Omnichannel Challenges

June 17, 2022

Today, omnichannel retail is common practice for most large national retailers. Having become a necessity for survival in these ever-changing and competitive times. Most retailers are finding it challenging to be profitable in this space. Our feature article “Omni-Channel Retail: Roadmap to Profit” is not only a great read but it helps transition into this white paper on the challenges of omnichannel. Current forecasts hint that e-commerce sales will cross the threshold of $3.5 trillion by the end of 2025. This will continue to put pressure on retailers to be more profitable and find better logistical solutions. In line with omnichannel, you would be surprised to find out how many retailers barely make break-even or altogether lose money. The fact remains that the logistics and fulfillment costs for online orders are 4x higher than the traditional brick-and-mortar cost model. Not to mention, the fulfillment costs to pick orders are higher than the increased volume of returns has a direct impact on profit margins. According to a McKinsey report, there is a lack of transparency and clarity around omnichannel retail that can jeopardize the efforts of retailers. In retrospect, online sales now garner more market attraction than old-school brick-and-mortar retail this has forced the evolution of dedicated distribution systems to cater to customers’ needs. But building an efficient, cost-effective, and reliable omnichannel retail roadmap and distribution system often runs into some hurdles.

Current State and Future of State of Retail Sector

In the last decade, it would be fair to state that the retail sector has had significant growth. In fact, National Retail Federation forecasts that the retail sales will grow by 8% and move past $4.9 trillion by the end of 2022. On the flip side, retail hasn’t had perfect supply chains and is often not able to deliver an omnichannel offering. However, improving the supply chain is crucial to transform the retail sector and evolve with these ever-changing times. The truth is that the retail sector has to move past the incremental improvements and opt for a unified omnichannel solution to render more profitability and scalability. But there is still a serious question mark on “how” to manage a dedicated omnichannel retail supply chain to gain more profitability. And most importantly, what should be the right approach for retailers to implement an omnichannel supply chain. Many retailers have started to take the same route as Amazon. And this is where the “Amazon effect” comes into play. As a far competitive drive of omnichannel retail goes, Amazon has had the most successful fulfillment capabilities. And that’s because the company prioritizes its supply chain infrastructure just like the growing its customer base “Top Priority”. One big change is seen, retail stores no longer serve at the end of the overall supply chain. In fact, now they have become an integral aspect of the modern-day omnichannel offering.

Omnichannel Retail and Role of IT

IT serves as the foundational building block to making omnichannel retail more profitable. In fact, without information technology, it would be impossible to manage all the complexities of omnichannel logistics. Along with investing in IT, a constant effort must be made to build standardized operating procedures and help ensure long-term success.

Importance of Close Physical Inventory

Close physical inventory allows retailers to offer more return options, flexible fulfillment processes, and a shorter delivery to customers. Through store fulfillment, retailers can centralize inventory across different channels and create direct upselling opportunities. You can count on store fulfillment to grow over time. In fact, most retailers now count on store fulfillment to cover at least 30%-35% of their online orders.

Cost Model

It’s crucial to understand all costs in the omnichannel model. Retailers can break down their omnichannel cost model into 3 components:

costs to position their products for the fulfillment
costs related to order fulfillment and consumers
costs related to returned products

An omnichannel retail cost model is about improving your understanding of the several costs involving handling, storage, outbound delivery, inventory carrying, etc.

Other Fulfillment Strategies

Today, omnichannel retailing is transforming into a fully integrated network that drives a flawless inventory strategy making inventory positioning more flexible throughout the network. Retailers also ensure dynamic order fulfillment that involves leveraging the inventory across the supply chain. On the other hand, a flexible fulfillment model requires retailers to use advanced order management technology to ensure flawless inventory.

Conclusion

The pursuit of omnichannel excellence comes down to having a clear vision for the end result, staying the course and constantly looking for ways to refine those logistical streams creating more value. When it comes to retail omnichannel, leaders have to be more strategic and form a clear omnichannel vision. Once there is a heightened understanding of what you want to achieve, it's easier to execute those key drivers in your omnichannel strategy.

References

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