What’s blocking the endless aisle?
Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
A few days ago I was talking with a former retail colleague about the industry and she issued an interesting challenge from another friend. This friend was baffled by one of her favorite retailers.
The retailer offers a broad assortment of turtlenecks in all colors and sizes in its stores. Sadly for her, the online offering was narrower, and she couldn’t just order the ones she wanted. She was "required" to visit one of their stores. I was asked, "Why is the online selection of relaxed turtlenecks online so small? Isn’t it cheaper to fill an online order?"
I said, "Likely they’ve decided they don’t want to keep extra inventory dedicated in their distribution centers. They feel it’s more efficient to send people to the stores and they don’t have the technology to fulfill from stores efficiently."
Well kids, this is a really unfortunate answer and bad decision-making on the part of the retailer. Even though we found in this year’s omni-channel retail benchmark that, in aggregate, cross-channel shoppers are no more profitable than single channel shoppers, apparel was the big outlier. Thirty-six percent report their multi-channel shoppers are significantly more profitable. And here’s a lady just waiting for them to pull the trigger. Who knows how many colors she’d have of those turtlenecks if the company could do it for her?
I mean, we’ve all been there, right? And sometimes, we simply give up on the retailer. For me it wasn’t apparel, it was pet food. My three cats are fussy eaters. They like three flavors of Fancy Feast cat food. Because there are three, I buy by the case. I spent months (not exaggerating) trying to find a way to get the local pet supply superstore to keep them in stock for me. I finally gave up and now get them from … yup … Amazon.com. If this retailer had found a way to get this product into their stores (in my case), I would have been happy to buy there. If they’d done "endless aisle" and shipped to my house, I would have been good with that too.
Instead, I never go there anymore.
So far, the apparel retailer hasn’t lost the shopper. If the retailer has something she wants, she’ll get it from the stores, just not as often, or as many. The pet supply retailer really did lose me.
This omni-channel thing (or whatever you want to call it) is real, and is table stakes at worst and a profit driver at best. In more official sounding terms, it’s a retailer imperative.
Discussion Questions
What are the main hurdles keeping retailers from meeting “endless aisle” promises? How big an issue is this between consumers and retailers?
Poll
BrainTrust
Systems integration, alignment of incentives across channels, training and lack of consensus on omnichannel economics are among the biggest challenges holding retailers back.
There aren’t too many breakout winners among the early adopters, so it’s tough for those proceeding cautiously to heed the advice to pick up the pace.
What many don’t realize is that the downside risk of doing nothing may overshadow the upside.
I manage retail dinner discussions nearly every week, and I always ask participants where they are along the omnichannel continuum. The answer is always that it’s a work in progress.
Systems can’t communicate with one another. Store associates have no incentive to make online orders, or can’t. Retail companies that do inventory once a year don’t know how much stock they have, or where it is. “You might be able to find it online” isn’t a good answer for a customer to get from a sales associate, and retailers are leaving money on the table.
Paula highlights some of the main issues regarding the “endless aisle.” There are many, and some can be very “expensive” if viewed as costs.
As Paula points out, one of the biggest issues to the endless aisle is inventory. As incredible as it seems, many brick-and-mortar retailers are still planning online inventory completely separately from stores! That means additional inventory stocking, costs and planning … which is never cost effective.
The related issues to endless aisle are logistics, infrastructure and systems. To truly have “seamless” endless aisle execution, the retailer must have systems that enable visibility to inventory in the DC as well as on the shelf. The systems must also enable the consumer literally be their own POS: to be able to purchase online, from a phone, or in-store and have the choice of where to pickup or ship.
The current U.S. retail execution of the “endless aisle” has many challenges in delivering consumer expectations. The biggest challenge is still in the c-suite mindset of managing “parts of the whole” to drive out costs. One of the best case studies of senior management leadership execution of omnichannel is the transformation of John Lewis in the U.K.
It’s a big issue. Consumers want what they want, when they want it. If an online or offline store can’t offer it the competition is just a click away. Consumers crave simplicity: make the things I want easy to find and don’t slow me down along the path to purchase, and if you can deliver my purchases, so much the better.
Too often retailers are their own worst enemies. Doesn’t anyone at headquarters put him or herself in their customers’ shoes?
