Multichannel retailing 2010

Summary of research findings

Sponsored by BT Expedite and Epicor

Research conducted by Martec International

BT Expedite
Contents

1. Introduction 4

2. State of multichannel today 5

3. Organizational issues 8

4. Logistics issues and strategy 11

5. Range or assortment issues 12

6. Pricing 14

7. Inventory management 16

8. Marketing and customer service 19

9. Impact on profitability 22

10. Key performance indicators 27

Sponsors

BT Expedite
An unswerving focus on retail
BT Expedite is the retail solutions division of BT – we have a fanatical focus
on retail, providing solutions to more than 75 of Europe’s leading retailers
to streamline processes, optimize information, and meet the evolving
merchandise and service expectations of multichannel shoppers.

A unique combination
We offer a unique combination of experienced retail consultancy
with carefully chosen best of breed applications all brought together
under BT, a company you can trust. We are the safest bet for business
transformation for retailers and our retail specialists ensure our
solutions fully support the unique aspects of your business.
Our multichannel solution set spans every area of retailing; planning,
sourcing, merchandising, store solutions, e-commerce, sales analytics
and CRM, plus network infrastructure, hardware, training and
professional service expertise.
We take ownership
Our one-stop shop, single contract approach takes the strain and
complexity out of delivering the infrastructure you need to drive
your business forwards and enables you to focus on the competitive
differentiators that make the difference to you and your customers.
For more information please visit: www.btexpedite.com

Epicor
A Leader in Retail Software
More than 400 of the world’s leading retailers use Epicor’s award-
winning retail software solutions to become more profitable and
competitive. Our solutions enable retailers to meet the evolving
merchandise and service expectations of today’s cross channel shoppers.
Epicor delivers comprehensive point-of-sale (POS) and enterprise
retail systems to regional chains and multichannel global brands.
For more information please visit: www.epicor.com

Martec International
Martec International is a specialist retail consulting and training company
and the market leader in this type of retail research. We assist retailers to
improve their business performance and help suppliers to retail execute
their go to market strategies more successfully. Our clients include
retailers, technology and merchandise vendors, ingredient manufacturers,
banks, telecommunications companies and venture capitalists.
If you would like to discuss further details of this report or any of Martec’s
services to the retail industry please visit: www.martec-international.com

1
2
Executive Summary
• This multichannel retailing survey incorporates the view of 51 retailers in North America and
the UK with sales exceeding $50 million. The retailers we interviewed have sales totaling
£441 billion / $708 billion, which equates to 21% of the non-food market in North America
and the UK and so is a very significant sample. The person responsible for multichannel
retailing was interviewed.

• While most retailers are enjoying growth from the Internet it seems that they have often
not thought through longer term strategic issues about multichannel retailing and seem to
believe that it will continue to be a growth area for them. Now that most retailers have a
transactional web site and other sales channels the market is getting more competitive and
more sophisticated processes and systems will need to be employed to operate profitably.

• There are significant discrepancies between North America and UK retailers indicating
that best practice has not yet been worked out by the industry and stage of adoption of
multichannel retailing or maturity is more significant.

• Transactional web sites are now the norm (94% of retailers we interviewed have them); many
have call centers (69%) and catalogs (47%). Kiosk usage is much higher in North America
(43% vs 10% in the UK) and mobile commerce is more widely used in North America too
(23% vs 5% in the UK).

• The biggest concerns retailers have about multichannel retailing are increasing customer
conversion rates, maintaining information about customers across channels and motivating
store personnel.

• In terms of organization, the most common division to own non-store sales is e-commerce
(36% of retailers), followed by marketing and buying and merchandising. Within each
functional area practice varies as to whether separate e-commerce teams exist. The majority
of logistics functions do not have separate teams for e-commerce as opposed to store
distribution. The majority of marketing departments do run separate teams while buying
and merchandising and IT split differently by geography.

• We found a marked difference in retailers that have a separate warehouse for non-store
channels between the UK and North America. 67% of UK retailers prefer a dedicated
warehouse for non-store business compared to only 46% in North America.

• Far more North American retailers carry a consistent assortment in all channels than in the
UK. We put this down to the fact that most North American retailers have operated in multiple
channels for longer. However nearly twice as many UK retailers carry the same categories
online as in store compared to their North American counterparts.

• The majority of retailers provide consistent pricing across all sales channels (80%).
Of those who don’t it is generally by design, not because of systems restrictions.

• Retailers are pretty satisfied with the level of integration of their processes across channels.
Supply chain and buying processes and systems scored fairly well, with lower scores for
marketing and business intelligence.

