Omni-channel is NOT the answer to your retail woes

This article was originally published on Inside Retailing., and never cross-posted here. It is still relevant today as it was 10 months ago.

 

I have previously suggested to retailers directly and spoken about it in public that retailers should adopt a multi-channel or omni-channel strategy.

I was wrong.

Lewis & Dart (2012) in the ‘New Rules of Retail’ propose “ubiquitous distribution”. The idea is that you should have your product where the customer is, and by extension that means if the customer is online, you should be online et cetera. Nice idea. Sounds reasonable – in fact the logic is flawless. The practical truth though is that ‘be everywhere’ is a pipe dream.

Read the story of the Edsel Ford motor vehicle. It was perfectly researched, it was perfectly created – in fact it was the most innovative vehicle of its time and it incorporated almost everything that people wanted in a car.

The marketing was innovative and effective (the cars were shipped to dealers wrapped up to preserve the secrecy and heighten the anticipation.) They did everything right. Yet the Edsel has gone down as one of the biggest failures in automotive history.

Being everything leads to being nothing. Trying to be everywhere will result in being nowhere. Mediocrity occupies the middle ground. The propensity to seek the middle increases in direct proportion to the size of the company. Politics, people, structure and momentum all conspire to find the solution that is the least offensive rather than the most effective.

What you should be doing instead is to find your true north.

Find the real essence of your proposition and focus on delivering that. Your proposition may be amenable to online and offline channels.

If you have the money and other resources to pursue that option, then you should. But these are separate businesses. An online and offline retail business is different in every conceivable way. If you want an online version of your business, set it up as an independent business. Make it small, agile and focussed on one thing. Protect it from the legacy business. Delineate the responsibilities. Err in favour of the upstart.

Encourage cooperation where possible between these divisions – it would be silly not to leverage the brand equity (if it is there) or the combined buying power. But if either party feels compromised buy forced cooperation, they are free to go elsewhere.

You don’t have to be an omni-channel business though. Of course you will be forfeiting that potential sales volume – but that’s no different (in principle) to forfeiting the sales that would come from not opening a store in another suburb.

To be clear, that does not mean that you should not use technology to create your retail proposition. Technology is an amazingly efficient enabler and making the most of it is just smart business practice. And using technology includes allowing customers to find you, compare you or even pay via online methods for shopping in your store.

You could choose instead to focus on being the best physical retailer there is.

Every major sports match is broadcast on TV, but true fans still rock up at the stadium for a good match.

Your challenge is to turn spectators (who come to your store) into fans that will keep coming even when there is an alternative – and live with the fact that some of them will also watch TV instead some of the time.

This means you should make your store the only place where customers will get XYZ. (The challenge is defining what XYZ is – your proposition – and it is not just your product offer.)

· Sony Walkman did not become the iPod

· Encyclopaedia Britannica did not become Wikipedia

· Borders did not become Amazon

· Pickles Auctions did not become Grays Online.

And for the same reasons David Jones (for instance) won’t become The Iconic and Harvey Norman won’t become Kogan.

That does not mean that these blue chip retailers couldn’t use their free cash flow and profits to invest in future growth opportunities – including online businesses. But trying to become something that you are not will only lead to a lack of focus, comprised strategy and eventual failure.

Nordstrom is one obvious example of a traditional retailer who has made a success of multi-channel.

However, there are a number of key facts to remember before an attempt to hold them as example to copy.

They have a culture that is perfectly conducive to this strategy: “Great customer service is a focus on the things that customers value over the item they are buying, so figure out what customers value.”

They are catalogue company first (and retailer second) and back in 1994 the Nordstrom catalogue team built the website and started selling shoes.

In Jamie Nordstrom’s own words: “They were a young nimble team inside a larger organization and could move rapidly on this fast growing opportunity. The web operated independently with different merchandise. Jamie Nordstrom also reports that the hardest part wasn’t integrating disparate systems, it was integrating the teams.

A frequent and common concern was the question, “who gets credit for the sale?” The team overcame this by prioritising the customer.

The message was “we can’t make decisions based on instore versus online cart. We’ll figure it out later.” (See point about culture earlier.) And finally, Jamie Nordstrom is adamant that multi-channel did not solve customer problems.

The goal was to get store and online experience right so Nordstrom set out to create the “Apple Store experience” and leveraged technology to evolve the experience.

Today, all stores have iPads with 80 per cent to 85 per cent of the functionality of the register. The expectation is that by February of 2013 the functionality will surpass that of the cash registers. More instore stylists were hired and the Innovation Lab was created to leverage technology to complement the instore experience. (See my point about using technology in the retail environment – which is not the same as multi-channel.)

Apple is the second example of a business that will no doubt be held up as an example of multi-channel success. Again, there are many salient factors to consider.

Apple is not a retailer. It is a technology company that went into retail (initially) as a branding exercise to give their customers the Apple experience. It had (has) very deep pockets and could create a retail store without the usual resource constraints that most retailers would face.

It is vertically integrated and controls its supply chain from start to finish – including charging whatever it likes. (A luxury few other retailers have.)

It controls who (else) sells its products and has managed to artificially limit supply and availability and force consumers through the gate of its choosing.

It is a global powerhouse brand with fanatical fans.

Any business that thinks copying Apple’s strategy is possible without consideration of these differences should go right ahead.

I look forward to reading about that joyride.

Trying to copy the successes of the few without careful consideration of their unique success factors is a recipe of disaster.

I am not suggesting a traditional retailer cannot have a successful e-commerce operation, and I am definitely not saying that technology should not be fully embraced, including getting customers to your store and building relationships with them.

I am suggesting that it is not a prerequisite for future success and that e-tailing should be treated just like any other investment opportunity.

For every business who has made a success of multi-channel, there are probably hundreds of failures you never hear about it Just because… guru-consensus is on the side of ‘multi-channel’ does not make it the right strategy for your business.

Just because… everyone seems to be doing it, doesn’t make it right for you.

Just because… your physical store is not performing, creating a virtual store is not necessarily the solution.

Make your own mind up.