For consumers it’s not terribly problematic in my opinion — they can have many options and will land on one that likely meets their needs after a few minutes online. Or learn to always look first at the retailer that has met their needs in the past. For retailers though, it’s a big problem. To be that first destination of choice is really hard since most people go right to Amazon by default. Retailers need to figure out the right business process, technology and analytics mix to offer a more seamless shopping experience that leverages all the inventory and logistics capability the company has, regardless of channel.
If we are going to insist on chattering on about omnichnnel retailing we had best start putting some substance around the discussion. The whole idea of omnichannelism (sorry!) is that there is a seamless continuum between physical and digital and that shoppers can enter that continuum whenever, however and wherever they are and still satisfy their needs for a particular good and/or service.
So maybe the first step is to stop thinking about where items are stored and start thinking about how they are merchandised. Any aisle can become “endless” if a retailer has systems in place to facilitate purchase, payment and delivery.
As to how big an issue this is, well, it’s huge! Retailers keep raising customer expectations almost as fast as they fail to address them. Customers hear the omnichannel promises but actually seamless retailing is as hard to find as true love. Will it change? Let’s hope so. But, in order for that change to occur we have to first start rethinking the limits of physical retailing.
Omnichannel is a major imperative for shoppers. They see one company with many points of contact using a variety of tools. But they expect to order what they want, when they want it, from the device they choose to use, and have products delivered in a timely manner. Some retailers do it so those retailers not able to do this will lose customers.
The retailers face a huge hurdle. Coordinating the back-office technology, inventory allocation and front-office activities requires a huge investment in technology, new business processes and training. This investment is a formidable hurdle. However, without it retailers will lose customers to those retailers who do manage the process well.
The endless aisle is a dream until the retailers and suppliers sync up, even more so that some merchandise does not have to be held by the retailer and can be drop-shipped from the manufacturer to the shopper. That is one answer. The other is to treat apparel like tires. If one tire shop does not have a select tire in a town they can get it from another tire dealer in town. They just swap tires vs. customers.
This is corporate strategy at the highest level, actually: “What do we want to provide for our customers?”
Are there hurdles to achieving this capability? Sure. Is this a major cause of defection from one retailer to another? You bet! Today, retailers need to look at their operations beyond even omnichannel. Today, the customer IS the channel. Period. If you are not servicing the customer via the channels they want to shop your store, then you are not effectively servicing the customer. You must get your top c-level management involved in this to get support across the enterprise.
I think this instant poll misses out on the most critical: There just doesn’t seem to be enough profit to justify the more endless work it takes to create an “endless aisle.”
And that makes complete sense … The return potential decreases as the aisle stretches out. And the marketer gets the most profit from the most popular stuff. What’s the profit potential of having “that certain turtleneck?”
First, not very big profit potential. Even more … I’ve heard online enthusiasts use the FUD approach to try to scare people into doing things like endless aisles. But consumer behavior shows that consumers generally know if they’re looking for something kind of obscure for your website. If they don’t find it, they don’t turn away forever. (Unless you promise “endless turtlenecks” and that’s the only reason they come to your website.)
One main hurdle: “Data, data everywhere” … Lack of strategic planning in the retail c-suite when it comes to actually, operationally, harnesses the power of the data and data-driven technologies across the enterprise.
According to a recent survey fielded by Forbes Insights and Teradata, compared to other industries, it is retailers in particular who are focused on data and analytics to deliver revenue increases. Data and analytics are a key focus for 37 percent of retail CEOs, compared with 17 percent from other industries. And retailers are most likely to invest in data acquisition, analytics technology and talent.
All that said, retailers still have a lot of ground to cover when it comes to actually operationalizing the data, and data-driven technologies, with the following still consistently put at the top of the business challenges list: “The increasing disparity between our technology capabilities and those of our customer.”
The process of buying groceries will continue to evolve because of the emergence of omnichannel retailing. Progressive grocers will need to juggle several factors with the shopper in different channels. These factors include price, venue, and payment. Doing so is easier said than done. Some urgency is needed because the Millennials will be looking for omnichannel shopping.
Apparently, retailers vanishing from the scene never caught on to the new game. And those eking out modest profits are encouraging themselves that what they are doing is adequate. But the reality is that online, mobile and bricks retailing are NOT three different things, but ONE thing, CONVERGENCE, from the shopper perspective.