• Only 45% of retailers have a cross channel order management system but only 10% plan to
implement one, leaving a large proportion of retailers with no visibility of and access to stock
across channels.

• North American retailers are ahead of the UK regarding a single view of the customer.
60% of US retailers have a single view of the customer compared to 62% of UK retailers
who do not. US retailers are better at capturing customer data in store.

• Cross channel cannibalization is not seen as a problem but most retailers do not even measure
it. Only 25% of retailers actually measure cross channel cannibalization at the moment. But
in spite of the lack of information 82% do not consider it a problem. We are much less relaxed
about this and anticipate problems for weaker retailers.

• In terms of KPIs there is a lot of inconsistency concerning results online vs in-store and there
seem to be few established KPIs for true multichannel retailers.
3
 1. Introduction
Retailers with sales This report is a summary of a more detailed multichannel retailing report. In this we
summarize the key findings of the research conducted on behalf of BT Expedite and Epicor.
totaling £442 billion
/ $708 billion were More detail is available in the full report, for full details of the contents please see
interviewed and this www.martec-international.com
represents a 21%
There have been many studies, reports and articles examining internet and multichannel retailing.
share of the UK and Mostly, they address various aspects of the technology and how to use it more successfully.
North American non This study takes an entirely different slant. It largely ignores the technology and focuses on the
food market and so business issues that will need to be addressed as the internet channel continues to grow.
is a very significant
The analysis in this study is based on:
sample size.
• An interview survey of 51 retailers, 30 in North America and 21 in the UK. This represents a
broad cross section of retailers by size and segment and establishes some important base lines.
• Desk research across a wide range of sources.
• Lessons learned from Martec’s consulting experience with clients involved in multichannel
and internet based retailing.
The make up of retailers participating in the survey is as follows:

Companies interviewed by size (sales)

8%
8% 20% <£150m (<$250m)
£150-499m ($250-$829m)
£500-999m ($830-$1.6bn)

28% 24% £1-£4.9bn ($1.7-$8.1bn)

£5-£19.9bn ($8.2-$33bn)
>£20bn (>$33bn)
12%

Companies interviewed by segment

18%
31% Fashion/clothing
Department store / mixed goods

24% Other small format specialty

Large format specialty
27%

Responsibility of person interviewed

9%
E-commerce
18%
40% IT
Others
Marketing
33%

Note: All market research charts referred to in this study refer specifically to the research conducted
4 for this project unless explicitly stated otherwise.
2. State of Multichannel today
Sales channels used and planned

North American retailers

Stores 93%

Transactional website 90%

2%
Call centers 67%
13%
Catalog 50%
13%
In-store kiosks 43%
30%
M-commerce 23%
47%
17%
Digital TV 10%
10%
Interactive TV 10%
0% 20% 40% 60% 80% 100%
UK retailers
Stores 100%

Transactional website 100%

Call centers 71%

14%
Catalog 43%
19%
In-store kiosks 10%
19%
5%
M-commerce 24%
Digital TV 10%
10%
Interactive TV
0% 20% 40% 60% 80% 100%

All retailers
Stores 97%

Transactional website 94%

2%
Call centers 69%
10%
Catalog 47%
10%
In-store kiosks 29%
25%
M-commerce 16%
18%
14%
Digital TV 10%
6%
Use now
Interactive TV 6% Plan to use
0% 20% 40% 60% 80% 100%

As the chart above shows, most North American and all UK retailers in the survey have a
transactional web site, many have call centers and catalogs, but kiosk usage in stores is much higher
in North America and American retailers have much bigger intentions with regard to deploying
kiosks in future. M-commerce (use of mobile devices) is more widely used in North America and
American retailers have greater plans to deploy mobile. Digital TV is relatively similar between
countries but North American retailers make and plan more use of interactive TV.

