Is omnichannel cannibalization retail’s biggest challenge?

Discussion
Photo: RetailWire
Feb 02, 2017
Gib Bassett

Retailers are focused on crafting omnichannel shopping experiences. To do this requires investing in developing and integrating different channels. So their expectation is rightly that sales performance will improve, or at least holds the line. And yet, for most this doesn’t appear to be happening.

As reported January 6, 2017 on eMarketer, “Despite efforts to increase their online sales and beef up their omnichannel strategy to meet the needs of smartphone-toting and social-media addicted consumers, these retailers are burdened by their physical stores, which still represent a majority of their sales.”

Commenting on Nordstrom’s results on December 19 of last year, CNBC’s Jim Cramer suggested a reason for the struggles: “The better Nordstrom’s website becomes, the less incentive you have to actually go to their stores. In other words, they are cannibalizing themselves.”

Mr. Cramer’s comments raise an overlooked challenge faced by retailers in many sectors. On one hand, the right thing to do for your customer is to serve them at any time they desire. On the other, you must invest in the capabilities to make that happen.

To recover their investments, retailers must increase their share of customer walletshare. This requires taking business from competitors, including Amazon, who are also investing in omnichannel capabilities.

Mr. Cramer suggests that, in at least Nordstrom’s case, the strategy of “selling more” (i.e. increasing the pie slice) with greater convenience and better service is not working.

This failure implies more must be done to understand customer purchase occasions to win unique online and offline sales opportunities. Drastically improving customer insight is one solution; paint a broader picture of individual customers beyond transaction histories and social media sentiments.

It’s an analytical problem with implications for the way a retailer markets, sells and services individual customers. But retailers today do have an opportunity to make use of historical, predictive, prescribed and real-time insights to orchestrate a customer experience that “lifts all ships” and creates incremental sales.

DISCUSSION QUESTIONS: Do you think the answer to “omnichannel cannibalization” is to focus greater attention on understanding unique online and offline customer purchase occasions? Do retailers possess the technology, skills and organization to accomplish this degree of insight? What do you think are some of the data dependencies to paint a more complete and real time picture of individual customers?

Braintrust
"The biggest obstacle is clinging to old ideas -- they're the anchor that's sinking our most beloved heritage stores."
"The omnichannel dilemma can be summed up in three words: “capacity” and “market share.” Creating more consumer channels doesn’t change that."
"If this was the case I don’t think those that started out online would be opening brick-and-mortar stores like they are."

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23 Comments on "Is omnichannel cannibalization retail’s biggest challenge?"

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Jon Polin
BrainTrust

Aaaahhhh! That is me screaming in frustration at the concept of a retail brand cannibalizing itself across channels. That fear is silly and naive. Customers want the best experience both offline and online, and they will go to the brand that offers it. If Nordstrom does not offer a fantastic online experience, it’s foolish of them to think that those customer dollars that would have been spent online would instead go to their brick-and-mortar stores. That’s just wrong. Those dollars would go to a competitor’s online store offering a better experience. Retailers should worry about their customers getting lost to competition, not getting lost from one of their channels to another one of their channels.

Ken Lonyai
BrainTrust

Jon — you might want to investigate Target CEO Brian Cornell’s statements before drawing conclusions. I suggest Barbara Thau’s article on the subject.

Jon Polin
BrainTrust

Thanks, Ken. I will go do so. My point, though, is not that cross-channel cannibalization is not happening; it is. My point is that such cannibalization should not be the big concern of retailers. Their bigger concern should be losing a customer to a competitor. If the metrics or economics of a given channel aren’t working for a retailer, my suggestion is to fix that channel, not hope that customers don’t shop it.

Charles Dimov
BrainTrust

Completely agree with you Jon. Retailers need to focus on the competition. If you don’t offer omnichannel then you are being left behind. Your competition will offer it and they will cannibalize YOUR business. Don’t worry about whether it is your retail sales going online, returns coming into the store, etc. These are important issues on which to create new processes … BUT focus on making sure YOUR sales are growing as a business overall.

