It is certainly not news that the Internet has been a disruptive technology which has irreversibly changed many of our habits. One change comes from the convenience of leisurely web browsing and online shopping from our cozy places. However, this trend is sometimes unfortunately bundled with the inconvenience of late or incorrect deliveries, and lack of order visibility and status tracking, followed by annoying and costly returns. This is inevitably followed by unnecessary trips to the post office, which negates any of the convenience promised in the first place.
Still, the need for online purchasing, account management, electronic bill payments, and so on, is indeed not only here to stay, but will likely grow in the future: more users will pass the phase of disillusionment ("How do I reverse a wrongly clicked transaction?" or "Where on earth are my goods?"), and come to realize how beneficial, effective, and "cool" the technology can be once it has been put well in place. Many have also turned to the convenience of online holiday shopping in the wake of the horrific events of September 11, 2001 in New York (US) and July 7, 2005 in London (UK), as well as occasional terrorist threats to shopping malls and other places of mass gathering.
Moreover, many savvy retailers and merchants have realized that Internet has certainly not cannibalized "brick and mortar" store operations, but that quite to the contrary, the two can even supplement and complement each other. Consumers today shop almost everywhere—in stores, at home, via mail catalogs, over the phone (soon—if not already—over many mobile and wireless gadgets), via TV infomercials, and over the Internet. Most retailers obviously try to sell through as many of these channels as possible. According to the adage "different strokes for different folks," some research indicates that TV shopping is mainly attributable to impulse purchases (on the fly—either because of a good deal price, or because of the customer's conviction that the item is absolutely necessary now, on the spur of the moment), whereas Web shopping is usually attributable to considered purchases and preliminary research before the step of going to the store to see the "real life" product (except for when the web site flashes certain promotions, in which case some shoppers might be hooked for an impulse purchase there too).
Savvy Retailers Research Shopping Trends
Some savvy retailers have explored in depth such important aspects as what people like about shopping online (for example, the depth of detail and range of options, the convenience, the ease of comparison shopping, and other related research) and, conversely, what they do not like about shopping online (such as the cost of shipping, delays in shipping, the inability to see and touch the product before a final purchase decision, the consequent likelihood of returns and additional shipping inconvenience, and the inability to talk to or otherwise reach a sentient being). Also, they have researched what customers do like about the in-store shopping experience (such as the ability to touch and feel goods, the atmosphere, the fact of having a person to talk with, and the ability to get the product immediately) and, conversely again, what they do not like about in-store shopping (long lines and crowds, the parking cost and inconvenience, and the possibility of arriving only to discover that the product a clerk on the phone had said was there is no longer available).
Some research and surveys indicate that the online channel is expected to account for 7 percent of all retail sales by 2010, which is a potential increase of nearly $200 billion (USD). Key to this growth has been the realization by many companies that they do not necessarily need to restructure their entire operation to accommodate the electronic commerce (so-called "e-tail") channel. In fact, "brick and click" commerce modes are becoming more closely intertwined, owing to advances in the technology infrastructure that facilitates information flow between retailers and suppliers, and that overcomes the key shortcoming of early e-commerce systems, such as non-alignment with business demands, unwieldy integration with other retail processes, and customized and inflexible underlying software applications.
Even today, few retailers can effectively and seamlessly interact with customers across these channels. Such interactions might include selling accessories and installation services in-store when customers pick up goods they have bought online or via the phone, or even allowing them to redeem promotions they have come across through any other channel. Today's so-called multichannel retailer is still too often a brick-and-mortar store that also offers some supplemental merchandise on a web site, where the two operations likely function as separate entities—almost as if they came from and were run by two different companies. In any case, whether the merchandise is displayed on store shelves or on the Internet, the retailer usually sells only those goods that it can stock in its own network of warehouses, which limits the potential assortment and choice.
Still, despite differing profiles of customers for different channels, savvy merchants are increasingly trying to offer cross-channel promotions. An example is provided by QVC, a $4 billion (USD) company, and an e-commerce leader marketing a wide variety of brand name products in such categories as home furnishing, licensed products, fashion, beauty, electronics, and fine jewelry. QVC reaches over 80 million homes in the US, and claims that the TV customer who is attracted to the Internet side of the business will spend about 25 percent more than they normally would, while the Internet customer who crosses over to TV might spend up to twice as much. Although multichannel sales might look like cannibalization to some brick-and-mortar store executives, these fickle customers want first-class products configured just for them, backed by higher levels of information and service, and delivered through whatever channel suits their needs at the moment.
In other words, these are the most valuable customers one can attract—they have more to spend, and are willing to spend it. By capturing them, retailers should be able to improve sales transaction values, order-to-cash speed, customer retention, and marketing return on investment (ROI). There are other indications that "multichannel" customers spend up to 50 percent or more during the holiday season than their traditional single-channel counterparts. These multichannel customers are also typically well-informed, and often more profitable buyers for a retailer, since they are driven by deliberate choice, convenience, and selection. Furthermore, more and more former mainstream, single-channel (primarily in-store or mail catalog) shoppers are "going multichannel" on a daily basis.
Capturing the Internet Customer
It is thus no small wonder that many traditional stores offer Internet kiosks to offer customers a wider and broader assortment of items than could possibly be effectively stored at the location. Genuine, integrated multichannel retailing will inevitably become the norm, so that if the customer does not see the desired appliance model (for example) on the shelves, the next step will simply be to use the kiosk to order it from the store's web site. And at the store's customer service desk, it will be possible to return items bought online as easily as if the customer had bought them off the shelves. In an evolution from the early Internet, where online retailer (e-tailer) pioneers were manually processing online orders (with many consequent fulfillment glitches), the fulfillment methods of today are based on a new generation of technology solutions, although these may leverage some of the ideas of traditional mail catalog order fulfillment.
Although better Web design and a wider selection of products offered online are important, the key to multichannel success lies in understanding the factors that drive revenues and the ability to fulfill Web orders. Overall revenues are driven not by simply offering products via online channels, but by creating a hybrid sales model that uses the Web and other (more traditional) channels (such as the phone, TV, and brick-and-mortar store) in a mutually beneficial way in order to maximize profit from these different retailing models. Except for a few groundbreaking companies, this is still uncharted territory, though the retailers who engage customers across many channels are likely earning their trust and more repeat business.
There have been examples of retail companies using a multichannel retailing system to streamline sales of an expensive consumer product, only to discover that Web sales were significantly lower than sales made over the phone. The reason was that sales consultants were able to up-sell consumers to higher-end systems over the phone. This forced these retailers to redesign their Web sites or storefronts to provide places for customers to interact with a sales consultant, in person. It will still take much time and effort for software developers to come up with applications that can completely emulate the human touch, through combining applications for searching and indexing, analytics, content management, and customer management, with a personalized and relevant shopping experience (for example, with easy product navigation, individualized promotion, self-service, and so on).
Retailers must start with an understanding of what generates the most revenue and profit across multiple channels—and e-tailing web sites must not be seen as totally independent of other channels, but quite to the contrary. Web storefront usability should be addressed first, but the focus on product information management (PIM)/global data synchronization (GDS) and cross-channel inventory visibility and fulfillment infrastructure should follow soon afterwards. It is certain that multichannel retailers will attract new business, on the condition that they continue with good delivery service, wide product and service selection, and reasonable price incentives. Unless, of course, rising gasoline prices significantly changes the profit-loss equations of global versus local sourcing and deliveries.