For this study, we surveyed 51 non-food retailers and found that on average 8.7% of sales are
generated outside traditional stores. The percentage is higher for North American retailers than
UK ones and this is largely because North American retailers tend to have been operating
non-store channels such as the internet for longer than UK retailers.
5
 Percentage of sales generated outside traditional stores

North American retailers 9.8%

UK retailers 7.3%
All retailers 8.7%
00% 1%
1 2%
2 3%
3 4%
4 5%
5 6%
6 7%
7 8%
8 9%
9 10%
10

% of sales

So, we can safely conclude that multichannel retailing is here to stay. But what challenges does
it face? Our survey group told us the following:

Key challenges in multichannel retailing

Increasing customer conversion rates
70%
19%
Maintaining info about customer cross channels
50%
19%
Motivating store personnel
47%
19%
Unified promotions
43%
Availability
37%
5%
Range / assortment
40%
Branding
27%
14%
Delivery / fulfillment
33%
5%
POS integration
36%
5%
Ability to use different sales channels
27%
10%
Information flow across channels
27%
10%
Price management
30%
5%
Back office & supply chain
30%
Returns
17%
5%
Culture
6%

0% 10% 20% 30% 40% 50% 60% 70% 80%

North American retailers UK retailers

6
0% 10% 20% 30% 40% 50% 60% 70% 80%
When reading this chart, one note of caution is needed concerning cultural differences. When we
asked UK retailers the question about the key challenges they faced, they generally answered with
the top three or so issues that they were concerned with. North American respondents generally
gave their complete shopping list of challenges. Because multiple answers were encouraged, the
North American percentages are higher than the corresponding UK percentages because of this.
However, within a geography, the relativities between answers are meaningful.

What retailers say about key challenges

“The challenge is minimizing

the cost per acquisition,
keeping content up to date and “CRM is the biggest
maximizing efficiency of spend.” challenge, speaking to
Head of direct marketing and online, customers with one voice
specialty retailer and vice versa in terms
of how they see us.”
Head of customer insight,
healthcare retailer

“The challenge is trying to get

the stores on board and get
them to understand that it’s
one business.”
Head of e-commerce, fashion retailer

7
 3. Organizational issues
We asked respondents about their organization structures and their plans to change them as
their multichannel operations grow. Today, the situation is summarized in the chart below.

Division thatDivision
owns non-store channels
that owns
non-store channels – All retailers

North American retailers UK retailers All retailers

3% 3% 5% 4% 4%
5%
4%
7%
10%
10% 33% 40%
10%
36%
17% 16%
27% 40%
26%

E-commerce
Marketing
Merchandise
Store operations
Buying
Separate department (all non-store channels)
IT

Only 4% of retailers 36% of retailers have a dedicated e-commerce department, 26% run their e-commerce
operation from their marketing department and 16% run e-commerce from their buying and
surveyed have merchandising functions. There are some significant differences between the UK and North
plans to change America as can be seen in the chart above, with 80% of e-commerce operations in the UK being
their organization run by an e-commerce department or marketing, compared to 62% in North America.
structure because
Within each functional area though practice varies as to whether separate e-commerce teams
of e-commerce exist. The majority of logistics functions do not have and do not plan to have separate teams for
growth, the rest are e-commerce distribution as opposed to store distribution, though this is not the same as saying
presumably satisfied they won’t have dedicated facilities. The consistency between North America and the
that their existing UK is potentially surprising, given that 67% of UK retailers run common warehouses for
stores and e-commerce and in North America only 46% do. The majority of North American
organization is companies run separate facilities.
working well enough.
The majority of marketing departments, in different degrees, do run separate teams
or sub-departments for each channel, while the buying and merchandising and the
IT departments split differently by geography.

8
Separate teams for non-store channels?

North American retailers

Marketing 66%
31%
3%

41%
IT
59%

48%
Buying & 45%
merchandising 7%

Warehousing 34%
& logistics 63%
3%
0%
0% 10%
10% 20%
20% 30%
30% 40%
40% 50%
50% 60%
60% 70%
70% 80%
80%

UK retailers

Marketing 71%
10%
19%

IT 57%
43%

43%
Buying & 52%
merchandising 5%

Warehousing 38%
& logistics 52%

0%
0% 10%
10% 20%
20% 30%
30% 40%
40% 50%
50% 60%
60% 70%
70% 80%
80%

All retailers

68%
Marketing
26%
6%

IT 48%
52%

46%
Buying & 48%
merchandising 6%
Yes
Warehousing 36%
62% No
& logistics
2% Plan to
0%
0% 10%
10% 20%
20% 30%
30% 40%
40% 50%
50% 60%
60% 70%
70% 80%
80%

