Top 100 Retailers 2015
It’s no longer bricks-and-mortar versus e-commerce — omnichannel is the path to success
Consumers have myriad ways to shop, and retailers are scrambling to keep up with them.
“New [technology] tools … are transforming the way consumers want to shop,” says Anne Zybowski, vice president of retail insights at Kantar Retail. In response, retailers are re-thinking their operations, from infrastructure and inventory systems to delivery and marketing.
As measured by STORES’ annual Top 100 Retailers report, compiled by Kantar, the evolution of the retail industry displays the fitness and survival skills of some long-time inhabitants. For the most part, chart-topping stalwarts — Wal-Mart, Kroger, Costco, The Home Depot, Target, Walgreen and CVS — have maintained dominance through an ability to meet consumers’ changing desires, including their appetites for online shopping and digital interaction.
Amazon’s dramatic ascent continues, and while e-commerce has not proven to be the tidal wave that knocks bricks-and-mortar off its pedestal, the old “location, location, location” mantra doesn’t carry the same weight it once did.
Instead, the two channels continue to converge: Physical store operators are experiencing considerable digital success, while online merchants — including Amazon — are expanding with showrooms, pop-up shops and other ways of meeting shoppers face-to-face.
“The notion of omnichannel remains aspirational. Today’s demanding omni-shoppers know what they want,” Zybowski says. “They want retailers to offer whatever, wherever, whenever they want. And when it comes to value, they want [to have] their cake and eat it too — they don’t expect to pay more for convenience.”
The challenge for retailers is meeting consumers’ reset expectations.
“Retailers must figure out how to fundamentally transform their business models, ones that have been built for maximum efficiency and scale, and transform them into more nimble, effective ones,” Zybowski says.
This transformation primarily focuses on two key retail functions: selling and marketing. Retailers must sell across all channels, what Zybowski calls being “channel-agnostic or channel-agile,” while the marketing transformation involves personalization and shopper engagement.
Many successful omnichannel retailers are broadline general merchandise sellers such as Macy’s, Nordstrom and Wal-Mart, though Zybowski says that specialists such as The Home Depot have made great omnichannel strides.
Tom Cole, a partner at Kurt Salmon Associates, observes that mobile is a major driver of omnichannel’s push toward seamless consumer experiences, though the volume of transactions conducted via mobile is still low. He says the challenge for retailers is building toward omnichannel via legacy systems already in place.
“Omnichannel is the new reality for all retailers whether they engage or not. If you’re available where and when consumers look for you, great. If not, you lose to someone who is,” says Marge Laney, president of Alert Technologies. “Online-only retailers lack the high-engagement fidelity that only the in-store experience can deliver. Offline-only retailers don’t deliver the comfortable and information-browsing experience that consumers utilize to make their shopping itineraries.”
The omnichannel successes of Nordstrom and Macy’s come as no surprise to Scott Galloway, professor of brand strategy and digital marketing at New York University and founder and chairman of digital benchmarking and education firm L2. “Frequently dismissed as dinosaurs and outmaneuvered by digital players, department stores can not only survive the dramatic fall-off in foot traffic seen over the past few years, but will ultimately fare better than pure play e-commerce,” he says.
Macy’s is so committed to pushing beyond bricks-and-mortar — where it has been downsizing of late — that it opened an Idea Lab in San Francisco and is building another fulfillment center in Tulsa, Okla. The retailer also recently introduced an image-search extension to its mobile application, and Macy’s 300,000 followers can shop directly via Instagram.
Robert Harrison, Macy’s chief omnichannel officer, says consumers are at different stages of adoption; more than half the time, they will research before buying something, frequently using different channels along the way.
The key, Harrison says, is “the convergence of digital and store, particularly for information acquisition.”
The whole process is “an evolution,” he says. “We hope that with one single view of the inventory, we have one single view of the truth. [Omnichannel] will enable the collective merchant teams and marketers to make better decisions because there will not be artificial demarcations” among channels.
“Digital is the connective tissue between online and in-store,” says Claude de Jocas, intelligence group director for L2. “Stores have been cast as a liability in an Amazon era, but they’ve been making a comeback as something that’s critical to a retail strategy.”
Nordstrom is advanced in all facets of its omnichannel approach. The retailer has nearly 1 million followers who can shop via Instagram and, like Macy’s, its network of fulfillment centers is growing, the latest opening this summer in eastern Pennsylvania. Nordstrom has also launched a “scan-and-shop” feature within its catalog app that links readers of the print catalog to e- and m-commerce sites.
“We work hard to see our business through the eyes of the customer, and we hope scan and shop creates a more seamless shopping experience for our customers who enjoy browsing our catalogs but also enjoy the many benefits technology affords the experience to make it more personal,” says spokesman Dan Evans Jr.
