What if omni-channel is too expensive?

There are some who say that all brands must become “omni-channel” as quickly as possible. They’re wrong.

There are those who say that this whole omni-channel frenzy is a bunch of hype perpetuated in the selfish interests of service providers peddling their own solutions. Well, there is definitely an element of truth contained within that view, but they’re mostly wrong too.

Still others suggest that becoming “omni-channel” merely adds a lot of cost and complexity while not demonstrably moving the dial on sales and profits. For them, when it comes to embracing all things omni-channel, the rent is just too damn high.

The stark reality, supported by reams of data, is that consumers are using more and more channels to go through their decision journey. But, importantly, this is not the same as all customers using every possible channel with equal importance and frequency.

Another powerful set of facts concerns the growing consumer expectations that brands offer a seamless experience across all channels. This doesn’t, however, mean that all integration efforts are equally weighted. Your mileage will vary.

Lastly, there is a constant, unrelenting deployment of new technology that lowers the cost of service, innovates some aspect of the customer experience or both. Much of this disruption comes from start-ups not burdened by legacy systems and the often paralyzing decision-making processes of industry incumbents. The pace of change, just in the areas of digital marketing and mobile applications, that allows for a more cohesive customer experience, is hard to ignore.

One obvious problem is that there is no universally accepted, actionable definition of omni-channel. And the vagueness of what we mean when we lift up the term, often mantra-like, tends to obfuscate more than it illuminates.

If we are to move beyond buzz-word bingo and terminology that merely sounds good in industry conferences and press releases, we are called to lay out a strategy and system of customer-centricity, which is, after all, the whole point of “becoming omni-channel” for most brands in the first place.

To do so, requires three key things:

  1. An actionable customer segmentation–who, exactly, are we doing this for, how will we treat different customers differently and what do get when we win?
  2. A frictionless commerce plan–prioritized against our most important customers and designed to eliminate the most clear and impactful points of pain or to create opportunities for competitive advantage.
  3. An amplification strategy. What are we doing to be truly remarkable and to give our best brand advocates a customer megaphone?

If we think about our omni-channel strategy more precisely, along the lines I’ve suggested, then it’s not a silver bullet, it’s not merely hype, nor is it too expensive.

In fact, not embracing it may be the most expensive choice of all.

Pretending it’s new

When some leaders wake up to reality, when they slowly start to notice that things are in fact meaningfully different from how they were before, we often witness a self-absorbed, I’ve just found Jesus and I need to tell you all about it, kind of thing take over.

“Consumers who shop multiple channels are more valuable than single channel customers” they breathlessly announce at conferences.

“Stop thinking about e-commerce as a channel” becomes the title of a newly released white-paper.

“We need to differentiate ourselves on experience” the CEO implores a group of assembled executives.

Suddenly everything is about “seamless”and “omni-channel” and “the single view of the customer.”  Their sentences start to include a disquieting use of “integration”, “customer-centric” and “relevance.” Investor presentations and annual reports turn into games of buzz-word bingo.

I hate to drag you out of your pink cloud, but just because you took a long time to notice, doesn’t mean it’s a recent phenomenon. Responding energetically to a totally foreseeable crisis does not make you a great leader.

Pretending it’s new may prop up our ego or cast ourselves in a better light. Better late than never, huh?

Pretending it’s new may buy ourselves some time with a less than savvy Board. What they don’t know can’t hurt them, right?

Much of what passes for insight today has in fact been known for years if only we had taken the time to become aware, confront its import and accept the implications. It’s not new and we shouldn’t pretend it is. Of course, neither is this.

Now obviously we can’t go back and fix all the should of’s and could have’s.

But we can ask ourselves what of potential importance might we be missing right now?

We can go into understanding what our fear causes us to avoid.

We can accept that often our pretending creates the illusion of keeping us safe.

Digital first retail

Many traditional retailers are already living in a “digital first” world. If your brand isn’t quite there yet, it’s likely only a matter of time–a short time.

Digital first means that even if the customer ultimately buys in a brick & mortar location, their journey starts online.

Digital first means that the primary way prospective customers learn about your brand is through your website, social media or online peer-to-peer reviews.

Digital first means whether the customer comes to your store for a particular transaction or not is determined by how well your online or mobile presence meets their needs in a highly relevant and compelling way.

Digital first means that holding on to the customer relationships that matter is largely determined by how well your digital tools eliminate customer experience friction and are rooted in a treat different customers differently philosophy.

Digital first means that the way your customers activate their passion for your company and become true brand ambassadors is primarily by sharing their remarkable experiences via their smartphones, tablets and other digital devices.

Digital first retail profoundly changes the way we engage customers, the way we deploy technology and the way we re-envision the physical store experience. It causes us to break down our silo-ed thinking and organizations to put the customer at the center of everything we do.

It’s not easy.