9
It is likely that more As indicated at the start of this section, 36% of retailers have a dedicated e-commerce
department. It is likely that more and more retailers will progressively create their own
and more retailers will e-commerce departments as the internet share of sales grows. However, care will need to
progressively create be paid as to how detailed responsibilities are structured to avoid unnecessary duplication
their own e-commerce and to maximize cohesiveness across the business. This will entail a wider degree of matrix
departments as the management. Fortunately, matrix management is a concept retailers understand well. It
is quite common for personnel managers, for example, to report into store operations or
internet share of sales logistics and have professional reporting to the personnel department. The same is often
grows. However, true with departmentally based finance people and loss prevention personnel.
care will need to be
paid to how detailed What retailers say about organization
responsibilities
are structured to
avoid unnecessary
“We’re looking at dedicated
duplication and to
teams (across all channels) “E-commerce has a
maximize cohesiveness
for the future for buying and development team.
across the business.
merchandising and marketing But no-one round
This will entail a wider
– to drive traffic to the site.” here creates futures
degree of matrix
management. Head of e-commerce, fashion retailer and strategies.”
E-commerce manager,
fashion retailer

“No one team owns all channels,

but we all contribute to it.”
Supply chain controller, home décor retailer

10
4. Logistics issues and strategy
Seperate
Separate warehouse warehouse
for non-store for non-store sales?
sales?

North American retailers UK retailers All retailers

46% 33% 54%

54% 46%
67%

Yes No

We found a marked difference in retailers that have separate warehouses for non-store channels
between the UK and North America. More than half as many again of UK retailers prefer a dedicated
warehouse for non-store business.

Retailers have four choices when it comes to picking internet orders for customers:

• use the same DC as that used for stores

• run a separate DC for the internet or use a third party to do this
• ship direct from suppliers or
• pick from store (as is the case for some food retailers).

There is some evidence that as non-store sales volumes increase retailers are switching from running
all picking from the same DC network as for stores to operating a separate facility for picking internet
orders. This is not surprising, given the nature of the picking operation. For stores, retailers are
normally picking cases or sometimes individual units to be assembled onto pallets and transported
to the stores in bulk. For internet orders, items are picked individually, several may be packed in one
parcel, but they are generally delivered to a customer’s home. In future, we may see more instances
of orders being shipped to a local store for collection by the customer, partly to reduce logistics costs
and partly as a tactic to bring traffic into the store.

What retailers say about separate warehouses

“We have three main DCs with “We use completely

separate areas to move the stock separate warehouses.”
to and fro. It’s not just a vertical VP planning,
department store retailer
split but a physical split so there is
no chance of products being sold
on line if they’ve been allocated
to go to store.”
“No – it’s all out of the
Head of services, e-business, fashion retailer
same warehouse.”
Head of multichannel retail,
shoe retailer

11
 5. Range or assortment issues
One of the key strategic decisions is whether the non-store channels should carry the same or
a different range to the store channel. According to our survey, the majority of retailers carry a
consistent assortment across channels. By consistent, we mean that individual channels may
carry more or less products but that they conform to the same product families.

Is the assortment consistent across sales channels?

Is the assortment consistent across sales channels?
(Consistent assortment structure)

North American retailers UK retailers All retailers

27% 43% 39%

73% 57% 61%

Yes No

There is a very marked difference between North American and UK retailers. 73% of North
American retailers carry a consistent assortment and only 43% of UK retailers say they do. Most
North American retailers have had a transactional web site for longer than in the UK. So carrying
a consistent assortment across channels may be viewed as a more mature model.

We asked whether all categories are offered both in store and online. As the chart below shows,
44% of retailers offer all categories in store and online channels, 56% do not. There is a very
significant difference between North American and UK retailers in this regard. Nearly twice as
many UK retailers carry the same categories online as in store compared to their North American
counterparts. North American retailers are more used to operating across a geographic area
where there are significant climate, size and ethnicity differences and so their assortment caters
for this and online channels tend to provide the full range, while the store holds the lines most
appropriate to the local area. UK retailers that do not operate in Europe tend to cater for a
more uniform customer in terms of likes, dislikes, climate and size than their North American
counterparts across all their stores.

Are all catergories offered both in-store and online?

Are all categories offered both in store and online?

North American retailers UK retailers All retailers

33% 40% 44%

67% 60% 56%

Yes No

12
There is also a significant variation in terms of the number of products offered between UK and
North American retailers.

Do you offer more or fewer product options online?

Do you offer more or fewer product options online?

North American retailers UK retailers All retailers

6%
14%
22%
27%
37% 43%
57% 43% 51%

Fewer More The same

57% of North American retailers offer more products online than in store and 6% offer the same.
The remaining 37% offer fewer. In the UK, only 43% of retailers offer more products online,
43% offer the same and 14% offer fewer. These results are highlighted in the chart above.

