Multi-channel retailing point of view

Everyones jumping on the web bandwagon, but how does it contribute to your bottomline?
The trend in larger retail markets such as the US and UK is to implement multi-channel strategy
to induce growth in traditional stores, reduce cost-to-serve and improve customer satisfaction.
Australian retailers can learn from global experience to leapfrog the growing pains.
Multi-channel retailing boosts growth for retailers
We are in an era dominated by the proliferation of channels that are
enabled by advances in technology. Online stores, kiosks, eCommerce
and SMS are the new channels in the retailers toolkit to interact
with their customers. Especially with online purchasing growing by
31% from 2004-2005 to 2006-2007 period
1
in Australia, the online
channel is quickly gaining traction and will surpass many channels as
the dominant path to consumers.
Retailers need to develop a multi-channel approach to complement
their traditional storefronts, catalogues and offline media advertising
to spearhead company growth because:
multi-channel touchpoints can capture the lucrative customers.
Research shows that consumers who use at least three channels
when shopping spend up to ten times more than a single channel
customer, generating 25% 50% more profit
2
cross channel integration brings additional revenue for retail stores.
For every $1 spent online, consumers spend another $6 offline
2
.
The evidence suggests that the web supplements and grows retail
profitability rather than cannibalising it
improves customer satisfaction by allowing customers to choose
the channel that best match their needs. From being inspired
by products in a catalogue, conveniently researching product
information and prices online, to testing products in-store, the
customer can utilise the strengths of each channel to improve their
interaction with the retailer
playing to the channels economics can reduce the retailers
cost-to-serve. Pushing low value customers to low cost-to-serve
channels (e.g. Sears/Nordstrom) and reducing floor space cost by
offering in-stores kiosks to access online catalogue (e.g. REI) are
some of the multi-channel strategies employed by global retailers
to reduce cost-to-serve.
Global retailers are going multi-channel
Most global retailers have multi-channel capabilities and an online
presence since the launch of the internet and the dawn of e-commerce.
Australian retailers shun multi-channel initiatives
The three biggest retailers in Australia, Myer, David Jones and Harvey
Norman have very limited online channel functionality, forcing
customers to visit stores to make purchases. David Jones abandoned
their online shopping functionality in a revamp in 2003. Coles and
Woolworths similarly have limited geographic coverage of their online-
shopping order fulfilment.
Major Australian retailers state the stagnation of market growth and
lack of foreseeable return from large capital investments as factors in
the lack of footprint and online channel abandonment. This can be
attributed to:
Australian consumers online shopping concerns include the retailers
return policy (47%) and logistics (delays, expense, non-delivery and
inconvenient timing, 32%)
6
. An integrated presence to accept returns
in store and managing order fulfilment processes will alleviate these
concerns. The internet giant eBay is driving this change in attitude and
perspective, with four out of five of Australian online transactions done
through their website
7
. Their online channel model has addressed the
concerns of consumers; validated by the traffic on their website
Sears/Nordstrom
3

pushes customers to low cost-to-serve channels
justify floor space and web channel according to the demand
of product (abandon or develop decision)
cross-channel selling customers carry out research or
purchase online and picks up goods/brings website print-outs
to store to purchase
real time inventory management.
Macys
4

use multi-channels to appeal to different customer segments
narrows range online with customer intelligence to appeal to their
online demographic and managing expectations of other customers
different entities, but still integrated operations
(e.g. bought online, exchanged in store).
REI
5

