Omnichannel creates new dilemmas and decisions for retailers
Omnichannel has arrived as the “new normal” for consumers. That does not mean that all omnichannel issues have been sorted out by retailers. Traditional retailers have a particular challenge of how to develop and manage assortments online. How much do consumers want to see online? And, if certain products are only assorted online, doesn’t that destroy “click and collect,” where consumers expect online purchase with same day pickup in store? Customers will tell you they want it all … largest selection with the ability to choose where to purchase and collect. Key omnichannel decisions for both retailers and vendors will be balancing online assortments against financial viability and profitability for their business model.
Why this is important: Declaring you are omnichannel is the easy part! Achieving profitability will require balancing the tradeoffs of long tail assortments versus the ability to deliver a quality experience integrating the virtual and physical shelf.
The case for “long tail” as the new normal for online
One only needs to look at the recent stats for Black Friday to see the tremendous growth of online shopping and purchases. Amazon has pioneered the growth of online traffic and sales by the addition of “long tail” SKUs. By definition, long tail SKUs are those way out on the “end of the curve” that won’t generate high sales volumes, but will add to overall revenue by creating market place that has the unique items and hard to find styles.
For Amazon, adding long tail SKUs to their assortment is very low cost given that they have the foundation for ecommerce. In exploring categories and products with little history, Amazon will often just require the vendor to ship one unit in order to get posted on the website. While Amazon Prime will require minimum stock quantities and guaranteed fulfillment levels, the Amazon Marketplace has literally been a boon to vendors wanting to launch products and get visibility. Amazon has literally become the testing ground for new products and categories such as smart home. As a result, customers gravitate to where they know they can find things, including diversity of products and unique items. And, of course Amazon’s customer reviews and Q&A become even more valuable with “long tail” items.
Traditional retail has always required “curation” – does that work online?
Traditional retailing has always had space limitations constrained by the physical store size and inventory levels required to support in stock on the shelf. With more movement to ecommerce, retailers now have the ability to expand their assortments online. In many ways, online assortments can expand to include long tail items since it is relatively low cost to add a SKU to a web page. And in the case of online inventory, it is centralized and not sitting in store locations, so it can be managed at much lower levels than store inventory.
So, long tail products sound like a perfect strategy for retailers to grow online revenue, especially for premium SKUs. If so, you would expect that online assortments should have many more SKUs than the stores. But inspection of a sample of retailers in Europe has indicated that is not the case. Many retailers are making the argument that online assortments must also be carefully “curated” (narrower selections and offerings), so that the consumers are not overwhelmed by the sheer magnitude of choices.
Yet, if offering a great assortment online overwhelms customers, then one would logically ask how Amazon’s customers ever cope with wading through over 5 million items! While most retailers can never stock as many items as Amazon, there would seem to be an argument that online should offer more choice, especially in emerging categories like smart home (IoT devices).
Vendors argue that curation becomes “castration” limiting growth
I recently had an opportunity to participate in the SH&BA Smart Home Retailer & Manufacturer Panel in November. It was an interesting roundtable of retailers, vendors and distributors. A key topic and focal point was how to make smart home products more “mainstream” for consumers. Of course, there are interoperability issues between competing systems of devices which make choices complex. But, an overwhelming conclusion of the participants was that consumers need to see more choices, and they need rich content online and in store demos illustrating how they can use smart home products in their life style.
If you look at the online offerings in smart home products, they aren’t much different than what is stocked in the physical stores. There is a lack of “long tail” diversity because many retailers argue that stocking too many products online is too complex and customers can’t sort through them. However, the vendors would argue that this very restricted “curation” of products really amounts to “castration” that cuts off emerging categories and severely limits growth potential in the emerging category of smart home products. If the consumer can sort through all the options on Amazon, why should their choices be so severely limited at retailers who have stores to can assist with sales and services?
Omnichannel is not a declaration … it is an ongoing evolution
One size does not fit all. While every retailer competes with Amazon and the big ecommerce players, each must find a business model that works for them. However, it is pretty difficult to compete in the age of omnichannel without a viable online presence. In fact, online has evolved to a very powerful way to drive traffic back to the stores through click and collect strategies.
Should retailers take advantage of long tail strategies and stock more active SKUs online? That certainly seems to be happening the case for US retailers. What is the right answer for Europe? We simply don’t know because there has not been active tracking of store level and online information for retail in most of Europe.
The traditional standards of headquarter sales totals will no longer be sufficient to understand the trends and models required for balancing online assortments and omnichannel sales profitability. The fast paced change driven by omnichannel will require more much precision and metrics to establish the benchmarks for optimum omnichannel performance.
What is the right balance for long tail, curation and castration?
Given the host of questions and issues related to omnichannel, ContextWorld is sponsoring a retailer focused Omnichannel Survey. A core objective is to determine the current state of omnichannel transformation across retailers from different countries. The survey will enable retailers an opportunity to anonymously respond to both their omnichannel status, as well as their reasons for pursuing omnichannel initiatives.
If you are retailer we would like to invite you to participate in the ContextWorld Omnichannel Survey. The survey can be completed online in 15 minutes. If you would like to be represented and receive a copy of the results, contact: [email protected]
I will be one of the keynote speakers featured at the Context CES CEO Breakfast. If you want to hear the latest key omnichannel trends and benchmarks, I invite you to join me. If you would like to attend CEO Breakfast and want more information about the event you can contact me:@chrishpetersen, [email protected]
- Online Sales Image: Stuart Miles; www.freedigitalphotos.net
- Omnichanel Image: Renjith Krishnan; www.freedigitalphoto.net