What retailers say about assortment

“We can’t sell (certain brands) online.
We have more products online than
in-store because we can’t hold so
much stock in each store.”
Head of e-commerce, jewelry retailer
“It’s functional in that you
wouldn’t sell a Mars Bar online
for example. If it is too big for the
store or not practical to move to
a car we sell it online.”
Head of e-commerce, toy retailer

“We don’t sell the more

expensive lines online”.
Director of marketing and e-commerce,
fashion retailer

The endless aisle

There is a myth perpetuated by some analysts often referred to as the endless aisle and this purports
that you can carry a much wider assortment online than you can in store. While this can be true
in some circumstances, there are also many examples where such a strategy would be a financial
disaster. The concept of the endless aisle works where:

• The retailer has enough scale already that the stock turn on the slowest moving products is
acceptable, or
• Products are delivered direct from supplier and there is no need for the merchant to hold
excessive slow turning inventory, or
• The product is something like an e-book or music where no physical inventory is required.

13
 6. Pricing
Pricing is a tricky issue to manage in a multichannel environment.

We asked our surveyed retailers if their pricing is consistent across channels. The vast
majority said yes, as the chart below shows.

Are all catergories

Is pricing consistent across salesoffered both in-store and online?
channels?

North American retailers UK retailers All retailers

14%
25% 20%

75% 86% 80%

Yes No

Some retailers charge the same price for an item in all stores. Some have zone specific
pricing where stores sell the same item at different prices according to local circumstances.
Among our survey retailers, 25% have store specific pricing in the UK and 40% have it in
North America, as shown in the chart on the next page.

Among our surveyed retailers, 48% had higher gross margins online compared to stores
and 25% had lower. 27% had the same gross margin as their stores. More details are given
in section 10 on this subject.

Only a small number of retailers (8 out of 50) volunteered that they had inconsistent
pricing between stores and online. Hence the results should be treated with some caution
due to the sample size. That said, almost two thirds of them said that their inconsistent
pricing approach was by design. The chart overleaf gives the detail.

14
Pricing inconsistent by design or due to system restrictions?
Pricing inconsistent by design or due to system restrictions?

12%
Design
25% 63% System restriction
Lack of rontrol

Base 8 retailers whose pricing is inconsistent across channels.

Many retailers offer a price promise, but a number exclude web site prices from this promise.
In some cases, they will not even price match their own web site.

Retailers generally create a price-point architecture or a good, better, best philosophy. This
architecture needs to be extended in carefully thought out ways when the online assortment
is much wider than in stores.

Do you utilize local pricing in your stores?

Do you utilize local pricing in your stores?

North American retailers UK retailers All retailers

40% 25% 34%

60% 75% 66%

Yes No

15
 7. Inventory management
A well-developed multichannel operation can help improve inventory management
significantly. It requires some foundation work on an integrated approach to processes
and the structure of systems.

In our survey, we wanted to understand how integrated retailers’ processes are today.

Integration of processes across all sales channels average score out of 10

Supply chain/logistics

8.0
7.1
7.7
Buying and merchandising

7.2
7.5
7.0
Marketing

6.2
6.5
6.3
Business intelligence

6.1
6.0
6.0
0 1 2 3 4 5 6 7 8 9 10
0 1 2
North American retailers 3 4
UK retailers 5 6
All retailers 7 8 9 10

Overall the answer is not bad. Supply chain management is quite good (necessity to manage
costs), buying and merchandising are satisfactory, but there is some work to do in marketing
and business intelligence.

Integration of processes is tightly coupled to integration of systems. We asked retailers how

integrated their systems are across channels and the result was very similar.

As before, supply chain and buying and merchandising systems scored fairly well. Marketing was
definitely the poor cousin and business intelligence fared a little better than marketing. There is
clearly work to do in these two areas.

16
Integration of systems across all sales channels average score out of 10

Supply chain/logistics

7.6
6.9
7.3 9.8%
Buying and merchandising
7.0
7.4 8.7%
7.2
Marketing
5.5
6.2
5.8
Business intelligence
6.8
5.7
6.3

0 1 2 3 4 5 6 7 8 9 10
0 1 2 3
North American retailers
4 5
UK retailers
6 7
All retailers
8 9 10
We also asked whether respondents have a cross channel order management system, important in This tends to support
having the right stock in the right place while leveraging economies of scale in buying and logistics.
Martec’s view that
Overall, 45% said yes they do and 45% said no they don’t. More worryingly, only 10% overall said many retailers aren’t
they had plans to implement one. This tends to support Martec’s view that many retailers aren’t thinking deeply
thinking deeply enough about this whole subject yet. enough about this
whole subject yet.
Doayou
Do you have have
cross a cross
channel chanel
order order management
management system? system?