You know my standard answer, it all comes right back to the right retail technology … like your order management system to provide the real-time inventory visibility, routing for click and collect and returns management.

Chris Petersen, PhD.
BrainTrust

Omnichannel is the new normal for consumers. They don’t see or even think in terms of channels. Unfortunately, many retailers still interpret “omnichannel” as gaining or regaining sales by beefing up “online.”

The number one challenge for retailers to transform to omni-retail is to transition from the heritage of selling things at places. Omnichannel customers are the new POS — Point of Sale. They decide when, where and how they want to shop and make a purchase. The new hybrid models of click and collect are great examples of designing a seamless, customer-centric experience that transcends both time and place of purchase.

The very successful omnichannel retailers like John Lewis in the UK have transformed their business … and their metrics. It is not about where a sale was made today, but about acquiring and managing customer relationships that are loyal and generate substantially greater lifetime value and profitability.

Bob Phibbs
BrainTrust

Sorry, I don’t ascribe to the theory that “retailers are burdened by their physical stores.” A vast majority of profitable sales are still made in stores. One-third of online purchases are returned. Add in free shipping both ways and it’s hard to say omnichannel is the way forward. With Target, Walmart, Macy’s and Nordstrom trimming back the gusher of money thrown at this idea one has to ask why.

If it weren’t for those physical stores paying the bills, none of the boutique experiences like basketball courts, full immersive video, etc. — for a few people to experience — nor the reams of money in technology to try to beat Amazon would be possible.

Maybe that’s why this was my most shared post last week, How to Find Strength In Being A Brick and Mortar Retail Store. How about embracing the strengths of brick-and-mortar instead of deriding them at every turn?

Jasmine Glasheen
Guest
Jasmine Glasheen
6 months 17 days ago

The modern customer will hoof it to a brick-and-mortar store for one of these four reasons:

  • Immediacy: They need the goods right now;
  • Information: They want a lesson on how to use the product, or to become better-versed in the product category;
  • Upkeep: Their existing product needs to be modified or updated in some way. Retail stores offering add-ons like patches or a new denim wash are happening in a big way right now;
  • Experience: There is unique fun to be had in-store.

Are these four things achievable for retailers? Definitely, but it takes a paradigm shift. The biggest obstacle is clinging to old ideas — they’re the anchor that’s sinking our most beloved heritage stores.

Ken Lonyai
BrainTrust

The omnichannel dilemma can be summed up in three words: “capacity” and “market share.” Creating more consumer channels doesn’t change that.

GDP is only so big and grows at very modest rates while technology has increased the potential for consumer sales at massive rates. Something has to give. Part of it has been cannibalization of the existing retail market by digital-only upstarts (including you-know-who) and part of it obviously is from cannibalization of a brand’s own physical stores. So if the capacity for consumer purchases is only so big and a brand only has so much market share, increasing purchasing channels can only mean one thing: some channel will suffer and, for traditional retailers, it more and more is their physical stores.

The only two true solutions here are:

  1. Scale back on the least profitable channels which, for a growing number, are their physical stores;
  2. Do the even harder thing and grow market share to meet the sales capacity of all channels, avoiding cannibalization.
Max Goldberg
BrainTrust

Consumers look at a retailer as a whole — stores and online are one. It’s up to the retailer to figure out how to service the whole. Just because a retailer has an online presence and a physical store does not mean that its sales will increase. It has to have the right message for consumers and the right positioning among its competition. Big data will provide some of this information, but consumer tastes are changing so quickly that a retailer must also be nimble enough to anticipate the products consumers want before they want them. It’s not easy to succeed in this environment. Nordstrom, Target and many others have failed to do this, and their sales have not kept pace with the market.

Ralph Jacobson
BrainTrust

We all worried about cannibalization more than a decade ago. It’s really not happening to any degree. The overall market is growing. More tonnage is moving across channels. Is the revenue growing at the pace we’d like? Nope. However with consumer pricing product value deflation, you have to also look at the item movement across the channels.