Personally, I’m off tomorrow to Seattle to see if AMAZON is “selling like Amazon” in their new bricks store! From the reviews, I suspect that they are, to any extent.
I don’t care if you have hundreds or thousands of bricks stores doing modestly well. You are at the early stages of Joseph Schumpeter’s “creative destruction,” much like the “mom-and-pops” of 100 years ago. Your successful size could be your Achilles heal, just as their “friendly neighborhood” nature destroyed them. See: “The Problem: ‘Parked’ Capital.”
You can’t begin to compete with “the everything store” with the “long tail,” Paula’s pet food problem nail’s it. If it didn’t make sense for them to carry all the flavors of Fancy Feast in the store, they certainly could have had the equivalent of Amazon’s “reorder buttons” right there at the shelf, accessing their own integrated online sales WITH their bricks store.
The GAME is afoot! Sorry if you don’t want to play.
All I can say is that most of the people I know working for retailers today have told me that they spent the better part of the last decade “integrating” the online buying/merchandising area with their physical stores’ counterpart — and it wasn’t easy. I mean, Walmart had their online group in the Bay Area and the store’s buyers in Bentonville. Think about that just for starters.
Coordination of merchandising, buying and marketing of online and store inventories is a huge undertaking that unless you started with NO stores, is the major factor in discombobulated scenarios described above. Different types of people, different processes, different goals, different marketing, just a mess that will probably take the next 10 years to truly straighten out for most “store first” retailers. They’d better hurry though.
The endless aisle doesn’t have a fitting room. The endless aisle charges for direct to consumer delivery. The endless aisle makes returns a hassle from a consumer majority perspective. The endless aisle has just as many out-of-stocks as the store. The endless aisle may take along time to navigate. Sometimes the endless aisle, even with direct assistance, can’t figure out what the consumer wants. The endless aisle may be unavailable at peak shopping times due to technical difficulties or a necessary upgrade that was timed wrong, as in 3:00 PM instead of 3:00 AM. And my favorite is, nobody on the floor knows it exists or how to get there.
I think I agree with Doug: online, is after all, a form of mail order, and just as there were always a few retailers — Sears, Wards, etc. — that (eventually) became “omnichannel,” though of course no one referred to it as such, and there will presumably be many more in the future, maybe in the end it won’t be all of them.
Paula’s example seems so bassackwards of what one would expect (better selection online than in the store) that it draws attention, but retailers ultimately chose their customers through their business model, and there will always be some who remain profitable despite not pleasing everyone.
All of the hurdles retailers face are possible to get over with time and resources devoted to them. Employees need training and fast technology in order to quickly place online orders when a store is out of stock. It’s a matter of being timely and integrated. When shoppers want something, all channels need to work together to provide it to them. It’s bigger than just losing a sale. As Paula’s anecdote explained, it can impact lifetime loyalty.
There are many hurdles but let me take this back to the basics. Throughout the last two decades, retailers have invested heavily in warehouse automation by location ordering, avoiding break-bulk, and minimizing inventory handling. This effort has been highly successful and has driven major labor expense from the retail warehouse.
With today’s cross-channel shopper who wants to buy where, when and how they like, retailers must stop and re-think some of these processes — or risk losing customers.
And that’s my 2 cents.
The customer sees this as simple, and their expectations are not out of line. They get that you can’t have every product in every size in every store just waiting for them to walk in. They don’t get why they can’t then just order the product online for delivery soon. I mean if Amazon can do it day in day out, what’s your problem Mr. Retailer?
I think the main problem is that retailers are somewhat short-term focused and have such a huge cost of legacy systems, infrastructure and thinking, so that they can operate in a low cost fashion according to a well established (and fixed) business model.
To go omni channel means either throwing one more brick onto the back of existing thinking, process, infrastructure, and systems, or starting with a fresh new approach that is probably at odds with their comfort zone. Amazon just spent years and countless dollars creating infrastructure in a completely different fashion than a traditional retailer would. Just one example would be a retailer’s DC, design built for shipping larger quantities to stores — go explain that a mega buck built DC can’t also efficiently handle pick and pack by customer which is the new need to optimally manage single pool of inventory.
