Omnichannel Differences in the US & Europe
15 years ago, we embarked on the first “multichannel” retailing study for the National Retail Federation, during the midst of the Dotcom Bubble era. Little did we know how long it would take before retailers truly committed to the long journey we now call omnichannel or cross channel retail strategies. Today the ubiquity of “omnichannel” is enough that the mere mention draws a grimace or a roll of the eyes from industry insiders, similar to other industry buzzwords like “big data” and “customer centricity”.
Despite this growing cynicism, the retail industry marches forward at a steady pace of omnichannel development with each passing season. We’re still excited to see new developments emerge that will change how retailers win the hearts and wallets of shoppers. Macy’s announcement of their latest wave of omnichannel capabilities sets the bar higher: ApplePay in-store, same day delivery in select markets, national rollout of in-store pick up, enhanced mobile apps and pilot tests of digital tools in-store (associate and consumer-facing). In the same week, Staples similarly announced a range of new cross channel capabilities to position themselves as innovative leaders, and Whole Foods launched their own version of in-store pick up.
But how does all of this US omnichannel development stack up against European retailers’ drive towards omnichannel innovation?
In recent years, among our Ebeltoft Group of retail consultancies, we have benchmarked global cross channel capabilities and a vast wave of retail innovation driven by digitally-infused retail concepts. The global trend is clear, but some findings such as the more advanced omnichannel among UK specialty apparel retailers (vs. US retailers) were a tad surprising. Some of the most innovative new concepts, born of the digital world and transforming into physical store retailers (Emmas Enkel or My Meusli) are award-winning German retailers. And while many leading European retailers started later than their US counterparts, their commitment to omnichannel has been impressive.
This week, I will speak at an Amsterdam retail event on omnichannel strategies and will have the opportunity interact first hand with the retailers who are “raising the omnichannel bar” in their markets. The competitive intensity within mature, slow growth retail markets of Western Europe are macro drivers pushing retailers to find new sources of advantage, and we’re quickly seeing many retailers embrace integrated digital strategies (aka omnichannel) as their strategic priority. In many ways, we draw analogies to our work in international ecommerce, where European retailers more naturally plan for growth outside of their domestic market, and therefore have different attitudes among senior decision makers to take these risks.
We will report back from Europe, and the upcoming Shop.org conference in Seattle where we expect to hear even more of the latest and greatest omnichannel innovation, to share our impressions of these attitudes to embrace digital retail in our next post.
Coming to America: A multichannel perspective – getting it right the first time
Coming to America…Getting it right the first time
As the largest consumer and retail market in the world, with over $5 trillion in retail sales, the U.S. remains an attractive expansion market for many non-U.S retailers and brands. With relatively few regulations and restrictions concerning physical retail growth here in the U.S.A., many are tempted to take the leap, often without fully understanding the complexities of the marketplace.
Far too often, we are left scratching our heads, and foreign retailers are left licking their wounds, on mistakes made in coming into the U.S. This includes mistakes made by smaller companies to failures from some of the biggest and best managed retailers in the world—one only has to look as far as the multi-billion loss taken by Tesco after its failed US expansion.
Getting it right the first time suggests that problems can be avoided with better advanced planning and a more thoughtful approach to tackling the world’s biggest market. Three of us, all experts in U.S. Retail, have offered our top-line checklist of key considerations: Maris Daugherty, a leader in e-Commerce and Omnichannel planning from Okamura Consulting, Dwight Hill skilled in retail strategy, execution and operations from The Retail Advisory, and Neil Stern, a retail strategist from McMillan Doolittle LLP.
Our quick checklist follows:
- Have a unique offering to take market share from well-known and trusted stores. Make sure you carefully assess the U.S. competition and justify your reason for existence. Quite simply, are you filling a need that is not being filled now? And, remember, the number of products and retailers competing in the same space is usually 2-3X other countries.
- Identify your consumer target and how you will approach them in a differentiated way. The U.S. is a big country and incredibly diverse in its geography, customer make-up, incomes, etc. It almost necessitates segmentation and a hyper-focus on a particular customer. Understand who they are and how and where they expect to be served before, during and after the sale.
- Don’t assume that current strategy can transfer to the US without alterations. Modify, as needed, your current model to US customs, behaviors and attitudes. There are almost always necessary changes needed in sizing, assortments and pricing and promotional cadence to adapt to the US consumer.
