During the last year, longstanding brick-and-mortar retailer chains such as Toys “R” Us, Payless, and Diesel USA have filed for bankruptcy.
Failures like these happen despite the fact that U.S. consumer spending currently is high, and the unemployment rate is low. Why is that?
The Amazon Factor
We cannot address this topic without first taking a good look at Amazon and the massive power it represents in the online commerce hemisphere. With US$258 billion in sales in 2018, Amazon accounted for a staggering 49 percent of all U.S. online spend, according to Forbes. On top of that, Amazon’s sales were up 29 percent, compared to 2017. Needless to say, Amazon is a growth rocket.
Two especially interesting Amazon trends:
- Much of its growth stems from its Marketplace, where Amazon connects third-party sellers with Amazon shoppers. It now accounts for approximately 70 percent of the company’s retail sales.
- Amazon has been expanding its ecosystem to include more brick-and-mortar stores. Based on tests of different store concepts, it has gathered a large amount of data about how shoppers shop offline, in brick-and-mortar stores.
Amazon seems to be preparing a new omnichannel strategy, expanding its Prime concept to work seamlessly across both its online and offline stores. Amazon thus has embraced the fact that customers today do not consider if they shop online or offline — they simply shop!
Most often, customers research online to shop offline — less vice versa. If Amazon remains an online retailer only, it will miss out on a major revenue stream. Furthermore, it can lower its massive shipping costs by buying and building physical stores to enhance its omnichannel strategy.
Brick-and-mortar retailers have to prepare for Amazon’s unfolding strategy now, to avoid joining the current line of U.S. retail bankruptcies, when Amazon decides to push its broad-scale omnichannel launch button.
The Root Cause
Whereas Amazon is the king of e-commerce with a 49 percent market share, the company “only” represents 5 percent of all U.S. retail sales. With that in mind, Amazon is actually not the tipping point that causes the many unfortunate U.S. brick-and-mortar bankruptcies. Overloaded debts are. Many brick-and-mortar chains are overloaded with debts, often as result of buyouts led by private equity firms.
Even healthy brick-and-mortar chains have borrowed billions, and with this debt coming due, combined with the fact that many U.S. suburbs are overrun with stores, things most likely will get even worse in the coming years — possibly even lead to a disaster.
On top of this, many of these brick-and-mortar chains have invested in an online e-commerce strategy much too late, without creating a seamless online and offline shopping experience. They have had separate online and offline sales strategies and have not understood that integrating the online store — along with online marketing strategies — is a very effective way of attracting offline customers.
Seamless Online/Offline Shopping Experience
So, how does a brick-and-mortar operation act intelligently in a marketplace where U.S. retail stores are closing, and Amazon is pushing hard soon to launch a new major offline and omnichannel strategy? First of all, it is important to understand how retail has become digital at a pace never seen before.
Today the customer journey begins with the smartphone, as 76 percent of all Americans use their smartphone to look up a local store, according to OuterBox. Brick-and-mortar stores that do not have a good online and mobile optimized e-commerce store will miss out on these very important local sales leads.
Furthermore, many brick-and-mortars wrongly assume that e-commerce has been taking away orders from their retail stores, which is not at all the truth. In general, 67 percent of all Americans actually research online across all devices — computer, tablet and smartphone — to buy offline, whereas 31 percent visit an offline store, later to buy online, according to a Google survey.
It is therefore essential that brick-and-mortars create a seamless shopping experience across social media, smartphones, personal computers, etc., and brick-and-mortar stores, also referred to as an “omnichannel” strategy.
The bottom line result of such a strategy is immense, since businesses with omnichannel strategies achieve an impressive 91 percent greater annual customer retention rate, which means that 91 percent more customers return to shop, compared to companies without an omnichannel strategy, according to V12.
Roughly 55 percent of all U.S. companies do not have an omnichannel strategy in place, which is a major business issue, since 90 percent of all U.S. consumers expect a consistent interaction, service and delivery model across all sales channels — both online and offline.
