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Retailers embrace omnichannel selling but profits are elusive

While retailers and consumer goods manufacturers are investing heavily in omnichannel selling capabilities and often putting mobile at the core of these efforts, new research from JDA Software and PwC reveals that only 16 percent of companies’ efforts are profitable when it comes to fulfilling omnichannel demand.

The report, The Omni-Channel Fulfillment Imperative, highlights how the high cost of fulfilling orders is eroding retailers’ margins as they focus on enabling consumers order online and either have items delivered to their homes or pic them up at a nearby store. Mobile opens up opportunities for retailers to drive more profits from the omnichannel experiences by leveraging a shopper’s geolocation to minimize shipping costs.

“While most retailers aren’t doing it today, leveraging geolocation information of mobile shoppers represents a huge opportunity to minimize shipping costs for omnichannel sales and improve the customer experience,” said Ken Morris, principal at Boston Retail Partners. “Based on a shoppers physical location, retailers can identify the closest store with the product (on hand) that they are browsing on their smartphone and direct the consumer to that store.

“This benefits both the retailer and the consumer,” he said. “The consumer can get the product quickly and see and/or try the product on, which makes the purchase easier and reduces the hassle of returns.

“The retailer can minimize shipping costs, reduce the costs associated with returns and potentially increase sales with incremental purchases when the shopper visits their store.”

Fulfillment costs increase
A key finding from the JDA Software report is that 67 percent of respondents report fulfillment costs are growing as they increase their focus on selling across channels.

As online ordering grows as well as mobile’s role throughout the shopping journey, retailers are increasingly aware of the importance of profitable omnichannel fulfillment.

The survey reveals that 71 percent of said omnichannel fulfillment is either a high or top priority, with these CEOs planning to invest an average of 29 percent of their total capital expenditures for 2015 on improving their omnichannel fulfillment performance.

The fulfillment capability most cited as needing attention was transportation and logistics, named by 88 percent of CEOs as a priority.

The second capability CEOs will focus on is improving inventory availability to fill orders, cited by 85 percent.

Need for innovation
An important takeaway from the report is that retailers will need to be innovative is they are to be profitable while meeting customers’ expectations across channels.

While advanced technology can help retailers master omnichannel fulfillment, many are currently underutilizing the technologies available to them.

There are several high cost areas associated with omnichannel selling, with 71 percent of respondents pinpointing handling returns from online and store orders as their highest cost. Additionally, 67 percent named shipping directly to the customer the highest cost while 59 percent named shipping to the store for customer pick-up.

Despite the findings, reducing logistics costs is not the primary focus of retailers. According to the report, 57 percent named spending capital on creating new customer experiences as their top initiative for improving business operations.

When it comes to ranking strategic growing enablers for the year, 53 percent pointed to reducing/reformatting physical store footprints to focus on expanding the ecommerce business.

Optimizing fulfillment sources
The findings point to how challenging it can be for retailers when they receive an online order to determine what is the most profitable way to fulfill that order. The question is whether to pull it from a local store, send it from a centralized warehouse or ship it directly from the supplier.

“Today’s mobile-empowered consumer expects a seamless, consistent brand experience wherever, whenever and however they choose to shop,” Mr. Morris said. “To remain competitive, retailers have to deliver a seamless, omnichannel experience for their customers and do it profitably.

“The key to maximizing the profitability of omnichannel operations is leveraging real-time analytics that optimizes the fulfillment source based on the delivery/pick-up location and dynamically prices products based on the total cost of goods sales – including actual shipping costs,” he said.

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York