Nordstrom is connecting with teen shoppers through digital mall Wanelo, and this spring unveiled a test of a “click-and-collect” service that includes curbside pick-up. This complements a more traditional buy online, pick up in-store program that Nordstrom has had in place since 2008.
A third service, TextStyle, was launched in late May and involves all 116 full-line stores; it allows customers to make purchases from their personal stylist or sales associate using text messages.
Both Macy’s and Nordstrom have invested significantly to upgrade and digitize point-of-sale systems so that customer orders — whether made online, in-store or via mobile — can be easily tracked.
The Home Depot, whose quarterly online sales were estimated by Internet Retailer as topping $1 billion for the first time during the first three months of the current fiscal year, is growing into omnichannel. “We not only offered more spring season product online, but also leveraged digital media channels to highlight local in-store assortments,” CEO Craig Menear told investors and analysts on a conference call, referring to the mobile app’s in-store product location capabilities.
Neiman Marcus uses its strong print catalog experience to drive omnichannel efforts. “Catalogs such as The Book for Neiman Marcus and BG Magazine for Bergdorf Goodman have a very important role of bringing the brand to life in a very tactile way,” says John Koryl, president of stores and online at Neiman Marcus. “There is a niche in the market that the catalog services, and it’s not like the customer is aging out. It’s really across the … demographic spectrum that catalogs play a role.”
Koryl maintains that catalogs have played a significant role in the retailer’s e-commerce, and thus omnichannel. “With catalogs, you have a data or insight mindset. In 1999, when Neiman Marcus started its web business — which is now 24 percent of our total business — the only way we were able to get such a jump start on everyone is that we already had a different relationship with all our vendor partners. We had this entire [fulfillment] infrastructure,” he says.
Easing into digital
Other retailers are spending on technology in different areas. Wal-Mart and Best Buy began testing buy online, pick up in-store about five years ago; today supermarkets and grocery-oriented supercenter operators use the model to ease into digital and avoid the delivery problems inherent in selling perishables. Meijer began testing a curbside pick-up program in its home market of Grand Rapids, Mich., this spring.
Kohl’s began testing buy online, pick up in-store last year; the program was rolled out across the chain this spring. “We see it as an advantage … [Convenience is] part of our core DNA, so having someone be able to place an order and then just drive in and pick it up — we’ve seen very positive reactions from our customers,” says Krista Berry, executive vice president and chief digital officer for Kohl’s.
Another benefit is a sales boost in stores where that merchandise is picked up. “Although it’s early, we’re extremely pleased with initial volumes and attachment sales,” Kohl’s CEO Kevin Mansell said on a conference call to discuss first-quarter performance.
The buy online, pick up in-store program was initially limited to desktop and laptop computer users; the service is expected to go mobile this fall, reaching the more than 7 million shoppers who have already downloaded the Kohl’s app.
Mansell said that Kohl’s can use the app’s wallet function to deliver personalized messages and offers that can be scanned and redeemed in stores. The Wisconsin-based retailer also launched voice-based search on Android and image-based search on both Android and iOS. “The pace of development will actually accelerate in the second and third quarters across the mobile platform,” he said.
The buy online, pick up in-store method is not without complications.
“Omnichannel retailers run the risk of overburdening their bricks-and-mortar locations in a few key ways,” says Dick Seesel, principal at Retailing in Focus. At the top of the list, he says, is a concern that staffing must be “adequate to take care of customers who have actually driven to the store to buy something, on top of processing e-commerce goods.”
The size of the retail operation is an important factor, says Paul McFarren of PD McFarren Consulting. “While some big-box retailers may be able to make this work, the idea that a majority of retailers could efficiently make use of in-store fulfillment of online orders is pretty far-fetched,” he says. “Training a distributed workforce, paying for additional on-site storage and the ongoing management of the exceptions make this model very difficult to support.”
Buy online, pick up in-store, says Zybowski, “is designed for the retailer’s model, not the shoppers.”
The difference between multichannel and omnichannel retailing is one of focus. In the early days, multichannel meant operating in two worlds, often with discrete management, inventories and pricing. Omnichannel brings it all together.
The consumer focus is so integral to the essence of omnichannel that one industry observer traces the origins back more than a decade, to a time when Best Buy was under heavy pressure from rivals such as Walmart.
“I think a lot of people forget or lose sight of the fact that omnichannel didn’t begin as omnichannel or even cross-channel,” says Nikki Baird, managing partner at RSR Research. “It began as customer centricity, and the retailer who should get credit for putting customer centricity on the map is Best Buy.”
Baird says that by focusing on the customer experience at a time when e-commerce was just beginning to find itself — in 2003, the iPhone was four years in the future and Amazon’s retail sales in North America were about $879 million — Best Buy emphasized the essential components of what has become omnichannel.
“That’s where customer centricity was born — in a cradle of cross-channel commerce,” she says. “At the heart of omnichannel is customer centricity. You can’t have one without the other.”
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