May 15, 2013I was recently sent a copy of a very interesting report published by Retail Systems Research (RSR), titled "Omni-Channel Fulfillment and the Future of the Supply Chain." The report states that the "store-based supply chain has become a huge investment that currently yields diminishing returns, particularly in mature retail markets," and that with online sales growing at a much faster clip than same-store sales, "RSR believes that fulfillment as a competitive weapon is a near- to mid-term opportunity for retailers—something that can be capitalized on within the next five years."
Multichannel marketing is generally defined as selling to customers via a store, a Web site or a mobile device as a distinct channel. So if an online customer wants to return something, he or she can send it back to the company's online returns department. Omnichannel marketing aims to allow a customer to interact with a retailer through any channel, at any time—if that shopper buys something online, he or she can pick it up at the store, or return it to that location.
The report provides some interesting facts and suggestions, which I will get to later. First, I want to comment on the idea that a store is not an important place to invest. I understand RSR's view that same-store sales are growing slowly, while online sales are growing more quickly, but as the report points out, nearly 95 percent of sales are being transacted in brick-and-mortar stores. So stores still represent the largest opportunity for retailers, if there were a way to sell more goods at a higher price (that is, reduce markdowns, which erode profit margins).
Radio frequency identification represents a unique opportunity to accomplish this goal—which, unfortunately, is not addressed in RSR's report. Our RFID Fashion Retail ROI Calculator shows that with RFID, a store can achieve a return on investment in the technology in approximately six months, by boosting sales by 4 percent. A retailer with whom I spoke at last month's RFID Journal LIVE! 2011 conference told me that RFID boosts sales by considerably more than that amount. So the single greatest opportunity for retailers is to use the technology to improve inventory accuracy, optimize replenishment and sell more goods already in a store or warehouse at a higher price.
Having said that, I do believe RSR is correct that an omnichannel strategy will become critical for retailers in the coming years. The firm argues that because 95 percent of sales are still taking place within brick-and-mortar stores, "retailers' biggest opportunity is to tie demand capture from all channels into some version of in-store fulfillment."
But the report adds, "The retail supply chain poses unique, entrenched challenges to retailers, with an enormous amount of investment in distribution centers and the systems that support them... Without a holistic view of customer fulfillment, retailers are particularly challenged to build the business case needed to drive change."
According to RSR, "visibility is key to changing supply chain processes," though the report suggests that "visibility into cross-channel influence on customer purchases" is most important. Retailers surveyed by the firm indicated they are keen to invest in analytics that provide such visibility.
Here is the problem, however: Data analytics provide visibility into customers' interests and behaviors, but not into what's happening within retailers' operations. Data analytics won't tell you, for instance, whether a shirt failed to sell because customers didn't like it, or simply because it wasn't replenished in a timely manner. What's more, it won't tell you that your inventory accuracy is only at 65 percent, and it won't tell you how to make sure an item is available in the store for an online customer to pick up.
The reality is that inventory accuracy in stores is low, which leads to execution problems. One reason customers like shopping online is that their purchased items are delivered within a few days more than 99 percent of the time, and they'd rather wait three days for a delivery than to drive to a store only to find that an item isn't there.
RFID can improve inventory accuracy to better than 98 percent at a reasonable cost—and it can provide the visibility that can allow for omnichannel distribution. Imagine that a retailer is tracking 100 percent of its goods with RFID in real time. A customer purchases an item online, and plans to pick it up at a store. But then that person changes his or her plans, and decides to pick up the product at a different location. The shopper would access his or her smartphone to find out if the item was in-stock, and would discover that it was available and awaiting pickup. That would be a competitive advantage.
RFID is the key to omnichannel retailing, because without the visibility that the technology provides, retailers would disappoint customers too often.
Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog, the Editor's Note archive or RFID Connect.