The issue, as Gib describes, is to assess your enterprise technology systems and see what is actually being utilized today. You may be surprised at the low level of leverage your team is extracting from the applications you already have. Beyond that, there are very cost-effective (and even free!) apps to augment shopper insights capabilities that also unite cross-functional practitioner roles, like merchandising, e-commerce, marketing and fulfillment. All of these people using the same apps.

Bob Amster
BrainTrust

I agree with Ken. There is only one pie and it’s only so big. And what a retailer gains of that pie in one channel that retailer will lose in another channel. In the best of cases, it will eat some other retailer’s slice. We have to be prepared for the fact that the scales are tipping, with more weight going to online and social shopping, resulting in too much square footage that needs to be trimmed, or in to much shelf space that needs to be replaced with other product.

Graeme McVie
BrainTrust

Retailers need to pursue omnichannel with as much enthusiasm as they can. Shopper needs have to be met wherever the shopper is shopping and retailers who do not realize this will soon be facing declining customer counts and sales. If sales are declining, retailers need to analyze the situation to determine why that is and address those root causes. If retailers are losing sales to online, they either need to develop a compelling e-commerce offering or they need to ask why it is that shoppers are not purchasing from their online store. In addition, retailers need to alter their thinking about the role of their stores. Stores will play a role in the omnichannel future — it will, however, require retailers to correctly determine what that role is for their target customers.

Jeff Sward
Guest

At any given moment there is X amount of demand for a given product or brand. If part of that demand is satisfied through the Internet then there is that much less being satisfied through brick-and-mortar. It’s classic competition, it’s a battle for market share now made all the more complicated with multi-channel battle fronts. Brands don’t cannibalize by performing well in omnichannel. Omnichannel is a simple recognition of a new shopping model in today’s market. It is not cannibalizing. It’s competing. If a brick-and-mortar retailer lost business to another retailer’s website, you wouldn’t call that cannibalizing. You’d call it a failure to recognize a new shopping paradigm.

Gene Detroyer
BrainTrust

Mr. Retailer: now hear this. It doesn’t matter what industry you are in. When disruption comes you have a choice. Either cannibalize yourself or let someone else do it. The history of retail gives us great examples of not reacting to disruption.

Richard J. George, Ph.D.
BrainTrust

Omnichannel is about customers, not channels. Retailers need to focus less on cannibalization and more on providing a differential advantage. Yes, there will be some cannibalization. The question is, would you rather eat your own lunch or have someone else eat it for you?

Doug Fleener
Guest

If this was the case I don’t think those that started out online would be opening brick-and-mortar stores like they are. People don’t shop online or in stores. They shop online AND in stores. So yes you’re going to move sales from one channel to another. But that same customer will move the other direction as well. We definitely know that many retailers need to reduce the number of stores they have, but that’s cannibalization. That’s called making it more profitable.

Ken Morris
BrainTrust

Retailers should not be concerned with omni-channel cannibalization. What is more important is attracting and retaining customers wherever they choose to shop. Total revenue is far more important than individual channel revenues. Since the shopping journey is often cross-channel, it is short-sighted not to consider the indirect influence and impact each channel has on the other channel sales.

The consumer purchase decision rarely is isolated to one touch point. According to Nielsen reports, 60% of consumers shop online before buying in the store (webrooming) and more than 50% of consumers browse in a store before making a purchase online (showrooming). Another impact on total sales is catalog shopping or catalogrooming — consumers shopping in a catalog and then purchasing online or in the store.

Maybe we shouldn’t be even trying to attribute sales to a specific touch point like the “last-touch” model, as the consumer’s decision process is often impacted by many brand interactions — not just the last one. A better approach is to look at it from a holistic perspective — measuring sales by “markets” instead of individual stores or online vs. in-store.

Craig Sundstrom
Guest

“…The right thing to do for your customer is to serve them at any time they desire…” Let’s just leave it at that.

