisle

Another facet to the omnichannel discussion is the so-called endless aisle phenomenon. It’s the curious result of a development that started happening when online shopping began in earnest about ten years ago, exacerbated by the financial crisis in 2008 that marked the beginning of a long protracted fall in retail sales by square foot. 

This measure of retailers’ productivity and its economic realities resulted in the downsizing of many retailers’ store footprint – OP superstores included – while, ironically, at the same time prompting them to offer more and more products, in an attempt to become a one-stop-shop and make up for declining sales in traditional categories.

Staples has become the undisputed OP winner in the endless aisle battle, offering 100,000 products in its kiosks alone. How much incremental business it’s deriving from the non-traditional SKUs it’s now offering online is debatable, but Masud is confident that there’s market share to be had.

He says: “I was working in a store recently in Seattle and had customers coming up and saying ‘hey, do you have this item?’ And there were occasions when the answer was ‘no, we don’t sell that particular variation of that item; however, we can find it online and have it shipped to you for free’. Literally, customers were transacting right there, saying ‘oh great, I don’t have to go somewhere else; I’ll just get it done now’.  So yes, there’s definite share to be had. Can I quantify that for you? Probably not right now, but clearly the customer is given this endless opportunity to purchase from our huge range.”

There’s no doubt that the concept of omnichannel is very important today. And it’s not that the OP industry is doing a bad job, but most companies are still very much on an upward curve, in a type of hybrid state as it were. But those retailers that are not jumping on board soon will almost certainly get left behind on that curve. So making omnichannel a priority now would seem the prudent thing to do – because it’s what today’s customer wants.