North American retailers UK retailers All retailers

5%
13% 10%

47% 52% 45%

40% 43% 45%

Yes No Plan to

Even more of a concern is the industry answer to the follow up question – “How do you gain visibility
and access to stock across all channels without a cross channel order management system?”

17
 In this case, the sample size is the 55% (of 51 retailers) who said they don’t have a cross channel
order management system at the moment. 39% of them don’t have any visibility across channels,
23% use work arounds and 15% overstock on purpose to compensate. 15% say they don’t need this
visibility and 8% overall have separate systems (that might be considered part of a work around).

How do you gain visibility and access to stock across all channels?
(for companies without a cross channel order management system)

Do not have visibility across channels

38%
40%
39%
Have to use work arounds
38%
23%
We overstock to compensate
12%
20%
15%
We don’t need this visibility
12%
20%
15%
Have separate systems
20%
8%

0% 10% 20% 30% 40% 50%

0 5 10 15 20 25 30 35 40 45 50 % of companies

North American retailers UK retailers All retailers

When we asked how effective a cross channel inventory management system is in helping preserve
or improve customer satisfaction, the overall score was 7.3 out of 10 with no measurable difference
between UK and North American responses.

HowHow effective
effective do think
do you you think a cross
a cross channel
channel inventory
inventory management
management system
system is in helping you preserve and / or improve customer
is in helping you preserve and / or improve customer satisfaction?satisfaction?

North American retailers 7.4

UK retailers 7.3
All retailers 7.3
00 1
1 2
2 3
3 4
4 5
5 6
6 7
7 8
8 9
9 10
10

Average marks out of 10

18
8. Marketing and customer service
The ultimate goal of most multichannel retailers is to have a single view of the customer across all
channels. This means one integrated customer database and a view of the customer and buying
behavior across all sales channels. This includes sales history, products bought, preferences,
campaigns and event information and customer research data. In effect retailers need to capture
data across all buying and information channels and then provide a single, cleansed customer
record back to these channels for improved customer service and efficiencies in
today’s multichannel environment.

We asked retailers whether they have a single view of their customer in terms of buying behavior
and as you can see in the chart below 38% of UK retailers do, which is very low, while 60% of
North American retailers do. This may be because of the wider adoption of customer loyalty
programs in North America, making it easier to do this. Outside of the grocery sector in the UK,
where most of the main chains have a loyalty card; retailers are reticent to request personal
information in their stores. Conversely, online, the capture of such information is second nature
and indeed necessary for home delivery.

There is clearly a need for UK retailers to start to capture customer data in-store, so that they can
become more competitive. For example, US sales associates are commonly targeted to ask customers
to join clubs and mailing lists for offers at the register. They then capture address information or
some other identifier to tie up the store transactions with those held in the retailer’s online system.
US shoppers are often just as protective of their personal privacy as their UK counterparts but a
personalized offer can persuade them to part with their contact details. UK retailers now need
to follow suit.

Do you have a single view of customer buying and behaviour?

Do you have a single view of customer buying and behavior?

North American retailers UK retailers All retailers

40% 38% 49%

60% 62% 51%

Yes No

What retailers say about having a single view of the customer

“We are a long way from this.

Having this view across channels
would provide significant direct
“We don’t (have a single view of the
marketing opportunities as well as
customer) at the moment, we have
insight into product and proposition
two databases, one for “Chain A” and
development.”
one for “Chain B”. Going forward we
Director, direct to customer, sportswear
want to make it more integrated.”
retailer and manufacturer
Head of e-commerce, fashion retailer

19
 Do you think your customers have a consistent view of your brand
and operation no matter what channel they shop in?

North Amercian retailers

70%
27%
3%
UK retailers

66%
29%
5%
All retailers
69%
27%
4%

0 10 20 30 40 50 60 70 80 90 100
0% 20% 40% 60% 80% 100%
Yes No Don’t know

We also asked whether retailers think that their customers have a consistent view of their brand
and operation, no matter which channel they shop in. In this case the positive response was
69%, which suggests that retailers are managing this aspect fairly well (see chart above).
There was little difference between geographies.

For the 27% who said no to this question, we asked how happy they would be if their
customers had a consistent view of the brand and operations across channels and the
result was a resounding 9.5 out of 10.