Today’s consumers furthermore expect that they will be able to make a purchase online and pick it up in a local store.
Top 10 Tips for Creating an Omnichannel Business
Having made the case for the absolute necessity of designing a seamless customer experience across all sales channels, I’ll now address the practicalities of how to implement this knowledge in a brick-and-mortar company’s strategy.
The following tips are based on my experiences consulting with customers on these topics, benchmarked against some of the best omnichannel companies.
1. Stop considering yourself a brick-and-mortar company.
If in 2019 you still consider and refer to your company as a “brick-and-mortar,” the road ahead will be tough if not close to impossible. The entire company — from management down through all business levels — must understand that you are or are becoming a full-blown omnichannel company. Sales, marketing, product management, delivery, etc., have to work hand-in-hand.
As Lao Tzu famously said, “The journey of a thousand miles beings with one step.” This is that first critical step. Without it, your company will not move forward as an optimal omnichannel company.
2. Create an omnichannel strategy, based on a seamless online/offline shopping experience.
With a focused and realistic omnichannel strategy, doors to many business opportunities will open, which makes this second step business-critical. It is not an easy step to complete, and you really have to think through and plan all elements of your strategy carefully, as they have to interact intelligently many years ahead.
I suggest that — as a minimum — you incorporate the following key elements into your omnichannel strategy, and that you base your strategy on the associated essential questions:
- PRODUCT STRATEGY — Why do customers want to buy our products?
- BUSINESS CONCEPT — How does our business concept create happy and returning customers?
- ONLINE AND RETAIL STRATEGY — How do we make our sales channels interact and support each other to maximize sales?
- MARKETING STRATEGY — How do we create a marketing strategy that supports our product, business and sales strategy to maximize sales?
- STAFF STRATEGY — How do we train our staff to make sure they deliver a state-of-the-art and consistent customer experience across all sales channels?
- DELIVERY STRATEGY — How do we make sure that we offer the methods of delivery our customers expect?
3. Why do customers want to buy your products?
As simple as this question may sound, it may be difficult to answer, as it has to do with the core of your business model. Many retail companies compete against each other, trying to sell the same or very similar mass-market consumer products — and sometimes even next to each other in suburbs overloaded with stores.
This is doomed to fail, and it is already failing all over the U.S., since this is equivalent to fishing for customers in an ocean with many competing sharks (competitors), which turns the ocean bloody red. It’s referred to as the “red ocean strategy.”
In the long run, Amazon’s Marketplace just might be one of those red oceans where you compete against many sharks, based on low prices. Instead you would rather like to fish in a blue ocean of your own, without competing sharks. This you can achieve by selling niche products. You can even create a new demand with high profitable growth, also known as the “blue ocean strategy.”
Consider which niche products you can sell, either as part of your current product portfolio or as entirely new product lines.
4. How does your business concept create happy returning customers?
Once you are swimming in that wide-open blue ocean, I recommend that you next consider how you can support your product strategy, based on a strong business concept that creates happy returning customers.
Some of the most successful retail companies right now, both online and omnichannel, are based on a strong membership core. Amazon’s Prime customer base is a good example.
If you are able to offer a membership model that lets your members get discounts and free delivery, save up membership points, etc., I strongly recommend that you do so.
You do not want to copy other companies’ membership models, though, as that will lead you back into the red ocean. Instead, consider if you can offer your members discounts and other benefits if they subscribe to your products on a regular basis. This is an excellent way to give your customers rewards every time they shop with you, which will make it easier for you to retain them.
5. How do your sales channels interact and support each other?
Most online customer journeys today begin with the smartphone — both when the customer looks up local retail stores and when the customer researches for products to buy online. To begin with, you therefore should make your mobile website best-of-breed, as this is your main lead channel.
Once you have accomplished this, a simple trick is to make it easy for your customers to save a product on the smartphone, later to buy it either online or offline. Not many are aware of this; however, the second-largest reason customers do not shop is because they are not ready to buy. By making it easy for a customer to save a product for later, you thus get that first and very important lead, which you later can convert into a transaction.