- Understand that it will take time and patience to achieve successful expansion. In building a business plan, great patience is needed. It takes time to get it right and even being right in one market still might mean substantial changes as the concept expands inside the U.S.
- Be prepared to compete in cross channel and e-commerce platforms with highly sophisticated online stores and shipping capabilities. This is now a fact of life in the U.S. and nearly everywhere else in the world. It will pay to be “slightly” ahead of the curve. More on this below.
- Deal with real estate complexities and finding the right locations. Again, huge geographies and major differences here, market by market. The U.S. is a very suburban driven retail market with most business being done outside urban centers. And please, the U.S. is not New York! A flagship in New York City doesn’t begin to solve your U.S. expansion needs.
- Be prepared to undertake supply chain management of costly in-country network and distribution. Related to real estate complexities, supply chain complexities also factor in. Have a thoughtful expansion plan that aligns to supply chain needs as well as operational complexities.
- Plan for differences in the store operating model. U.S. retail store operations have become increasingly complex over the past five years. From pop-up locations to mini-distribution hubs, with increasingly challenging consumer service expectations and new technology disruptors, stores are changing and turning into entities far more complex than in the past. In order to remain competitive, international retailers moving into the US must consider how to operate their stores in this complex new world, at a minimum of cost and high level of efficiency. The store operating model, including policies, processes, and service expectations must be well-documented and designed to match the planned customer experience.
- Labor Management is complex. The scheduling and management of labor, a tricky exercise for any retailer, can be particularly complex for retailers opening stores in the U.S. Not all U.S states share the same timekeeping rules, and some jurisdictions such as California are known to have particularly strict legislation governing timekeeping and labor management practices. The right labor standards for store processes as well as a robust rules-based time and attendance and labor scheduling system is a requirement for entry into the US market, thus ensuring adequate cost control and adherence to local labor laws.
- What comes first: e-commerce or Bricks & Mortar? A key consideration is channel strategy – what is the best way to enter the US, via e-commerce first, through owned retail stores or through partnerships?
This last point requires special consideration. International businesses contemplating e-commerce as part of their expansion plans and have landed operations and fulfillment capabilities need to meet expectations that U.S consumers have for a robust online customer experience with advanced capabilities in the areas of fulfillment and customer care.
When considering “landed” e-commerce expansion the biggest decision a retailer or global brand has to ask is should “I lead with E-commerce or “land” the brick and mortar business first and then add my online channel? “ The variables driving this decision for U.S. entry should be:
Current U.S. market share and brand recognition: E-commerce is the fastest growing retail channel but it is has quickly become a market share game in maturing markets like the U.S. The key to online success is the ability to drive traffic and sales demand cost effectively. Brand familiarity and consumer adoption will help build a better business case to make e-commerce a leading strategy and support the domestic costs associated with operations. The ease and availability of market data both online and offline is a big benefit to those that are looking to come to the US. Benchmarks are relatively available to help understand what the customer experience should be. Many struggle with resolution to what their customer expectation is in this market and if the customer views the brand in the same manner as their domestic business. A complicating factor when thinking about U.S. online expansion in a multichannel business is if your competition and customer are the same online and offline. Make no mistake Amazon competes with both in the U.S. and should factor into your market entry strategy.
Capability to deliver the service expectations of the mature US e-commerce market – The US is a mature e-commerce market and we expect growth to slow in the coming years. This makes for an ongoing market share struggle. The US consumer has extremely high expectations regarding the online and omnichannel customer experience. Retailers who are considering entering the E-commerce space in the US will need to meet benchmarks in consumer assisted shopping models, and pre and post purchase customer service and shipping policies. Analyzing your internal assets and getting to a shortlist of external partners and service options available in the US can help identify the right operating structure (E.g. All outsourced, all in house, or a hybrid approach) and establish your service and support level for the US customer. This will allow rapid market entry in the most cost effective manner.
Development of an operating roadmap, understanding the resource needs of the online channel, a digital marketing plan and online merchandising assortment are just an example of some of the diligence that should go into building a plan. Determining whether you should lead with e-commerce is different for every business but doing the diligence to make the right decision for your business can accelerate growth and reduce risk.