It’s not inexpensive.

It’s not without risk.

But frankly we have no other choice but to embrace it and get on with it.

And I’d hurry if I were you.

Omni-channel: Myths, distortions and, yeah, that’s just silly

Let me be clear: I’m pretty into all things omni-channel. Get me started talking about creating a single view of the customer, silo-busting, frictionless commerce, creating a seamless experience, etc. you might want to order a pizza. We could be here for a while.

I was named the VP of Multi-channel Integration at Sears way back in 1999. I led multi-channel initiatives and enterprise customer analytics at the Neiman Marcus Group from 2004-2008. I’ve written dozens of related posts and given numerous speeches on the topic during the last few years. I’m a believer.

Yet much of what passes as inspired strategy on the part of brands extolling their new-found “omni-ness” is, well, let’s just say it ranges between being disingenuous and outright foolhardy. And then there are the legions of analysts, pundits, consultants and software providers peddling a guaranteed path to customer-centricity nirvana. Much is hype. Some is just plain dumb. Here’s an attempt to move toward more “truthiness.”

  1. You don’t really mean “omni.” “Omni-channel” means “all” or “every” and typically refers to both channels for communications and for transactions. Do you really intend to sell on cruise ships? In airports? How about door-to-door sales? Are you going to do infomercials? I didn’t think so. What you really mean is expanding your marketing and sales channels to those essential for the acquisition, growth and retention of key consumer segments–and being really good at doing it. A rush to invest in omni-channel without an actionable segmentation–and without understanding which levers are really the most important to hone in on–is a license to lose money and waste precious time.
  2. Omni-channel customers are not your best customers. Chances are it’s the other way around. And causality matters. A lot. The customers that already trust your brand are often the early adopters of new media and new places to buy. There is a dangerous false narrative that suggests that simply by becoming omni-channel a world of new sales will open to you. As Kevin Hillstrom has pointed out, many companies that have gone omni-channel have failed to improve their business. This is usually because the brand’s core is weak and merely adding more places to research and buy does not fix the underlying issues (see Sears). The best multi-channel strategies are rooted in a deep understanding of current customer behavior–and prioritize opportunities to stem defection, address new customer acquisition barriers and build add-on sales. A sensible growth strategy has clear building blocks, not a mad rush into e-commerce or rolling-out the next bright and shiny mobile or social media application.
  3. You say you want a revolution. Yet, organizational and data silos abound. Yet, analysis of most promotions still have a single channel focus. Yet, much of your marketing remains mass, rather than personalized. The underlying move to omni-channel is about customer-centricity. As long as you hold on to traditional metrics, silo-ed organizational structures and rely on fragmented data and batch, blast and hope marketing programs, not much is really changing.
  4. Confusing necessary with sufficient. To be sure, more and more customers are becoming cross-channel shoppers and, particularly with the rapid growth of mobile devices, the distinction between e-commerce and physical retail is blurring. Certain “omni” capabilities like order online, pick up in the store are becoming base expectations. It’s hard to imagine that many retailers will survive, much less thrive, without robust integration capabilities and compelling web and mobile offerings. But far too many brands think that by adding these newish features they are doing enough. They’re not. Many of these capabilities are becoming table-stakes. In other cases, they are expensive and complicated “nice to have’s.” What you need to do to keep pace is not the same as what you need to do to become differentiated and remarkable. Confuse this at your own peril.
  5. New hybrid-models are genius. The press is eating up Warby Parker’s, Bonobos and many other e-tailers move into physical locations and raving about their productivity numbers. First, this isn’t new (see Williams-Sonoma). Second, the move into actual stores had to happen. Over 3 year ago I was sitting with the CEO of one of these companies and asked him when they would think about opening stores. He answered: “we will never have physical stores.” Now he’s on CNBC singing their praises. Did I have the gift of prophecy? Of course not; the move was totally foreseeable given the known economics and limitations of pure-play e-commerce. Lastly, what would be remarkable about these hybrid-models’ sale productivity in their initial forays into the physical realm is if they did NOT do huge numbers. Bear in mind, they have opened stores in trade areas where they already have a density of customers and are in very small locations. Comparing their initial results to more mature specialty stores is silly. Comparing them to say, the top 2 or 3 bays of Neiman Marcus’ beauty counters in the Beverly Hills, Bal Harbour and Michigan Avenue stores is more apt (hint: it would be well over $3,000/sf). I am a repeat customer of the two brands I mentioned and believe they have bright futures. But let’s be careful of false positives. There is much more of this story to play out.

Omni-channel is a nice catch phrase, and there can be no question that we are witnessing an incredible transformation in how consumers shop and how brands need to do business. The status quo is not an option, but neither is a blind rush into all things “omni.”

The future of omni-channel will not be evenly distributed. The path you choose is critical.

Why go to the store?