Since one of the main reasons U.S. brick-and-mortars are going out of business is debt-based, you can try to reduce costs by testing different kinds of retail store concepts.
Some large department stores have had great success in minimizing store rental costs, by turning otherwise large and expensive locations into smaller showrooms, where the customer can try out, see and feel products, but they can’t take them out of the store as they checkout.
They can, however, try on a pair of jeans, for example, and then have them delivered the same day free of charge. Based on this store concept, the customer gets the shopping endorphin rush, and you save money by minimizing rental costs.
6. How do you create a marketing strategy that supports your product, business and sales strategy?
I recommend that you support both your online and offline sales strategy with personalization. About 20 years ago, Amazon was one of the first companies to personalize the online shopping experience when you visited its website. Today, personalization is one of the most essential marketing strategies for e-commerce companies; however, many companies only personalize their website and not the e-mail and store communication, which is a big mistake.
Personalization tools have become so intelligent that you actually can predict what the customer will buy next and when, which can be turned into a very profitable “selling-machine.”
This is one of Amazon’s secrets — it makes most of its money by sending targeted emails that are tailored individually to each of its customers, especially based on each customer’s purchase history.
Targeted emails often perform with amazing customer conversion rates in the range of 10-15 percent and sometimes even up to 25-30 percent. Website-only customer conversion rates typically are in the range of 3-5 percent.
A personalized communication model also can help bring customers to your local stores, as you can alert them to relevant offers, events, news and much more when they take place in a store close to the customer. The options are many when you combine your online and offline marketing strategy in this way.
7. How do you ensure that your staff deliver a state-of-the art shopping experience?
Staff training and staff sales tools often are the missing link in many omnichannel strategies. You may have created the best possible omnichannel strategy; however, if your staff members are not in sync with it on a day-to-day and operational basis, it will fail.
It is therefore imperative that the in-store counters are synchronized with the online sales channel and vice versa. This allows the sales staff to look up both online and offline stock availability and delivery status, to set up subscription programs with customers in retail stores, and much more.
The next missing staff member link often is the sales incentive model, where the online and offline sales commissions compete against each other. To get the full support from your staff members, it is essential to encourage cooperation. Offline staff members should get sales commissions for setting up online subscription programs, for example. By thinking this through, you make sure to maximize sales through all sales channels.
8. How do you make sure that you offer the methods of delivery your customers expect?
The methods of delivery most suitable for your omnichannel company are very much based on your business, sales and marketing setup.
Some of the most successful omnichannel companies consider shipping a marketing cost. Offering free, fast delivery is one of the most effective ways to convert and retain customers. You can offer free delivery to all customers who make a purchase exceeding a certain amount of money, and free delivery to customers who have joined your membership program, for example.
If your retail stores have enough products in stock, you should always offer same-day and free pick up in stores for orders placed before noon, for example. This is an excellent setup, as many reports reveal that customers tend to buy more products in retail stores when they pick up their online orders.
9. What is your customer omnichannel lifecycle shopping experience?
Once your omnichannel business has been up and running for three to four months, it is time to stop and analyze: a) where you get your leads; b) how the online/offline customer journey looks in your company; and c) why customers return to shop more.
I recommend that you set up some “key performance indicators,” and that you communicate them on a regular basis at staff meetings, etc., to create a shared organizational understanding of how you are performing, and which areas of your omnichannel business you can optimize further.
10. How do you refine and optimize your omnichannel strategy?
Based on this newfound understanding of your omnichannel key performance indicators, you can make specific plans for how to revitalize all elements of your omnichannel strategy and implementation model, which includes your product, business, online, retail, marketing, staff and delivery strategy.
By following the steps in this article and by analyzing and continuously optimizing your omnichannel strategy, you will be able to transform your current brick-and-mortar business into a state-of-the-art, commercially successful omnichannel company.