Our group has extensive experience working with global brands and retailers coming to the U.S. and helping them navigate the challenges to achieve success. Please contact us and we can set up a session to tell you more.
Our next blog will cover the opposite trip: Expanding beyond the US – Getting it Right the First Time.
McMillan Doolittle LLP is a leader in helping clients develop innovative and differentiated strategies, align the customer experience with their strategy, develop new retail concepts, and generate profitable, sustainable results through proven processes and proprietary models. We serve retailers in all segments, service providers, manufacturers, financial institutions and start-ups, both domestically and internationally. Learn more at mcmillandoolittle.com.
Okamura Consulting specializes in understanding and assisting in the challenge of integrating channels and e-commerce. Our expertise lies in strategic planning, organization design and International e-commerce expansion. Learn more at okamuraconsulting.com.
The Retail Advisory LLC is a retail consultancy specializing in customer experience, cost management and operations efficiency from merchandising to stores. We have a track record of delivering quantifiable results from strategy to execution for retailers of all types and sizes including luxury, department stores, food/drug/mass, specialty apparel/hardlines, and convenience. Learn more at theretailadvisory.com.
Omnichannel Challenges – Keeping Score In A Connected Environment
Multichannel retailers are responding to the connected consumer at break neck speed. The shift in their business model demands that they work horizontally across the organization, breaking down silo’s, and developing new collaborative processes. Yet in many cases the organization of human capital, budgeting and planning, and key metrics have not aligned with their new Omnichannel strategy.
We ask our clients to answer “Big Questions” to help illustrate the challenges that they will face in their shift to an omnichannel future.
Is it the expectation that the Ecommerce team will support “all things digital” within the business?
In some cases we see brand marketing taking on the role of social marketing and digital display for awareness building. But in most cases the Ecommerce team is still responsible to develop content, support brand campaigns on the site, develop the mobile strategy, and to help educate the Senior Team on how to leverage the digital infrastructure critical to the omnichannel future. In many cases, they are asked to manage vendor selection, the digital roadmap and more – in addition to driving ecommerce revenue growth. Yet, when it is time to resource the “all things digital” team, the resources are based on Ecommerce revenues. We encourage our clients to measure the influence of digital efforts on the broader business to properly resource for the Omnichannel customer experience.
In response to our suggestion to measure online influence we often hear “ We can’t always see what happens at the store and we need to understand how much of the business is incremental ”. Our overwhelming recommendation will save you time and effort. Don’t chase the incremental statistic – it’s difficult to prove and may only give your detractors the opportunity to poke holes in your analysis. Instead, determine your key metrics (e.g. customers who buy in multiple channels, cross channel customer satisfaction ratings, number of hits on the store locator or who redeem coupon codes at the store, incremental sales from “pick up in store” orders). Track what you can to develop a benchmark and look for growth. Report progress to the broad management team and reward positive influencers. This will help you align disparate teams to work together better.
When the time comes to add resources pay close attention to the skillsets that are needed to drive those customers across channels. Sometimes it is as simple as adding more copy and creative talent. Sometimes it means reducing the administrative workload of Senior resources by bringing in support personnel. Other times it is developing a core competency in an area you have been outsourcing and the new positions will require acquiring high level specialized skill sets. With the changing role of the digital team, make sure to support growth by getting the necessary resources to deliver the customer experience you envision.
Are you willing to track and reward store associates for online revenue increases in their store’s trading area?
We are asking store associates to become digital evangelists but in many cases we don’t reward them for contributing to the increase in online sales in their store’s trading areas. Or on adding incremental sales for in store pick up orders. In many cases we ask them to learn more about an extended online offering but don’t give them incentive or “time on the clock” to do so. The Container Store is an omnichannel best practice leader that allows store staff to train and learn about digital advancements “on the clock”, and this shows in their excellent store execution. Our research has confirmed that tracking and sharing online revenue within the store’s trading areas has been a game changer for most retailers.
Incentivize the behaviors you want to build upon.
Until retailers are at a point where we can look at sales in a holistic manner and reward people across channels for behaviors we want to reinforce, we will struggle with the omnichannel customer experience. Understanding that organizations will evolve, measurement tools will improve and new processes will replace old ones suggests our success metrics need to evolve too. Develop a plan to measure, report, and reward your team to support a digitally connected environment and you will lessen the friction that comes with change management.