20
 How happy would you be if your customers had a consistent view of your
How happy would you be if your customers had a consistent view of your brand
brand and operations across channels? (Among retailers without this currently)
and operations across channels? (Among retailers without this currently)

North American retailers 9.4

UK retailers 9.5
All retailers 9.5
00 1
1 2
2 3
3 4
4 5
5 6
6 7
7 8
8 9
9 10
10

Average marks out of 10

We further asked retailers to assess how consistent their marketing is across channels. The
result was a very consistent 6.6 out of 10, which says the answer is OK “ish”, but that there
is room for improvement. (In this type of question, 7.5 is the score where we start to assess
something as good).

One final question in this topic was the extent to which customers can shop across channels
meaning primarily whether the retailer offered a click and collect from store service. Results
were reasonably consistent again across geographies at 5.8 out of 10 average, but this
means that a large number of retailers still have significant work to do in this area.
Consistency of marketing across channels
Consistency of marketing across channels

North American retailers 6.6

UK retailers 6.7
All retailers 6.6
00 1
1 2
2 3
3 4
4 5
5 6
6 7
7 8
8 9
9 10
10

Average marks out of 10

Extent to which customers can cross channels when shopping

Extent to which customers can cross channels when shopping

North American retailers 5.5

UK retailers 6.1
All retailers 5.8
00 1
1 2
2 3
3 4
4 5
5 6
6 7
7 8
8 9
9 10
10

Average marks out of 10

21
 9. Impact on profitability
Changing requirements for information technology will potentially change the profitability of the
enterprise. However, there are many other factors at work that will also impact profitability. One is
cannibalization between channels – the threat of the internet eroding store sales, with customers
using the stores for research and a showroom and actually making the purchase online, where prices
are often cheaper. However those with a regional store network often see multiple sales channels as
a way of extending their reach beyond their limited number of stores.

To assess this we first asked retailers if they are able to measure cannibalization between channels.

Are you able to measure cross channel cannibalization?

North American retailers

67%
20%
13%
UK retailers
38%
33%
10%
19%
All retailers
55%
25%
12%
8%

0% 20% 40% 60% 80%

It’s not a problem for us Don’t know Yes No

55% of the survey group said they could not measure cannibalization, 25% said they could,
12% didn’t know and 8% said it’s not a problem for them. Of the retailers that said they could
measure cannibalization, the number willing to give a figure was too small to be meaningful.

There is quite a difference between North America and the UK, with two thirds of North American
retailers not measuring cross channel cannibalization, compared to 38% in the UK. This may be
because of the relative size of the countries. In the UK it is much easier to saturate the market
with stores, making cross channel cannibalization more of a threat than in North America. The size
of North America means more regional only chains and very few retailers that can say they are
within easy reach of 90% of the population. So this may explain why more UK retailers are actually
measuring cross channel cannibalization.

22
We also asked whether respondents thought that cannibalization would become a problem in
future. As you can see in the chart below, 82% said no, a response that quite frankly astounded
us. There was also a significant difference in views between UK retailers and North Americans.

Among the reasons for believing that cannibalization would not be a problem, one direct to
customer sportswear manufacturer and retailer said, “At the moment, we do not have strong
national coverage. Therefore the internet provides a nationwide outlet, from which customers
can shop. The main importance is to get overall incremental sales for the business”.

A home improvement retailer said “No, I don’t think it’s a problem, other people can do it to us,
but it doesn’t matter if our customers shop across different channels, it’s completely the opposite
to cannibalization for us”.

If there is no cannibalization currently do you think it will

become a problem in the future?

North American retailers

31%
69%
UK retailers

100%
All retailers

18%
82%

00% 10 20%
20 30 40%
40 50 60%
60 70 80%
80 90 100%
100
Yes No

A fashion retailer said “Because of our demographics, in stores our customers are older – a lot of
customers have been going to the same shop for years, they are very loyal. In the press and online,
customers are younger. We’re growing the whole of our market at the same time”. While this is true
in the short term, it must mean that the fashion retailer is cannibalizing someone else, because the
market isn’t growing. What happens when their competitors get better at this?

It seems as if cross channel cannibalization depends on your stage of development. But multiple
channels do present some interesting choices:

• The internet may help you identify locations where you should be opening stores by
analyzing the zip or post codes of internet shoppers. This applies to retailers with patchy
national overage.
• For retailers with an extensive store network you may see the opportunity to close stores but
keep customers in those locations or regroup your store portfolio and combine fascias.
• Or smaller stores may be feasible, if you are able to offer a wider range through the internet.
• E-commerce is helping many retailers gain market share at the expense of competitors who do
not have a good or even any online presence, but this advantage is rapidly diminishing as more
and more retailers of all types have a web presence.