There are some who think that most brick & mortar stores are eventually going away and that e-commerce can have a compound annual growth rate of 15% until the end of time. To which I answer, “don’t be silly” and “of course not.”

There are many powerful reasons for physical retail locations to exist. In fact, we are already witnessing the limits of pure-play models as online only players are opening more traditional store-fronts (Warby Parker, Bonobos, Amazon and many others). Well established direct-to-consumer brands like LL Bean are doubling down on a commitment to retail store expansion. And even with the explosion of online shopping, close to 95% of transactions still take place in a traditional store.

When you take out products that can be delivered digitally (books, movies, games and the like) in most cases, for most consumers, there is value in being able to go see, try on, or touch the actual product. Having a live conversation with a well-trained sales associate can be extremely helpful. Physical stores offer a social experience that can’t be readily duplicated via the web or smart phone. And, typically, you can take the product with you, rather than having to wait.

Having said this, digitally enabled business models ARE disrupting every category and chipping away at many historical advantages of bricks & mortar. Websites often have better information than in-store sales people. Assortments can be much wider and prices are often sharper. Next day delivery may be either good enough or simply more convenient than having to drive to a mall and deal with the crowds. And we can be certain that future innovation will further eat away at traditional store advantages.

The fact is, in most instances, the future winners will be retailers that blend digital and physical offerings. They will deeply understand customers wants and desires and build a tightly integrated, highly flexible hybrid model rooted in treating different customers differently. That means a transformation, but not the elimination, of physical stores.

By contrast, the losers will be those that blindly adopt all things omni-channel.

The losers will be those traditional retailers that continue to run a bolted on and siloed e-commerce channel.

The losers will be those who fail to see the interplay between digital and physical stores and close too many doors–and turn the remaining ones into boring museums of best-sellers and “me too” products.

The losers will be those who hold on to one-size-fits-all customer and marketing strategies.

Consumers will continue going to stores for many, many years to come. Whether they will come to your store is a different question.

Epic battles of history: customer vs. channel

Because virtually all retailers have historically organized themselves around their sales channels, there is major conflict.

Because customer data typically resides in silos, a mighty struggle exists to provide a holistic, customer-centric view.

Because systems are not integrated, attempts to provide a seamless customer experience are fraught with friction.

Because companies most often employ metrics and incentives that are aligned against internal dynamics, rather than the way customers shop, tensions abound.

As the channels evaporate in consumer’s minds, the battle between what your customer wants, needs and expects, and that which your various silo chieftains and defenders of the status quo try to hold onto, is intensifying.

To be sure, the shift from a channel-centric culture to a customer-centric one is incredibly difficult. The investments to integrate data, inventory, point of sale systems and supply chains can be enormous. The complexities in reworking incentive structures and performance tracking are undoubtedly time-consuming and challenging. And re-mapping processes and re-training an entire organization is hardly trivial.

But in the battle between customer and channel is there any question which side will ultimately win?

Small is the new stupid

With e-commerce continuing to grow far faster than brick & mortar sales–and already comprising more than 10% of many brands’ total revenues–the implication seems to be that retailers need far fewer stores and that future locations should be considerably smaller. After all, simple math tells us that with shrinking physical store sales, average productivity will decline, thereby making each remaining store less profitable. Moreover, the logic goes, it is much smarter to offer a wider range of products via the web owing to the efficiencies of centralized inventory and the like.

In fact, the folks on Wall Street seem to think that this is not only obvious, but it is the only way for retailers to be successful in this brave new omni-channel world. Be careful what you wish for.

While it is quite apparent that, in aggregate, most North American and Western European markets are over-stored, it is dangerous for an individual retailer to assume that aggressively shrinking their physical footprint is the pathway to success. For one thing, for most brands, physical stores help drive the web business–and vice versa. Closing stores and editing assortments too ruthlessly can drive down brand preference and market share, which ultimately is likely to reflect negatively on total profitability.

But the biggest challenge for most retailers and their brick & mortar strategy is how to remain relevant and remarkable in a blended channel world and how to create compelling reasons for customers to traffic their stores when so much of everything is readily available on the web, often at a lower price.

The quest to get small through the relentless pursuit of store productivity tends to drive brands to carry only their known best sellers. The victims of this strategy are the new, the interesting, the differentiated. If stores are reduced to selling only the safe bets–only average products for the average customer–then the internet becomes the best way to discover the remarkable. Alternatively, specialty stores may emerge to attack the market opportunity vacated by the bigger chains, who keep planing the edges of what they carry to “optimize the box”.

Either way, a get smaller strategy may only serve to make a brand’s brick & mortar stores all that much less interesting and accelerate an already precarious position into a downward spiral.

Surely, for some retailers, a rationalization of their store portfolio is overdue and a radical re-think of their physical store model is an urgent and important need. Sadly, for others, getting small will only turn out to be incredibly stupid.