Liz Crawford
BrainTrust

Omnichannel is table stakes for retailers. About cannibalization, it’s the same as it ever was: optimize the basket of offerings for greatest profitability. These are new (forms of) revenue streams, so they need to analyzed for optimal performance.

Brian Kelly
Guest
6 months 17 days ago

What happened to share of wallet? I never understood the up and comers constantly berating bricks as if all were to crumble as superior online shopping became manifest and replaced stores.

The retailers’ challenge is to build relevant and delighting experiences at all points of contact This is no different than Sears catalogs or L.L.Bean phone centers. Granted tech has changed the purchase path, and it’s up to retailers’ advantage to understand the changes in what now delights their shoppers and deliver it.

The investment conundrum remains. How to allocate resources on what apps/technologies that are preferred. Until the impact upon category and shopper is understood, all are bright shiny objects.

Data: its capture, storage, analysis, and activation are now crucial in a world of desired personalization. How to activate the long tail of experiences and make money at it? Therein lies the rub.

Cynthia Holcomb
BrainTrust

For stores, the goal is not to understand customer purchase occasions or weather conditions or what day a specific shopper likes to receive an email offer. The goal is to understand the individual customer’s preferences backed by inventory available both online or in-store that matches the individual customer’s preferences.

Just as technologists do not understand retail, retailers do not fully understand technologies as possible business applications and solutions. This retail/technology gap is holding back seamlessly integrating shopping anytime, anywhere, for an individual consumer. 21st Century shopping, not cannibalization.

Retailers hold the key to vast amounts of individual customer preference data. But because of a lack of affinity for technology, retailers have yet to bridge the gap mentally to at least consider technology[s] that provide the “key” to translate retail data sitting in data silos into specific customer preference intelligence. And technologists have yet to understand how to bridge the gap of a linear technical solution to an emotional decision to purchase on behalf of a human.

Doug Garnett
BrainTrust

I found this eMarketer statement a classic statement of tech’s cluelessness about retail: “Despite efforts to increase their online sales and beef up their omnichannel strategy to meet the needs of smartphone-toting and social-media addicted consumers, these retailers are burdened by their physical stores, which still represent a majority of their sales.”

Online retail (as a sole focus) is a money loser. What stores need to do is discover inventive ways to leverage online store presence to build brick and mortar profits … and also leverage their brick and mortar presence to drive online sals (which happens — but is under-leveraged).

At this point, I don’t see anyone who has cracked the code on that process. Elements are in place. But most online sites are poor places to “pre-shop”, for example, because online sites make it hard for the consumer to know which products they can preview online then expect to be available in stores.

This is made worse by the those retailers who put vast numbers of products in their online stores and believe that the revenue result in the online microcosm means that process is healthy for their company.

Scott Magids
BrainTrust
6 months 11 days ago

Brick and mortar may still be majority of sales, but online and especially mobile is increasing its share. Last cyber Monday was the first time mobile sales exceeded a billion dollars, coming in at $1.2 billion, 33 percent more than the previous year’s Cyber Monday.

Concerns over cannibalization may be misplaced, and retailers that don’t put resources into their online channels will lose ground against their competitors. We saw this during the recent holiday shopping season, when Macy’s lost big when its website crashed. On the other hand, born-in-the-cloud retailers like eBags.com saw their mobile sales increasing 95 percent year-over-year due to attention to their online presence. Also it’s no surprise that Apple won big on the holiday weekend, and was noted as the fastest retail brand on desktop with an average load time of just over 1.2 seconds.

Omnichannel today isn’t something retailers need to do to increase their share, it’s what they need to do to stay in business. Retailers need to look at online as more than just another channel — it’s a battleground on which they need to achieve an emotional connection with customers in the same way they do in-store.

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Braintrust
"The biggest obstacle is clinging to old ideas -- they're the anchor that's sinking our most beloved heritage stores."
"The omnichannel dilemma can be summed up in three words: “capacity” and “market share.” Creating more consumer channels doesn’t change that."
"If this was the case I don’t think those that started out online would be opening brick-and-mortar stores like they are."

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