23
 A sensible move is to start measuring cross channel cannibalization and to rest assured that increased
sales whatever the channel are welcome but a juggling of physical stores and e-commerce will
improve profitability.

Can youCan you measure

measure profitability
profitability ofyour
of each of eachretail
of your retail channels?
channels?

North American retailers UK retailers All retailers

5%

17% 12%

83% 95% 88%

Yes No

We asked retailers, whether they can measure the profitability of their retail channels. As the chart
above shows, the vast majority think they can. The vast majority also think their online channels are
profitable as shown in the next chart below.

Is your online channelIsprofitable?

your online channel profitable?

North American retailers UK retailers All retailers

15% 10% 13%

85% 90% 87%

Yes No

For the small number that said their online channels were not profitable now, most expected to
be so in the next two years. Only one thought it would take more than four years.

For those with existing profitable web sites, we asked how long they had been profitable and
the range of answers is shown overleaf. Almost half thought they had been profitable for four
years or more.

One of our concerns with this complete set of profitability charts is our doubt about whether all
costs are being fairly attributed. For example, if an item bought online is returned to a store, is
the cost of processing the return charged to the online channel?

We asked retailers whether they could measure the percentage of store sales driven by other
channels. The full results are shown in the second chart on the next page. Only 18% of retailers
said yes. 7% said they could measure it in part and 75% said they could not measure it at all.

24
How long has your web site been profitable for?

1 year

8%
1-2 years

25%
2-3 years

14%
3-4 years

6%
>4 years

47%
0
0% 10
10% 20
20% 30
30% 40
40% 50
50%

Can you
Can you measure measure
what whatbusiness
% of store % of store business
is driven is driven
by other by
channels?
other channels?

North American retailers UK retailers All retailers

8% 6% 7%

14% 18%
22%
78% 72% 75%

No Yes In part

25
 We asked what retailers are measuring to determine the percentage of store business
driven by other channels. The results are set out below.

What are you measuring to determine the % of store business

that’s driven by other channels?

Analysis of online and store data

30%
Customer feedback/research

20%
Marketing analysis of responses

20%
Order and collect

10%
Credit customers’ sales history

10%
Order fulfilment

10%
00% 10
10% 20
20% 30
30% 40
40% 50
50%

Analysis of online and store data was the most popular answer, though the sample size is very
small, followed by customer research and marketing analysis of promotional responses.

Remembering that business intelligence was one area where retailers were less happy about the
degree of integration of their systems and processes across channels, there is obvious room for
improvement in this area.

26
10. Key performance indicators
We asked our survey group about four key metrics and how they compare across channels.

KPIs for stores vs online channels

Are non-store markdowns higher Are non-store gross margins higher

or lower than store markdowns? or lower than store margins?

22%
39% 27%
48%
39% 25%

Is non-store inventory higher Returns higher or lower

or lower than store turn? than store returns?

13%
31%
38%
30% 57%
31%

Higher Lower The same

The results were very interesting. In respect of markdowns 22% of retailers said that markdowns
are higher online than in store, 39% said markdowns are lower for stores and 39% said they are
the same. In terms of gross margin, 48% said non-store gross margins were higher than in store,
25% said they were lower and 27% said they were the same. 38% of retailers said that inventory
turns are higher online, 31% said they are lower and 31% said they are the same. Returns are a little
surprising. 57% of retailers said they are higher online, 30% said they are lower (the surprise) and
13% said they are the same.

Store based retailers have long used a well known series of key performance indicators such as
these, including for example, same store sales, sales per square foot, gross margin %, inventory turn,
GMROI, etc and are generally very adept at measuring these metrics and interpreting them.

In the online world it is quite different. Sales in the channel, visits per page, sales per page, shopping
cart abandonment and so on are also very important, but these are not enough.

27
 Many customers research on the web and buy in store. Some do exactly the opposite.
They research in store and buy on the web, especially in the case of products like expensive
electronics. Many abandoned online shopping carts later drive sales in stores and call centers.

While you need to monitor activity in each channel, you also need a good view of what is
happening to the business as a whole. One of the great advantages that a well-developed
multichannel operation conveys is the insight it provides into aspects of the store based
business that could only previously be measured by expensive market research.

Tracking customer activities across all channels is ideal for understanding the effectiveness of
a multichannel strategy. Using CRM tools and targeted marketing is effective in understanding
customer behavior and purchasing patterns.

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