12 Jan 2016 - Suffering from years of mounting losses under Amazon's shadow, Best Buy decided to radically change its ap
January 12, 2016
Think Tank: Why an Omnichannel Approach Can Help Retail Escape the Amazon By Jordy Leiser
In the battle for consumer loyalty, it’s no secret that traditional retailers are fighting to match the speed and efficiency of Amazon. While the war for lowest prices is largely over — with price-matching fueling a retail race to the bottom — the battleground for the best customer experience is only just beginning. In order to come out victorious (or even stay competitive), brick-and-mortar retailers are now tasked with innovating to find their edge against the new era of digital experiences that online-only retailers have pioneered. When Amazon ushered in the e-commerce era more than 20 years ago, it also revolutionized the way people buy. Since then, Amazon has steadily raised the bar for what consumers expect when shopping online. Nowadays, Amazon’s 24/7 customer service, same-day delivery and instant refunds are hard to beat. In an effort to keep pace with Amazon’s unmatched ambition for shopper convenience, traditional retailers are investing billions to close the expectations gap. The cost, however, is a worthwhile investment since brick-and-mortar retailers are taking the idea of convenience to a new level. In fact, the key to the survival of traditional retail is using the one weapon that online-only models don’t have: a network of existing stores. Traditional retailers are increasingly leveraging existing infrastructure to outmatch their online-only rivals. By converting retail stores into e-commerce fulfillment centers, brick-and-mortar has the chance to beat e-commerce at its own game: convenience. When a store becomes an outbound shipping hub, an online order pickup stop and a returns drop-off location, it allows multichannel retailers to create a more seamless and natural experience for customers while simultaneously growing more efficient in the process. As the Amazon vs. traditional retail battle continues, an effective omnichannel strategy gives brick and mortar a leg up on online-only peers. One of the first brick and mortar retailers to invest in cross-channel commerce initiatives was Wal-Mart, which began leveraging retail stores as distribution centers years ago. When
discussing Wal-Mart’s digital initiatives, chief executive officer Doug McMillon aptly asserted that traditional retailers have an advantage over Amazon, as it’s easier for existing stores to add digital capabilities than it is for e-commerce companies to build out massive store networks. Other merchants like Best Buy and Target have also utilized this advantage in recent years, resulting in dramatic improvement in the customer experience and cost savings for their ecommerce operations. Suffering from years of mounting losses under Amazon’s shadow, Best Buy decided to radically change its approach to fulfillment in the spring of 2013. Embracing an omnichannel strategy, Best Buy turned 50 retail locations into stores plus ecommerce distribution centers, instructing them to ship products to fulfill online orders. By early 2014, all Best Buy locations doubled as distribution centers — unlocking an additional $2 billion in inventory for potential sales. As a result, delivery speeds drastically increased. StellaService data indicates that Best Buy’s average delivery time dropped from 5.3 days in 2013 to 3.3 days in 2014. In 2015, 67 percent of online orders were delivered in two days or less, and Best Buy now averages shipping speeds faster than Amazon’s standard (non-Prime) orders. Toting similar success, Target shaved three full days off delivery times after announcing its ship-from-store initiative in May 2014. Our data show that between April 2012 and July 2014, Target only delivered 2 percent of online orders within two days. That number jumped after launching ship-from-store, rebounding to 26 percent between August 2014 and October 2015. While brick-and-mortar retailers can utilize existing stores to one-up the ecommerce giants, they do have to concede some infrastructural changes in order to make this happen. It’s common for traditional retailers to get bogged down in, well, tradition. Many become mired in existing systems and conventional thinking while their more innovative peers are pushing the envelope and shaking things up. Retailers that are not constantly assessing and reassessing their assumptions of the retail landscape will be left behind. There’s a notable divide between retailers that have developed or acquired a fastmoving, digital DNA and those that have not. Walmart, Best Buy and Target are examples of large “big box” brands that have started to embed a digital mentality within their organizations from the top down, acknowledging that change is necessary to survive. These retailers also seized opportunities for innovation, creating labs in tech hotspots and recruiting top-tier digital talent. Aggressive infrastructural and organizational changes enable traditional retailers to drive the improvements necessary to rival Amazon. As retailers work to expand into multichannel platforms, they also face challenges around consistency. Amazon delivers a notoriously seamless customer experience, upping the stakes for traditional retailers who are forced to match the uniform brand
experience. A traditional retailer moving into an omnichannel strategy creates an increased number of brand touch points for consumers, as they now interact with not only stores but also Web sites, apps, social media and more. When building out the enhanced capabilities, traditional retailers must ensure they deliver the same brand experience, no matter where consumers choose to interact. The competition for shopper loyalty has never been tougher, and for better or worse consumers benchmark their experiences against Amazon-level speed and efficiency. In order to keep up, brick-and-mortar retailers are increasingly harnessing their existing infrastructure to provide a seamless experience across their online and instore networks. That’s the way shoppers shop, so it’s the way retailers should operate. While brick-and-mortar brands have been chasing Amazon the last 10 years of the retail battle, we could soon see a role reversal as Amazon looks to find ways to compete against its multichannel foes using their stores as the ultimate weapon. Would Amazon actually start opening physical stores? We got the answer last November, and it looks like we are headed back to the future.