endless aisle uses online channel to increase breadth
of products on offer
consolidated channels that enable customers to order online
and pick up in store.
1 Australian Bureau of Statistics 2005-2006, 2006-2007
2 ACRS Multi-channel retailing August 2007
3 Playing to strengths, February 2005, www.internetretailing.com
4 Retailers take multi faceted approach to multi-channel success, December 2005, www.ladlass.com
5 Retailers take multi faceted approach to multi-channel success, December 2005, www.ladlass.com
siloed behaviour of the different channels leading to internal
competition and sales cannibalisation. This can be attributed to the lack
of strategic perspective in executing the different market channels to
support each other in a coherent manner. As a result, many consumers
are disappointed to learn that there is a clear dividing line between
store and online operations. Breaching this line will most likely be the
principal online challenge for successful retailers in the coming years
8
.
Making it happen underpinning the growth platform
Multi-channel initiatives are about making strategic decisions and
subsiquently building functional areas and capabilities to meet them.
Retailers are faced with five decisions:
1. Which channels should be part of the platform?
2. Which products or services should be offered within each channel?
3. Which customers should be targeted by each channel?
4. Which partnerships should be established?
5. To what degree should the channels be integrated?
Once the strategy is set, there are 16 functional areas the business
needs to build to support the strategic objectives. Each functional area
has a set of capabilities or high-level requirements.
Not all capabilities are necessary for each retailer. Capabilities should
match the business strategy. Additional capabilities can be developed
and deployed over time once the core capabilities are in place.
Deloittes Director to Consumer (DTC) Capability Map defines
16 functional areas to support multi-channel retailers. The map
can be drilled down to identify the capabilities required to create
the functional area.
Lessons learnt from global multi-channel retailers
The path to multi-channel retailing requires a great deal of planning.
Many traditionally separate business areas (e.g. eCommerce, call-centre
operations, IT, marketing, and store operations) must now come together
to deliver a truly integrated business platform. Strong executive sponsorship
is often required to break through organisational silos.
In addition, a shared vision and mission can be necessary to overcome
the potential in-fighting, as well as jockeying for control and resources.
Unlike initiatives of the past, no one system can deliver the universe
of required multi-channel retail capabilities. Integrating technology
across multiple vendor products and interconnecting middleware is
now necessary.
Identifying the right opportunities and right approach to support each
individual retailer can be challenging. The effort required to transform
the retail organisation to capitalise on this opportunity can be significant
but manageable. Defining the appropriate strategy upfront and using an
incremental approach to developing the business capabilities are key to
successful retail transformation.
eCommerce
Promotions
management
Digital asset
management
Fulfilment &
warehouse
management
Sales Pricing
Master data
management
Merchandising
Marketing
Analytics
Customer
services
Demand
management
Catalogue
management
Inventory
management
Order
management
Transportation
management
Katherine Milesi
Mobile: + 61 (0) 416 194 071
e-mail: k.milesi@eclipsegroup.com.au
Jenny Wilson
Mobile: + 61 (0) 417 145 312
e-mail: jewilson@deloitte.com.au
Peter Bars
Mobile: + 61 (0) 410 457 294
e-mail: pbars@deloitte.com.au
Kasey Lobaugh
e-mail: klobaugh@deloitte.com
Katherine Milesi is a Partner in Eclipse with 17 years
experience. Her expertise lies in online strategy and
integrated marketing.
Jenny Wilson is the lead Partner for Eclipses Sydney practice.
Her expertise lies in digital and online strategy consulting.
Peter Bars is a Partner in Deloitte with over 20 years
experience in Technology strategy and large scale
IT enabled change programs.
Kasey Lobaugh leads Deloittes US multi-channel practice.
He is a thought leader in the areas of multi-channel
retail and direct-to-consumer operations and led large
transformation initiatives for major retailers.
This brochure is provided as general information only and does not consider your specific objectives, situation or needs. You should not rely on the information
in this brochure or disclose it or refer to it in any document . We accept no duty of care or liability to you or anyone else regarding this brochure and we are
not responsible to you or anyone else for any loss suffered in connection with the use of this brochure or any of its content.
About eclipse
Eclipse refers to Eclipse Group Pty Limited a wholly owned subsidiary of Deloitte Australia. Eclipse is a specialist online design, development and consulting
firm. We work with a wide range of clients, from blue chip corporations to innovative start ups, helping them adapt and harness new media and technology.
About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and
independent entity. Please see www.deloitte.com.au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.
About Deloitte Australia
Deloitte Australia refers to the Australian partnership of Deloitte Touche Tohmatsu and its subsidiaries. Deloitte, one of Australias leading professional
services firms with 12 offices and over 4,500 people, provides audit, tax, consulting, and financial advisory services to public and private clients across the
country. Known as an employer of choice for innovative human resources programs, we are dedicated to helping our clients and our people excel. Deloittes
professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities.
For more information, please visit Deloittes web site at www.deloitte.com.au.
Eclipse Group Pty Limited, May 2007. All rights reserved.
AM_Mel_05/08_034789
6 Australian retailers are losing out on e-tail sales: The Leading Edge, April 2008
7 Australian Bureau of Statistics 2006-2007
8 2008 Global powers of retailing, Deloitte LLC 2008