An optimised omnichannel mix and agile operating models are critical to future retail prosperity

In our recent AlixPartners Disruption Index retailers from across the globe cited e-commerce as the single biggest disruptor facing their businesses. This was already the case pre-pandemic but, driven by degrees of isolation and the convenience of online shopping, this has spiked dramatically. How much of it is here to stay remains to be seen. This uncertainty, combined with the impact online has on many retailers’ cost-base and therefore profits, presents the industry with a dilemma.

Consumer priorities have changed, in the near term at least; health and financial concerns are the main drivers of their behaviour and this naturally favours online fulfilment. Retailers can’t be certain that people will return to bricks and mortar any time soon and, even if they do, that may be in certain categories such as grocery and luxury.

So, what can retailers do? One option is to incentivise customers to use more profitable channels – such as Click & Collect – which are far less costly for retailers and still offers consumers some of the security of pure online. It is obviously less convenient, but consumers driven by financial worries may be encouraged if there are savings to be had.

There has also been increased discussion about creating a true omnichannel offering. A full allocation of costs by channel (for example, AlixPartners’ OEV - Omni Economic Value approach) is the first step to understanding true economic profit of each channel and getting to the right mix. This is certainly the right direction of travel, but retailers will need to look beyond channel mix and focus also on optimising their operations.

Key to this is understanding new consumer demographics and capitalising on the abundance of data retail businesses generate. This will enable retailers to understand in some detail:

• The profile of their consumers (demographic, average spend, type of spend etc) and increase the use of targeted approaches within their marketing strategies;
• What activities are cash generative, at what rate, and where to invest for the future;
• The performance of your competitors and the industry as a whole; and
• Where the highest profits may come from in the future, including innovative new channels such as “concierge” services, very common now for jewellery retailers, and conversational commerce.

In parallel, retailers will have to find out what makes sense for them and their customers. For example, is their shopping experience functional and therefore more oriented towards online, or is experiential in which case bricks and mortar and more advanced online concierge services may be more suitable?

This will require some degree of risk-taking as the more options retailers offer, the higher the costs due to increased complexity in operations, working capital allocated to several locations and so on. Some tough decisions will be needed, as most retailers can’t have it all.

The good news is that, once the right channel mix is identified, retailers can focus on improving operations to increase customer satisfaction and reduce the cost of order by channel at every step: Not just in fulfilment and delivery but also in customer service, customer acquisition and marketing, checkout process, returns processing, and so on. This is easier said than done, as a proper omnichannel experience - one that smoothly integrates channels for the customer to utilise seamlessly - requires an optimised cross-functional infrastructure and approach, that can only be achieved with the right mindset, one that is new to a lot of traditional retailers. Once retailers break down silos, they should evaluate and look to optimise:

• Labour productivity by channel, including a review of equipment and supporting tools/technology (e.g. automation, chatbots, lockers);
• Space productivity: from network productivity (right number, size and location of stores/DCs) to back-of-house set ups and flows; and
• Customer service levels required at each stage of the journey – What do customers really value and what is a ‘nice to have’?

This is a complex conundrum and retailers would be wise to bake sufficient agility into their operating models to course correct, and quickly, as new information emerges. Those that do will be well positioned to cope with future disruption and navigate uncertain post-pandemic times with relative ease.