The need is to step back and be more strategic about how to serve that omni shopping customer, figure out the best cost effective and flexible approach, and map a journey to accomplish it over time. Not just to jam another set of processes and integration onto existing solutions that were built and hardened for a different era.
I wish we had an “all of the above” or “none of the above” buttons in the instant poll. In this case, the main hurdles keeping retailers from meeting “endless aisle” promises is “all of the above” — i.e. Lack of visibility into system-wide inventory; Poor or no processes; Compensation incentives for cross-channel sales; Inadequate technology; Fear of escalating costs; Lack of c-level commitment. And I would add, “lack of imagination.”
The two “Peterson’s/Petersen’s” (Chris and Lee) nailed it with their answers:
“The related issues to endless aisle are logistics, infrastructure and systems. To truly have “seamless” endless aisle execution, the retailer must have systems that enable visibility to inventory in the DC as well as on the shelf. The systems must also enable the consumer literally be their own POS: to be able to purchase online, from a phone, or in-store and have the choice of where to pickup or ship.” (Chris Petersen).
“Coordination of merchandising, buying and marketing of online and store inventories is a huge undertaking that unless you started with NO stores, is the major factor in discombobulated scenarios described above. Different types of people, different processes, different goals, different marketing, just a mess that will probably take the next 10 years to truly straighten out for most “store first” retailers. They’d better hurry though.” (Lee Peterson).
Often the investment (people, expense, time) associated with the adoption of digital technologies weighs down the progress of going from a uni-channel to delivering an omni-channel experience. All the while, digitally savvy consumers forge ever forward to create their own ecosystems to meet specific needs. And the chasm widens.
I would say this is a pretty big issue, and one that should be directly in the searchlight for every retailer looking to stay afloat. It takes relatively little cost to focus a strategy on understanding the customer’s digital lifestyle, and to define retail’s relationship to the customer journey to deliver continuous value in a boundaryless world. For example, seek creative partnerships that extend the traditional line of offerings and explore new mechanisms by which to deliver an end user experience. Imagination is the key and better yet, it costs nothing to get started.
Focusing the broader inventory at the retail level seems terribly shortsighted. Not only is the cost of transportation and inventory management greater across multiple retail locations, but the tendency of store managers to excessively discount their products using local market discretion can erode margins.
In addition, the trends are extremely clear. A growing group of consumers in the Millennial and Gen Z generations do not separate their online and offline shopping. They will purchase from either channel based on product selection, pricing and customer experience. To short-shrift one of the major channels does not bode well for that retail.
The most frequent culprit in situations where retailers behave illogically is compensation and measurement. While retailers have accepted in many cases the need to be effective across multiple channels, measurement and compensation for the merchant organization as well as for the retail ops team is often based on retail sales. As a result, sub optimal decisions are often made.
I always say that people will do first as the compensated, second as measured, and third, exactly what they used to do!
We are still in the early adopter’s stage of the endless aisle solution curve and even those retailers who have already deployed the technology in their stores are still in the process of figuring out the logistics of running it, experimenting with form factors and interactions they create for customers and measuring the benefits and costs.
A lot of retailers have adopted a lean mindset and realized that they can learn a lot about running an endless aisle solution at a fraction of a cost by introducing it into their innovation labs first, then rolling out small pilots, constantly iterating and learning before committing to scaling this to a broader network of stores they operate.
Each retailer’s perspective on endless aisle solutions is unique as well as challenges and hurdles they might experience in adopting it and typically depend on a variety of factors: retail vertical and market segments they operate in, target customer demographics, supply chain and inventory management processes, store design and logistics, inventory selection, marketing and content strategy, etc.
There are definitely some prerequisites that need to be in place before you can proceed with an endless aisle program that have been highlighted in the poll and some of the comments:
The barrier to entry is high which explains the slow adoption rates among retailers. It takes a certain operations, logistics and systems maturity to even get in the game. However, consumer demands and expectations will continue driving innovation in this area making it a priority for retailers to figure out their endless aisle strategy and lowering the costs of operating a solution in their stores.
Once upon a time I have stumbled on this formula that describes the consumer’s perception of value that a given retailer delivers to them:
Value = Product range + shopping experience
Price
Endless aisle solutions have a direct impact on both product range and shopping experience which makes the important lego block of the retail ecosystem puzzle. In order to measure that impact retailers need to make the leap of faith and give it a try.