Reports of the demise of the cross-channel shopper are premature
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.
RSR’s most recent benchmark on retailers’ omnichannel strategies found the percent of retailers who report that their cross-channel shoppers are their most profitable shoppers is on the decline.
I’ve seen the chart below quoted a couple of times now, incorrectly. While there is a pretty straight-line decline from 2013 to 2015, digging deeper reveals a many-faceted story that goes deeper than concluding there is something wrong with omnichannel shoppers.
First, in the early days of multichannel, retailers with strong loyalty programs reported that the more channels a customer shopped, the more profitable she was. Importantly, the relationship was causal in nature and suggested some kind of relationship between channels and the ever-elusive "engagement." The more channels a shopper uses, the more she is likely to "engage" and thus the more she is likely to buy—and buy profitably for the retailer, not just cherry-pick the best deals.
Source: Omni-Channel 2015: Taking Time, Money, Commitment And Technology, September 2015
Which leads to another important dimension of omnichannel profitability. Online shoppers, in general, are less profitable than store shoppers because online is more fiercely competitive and online tends to also be the big "clearance store" for retailers. That fact that the early days of this measure, multiple-channel shoppers were seen as significantly more profitable than a single channel shopper—was actually a big deal given the lower price points and tighter margins online.
Which leads us back to the chart above. Part of the reason why multiple-channel shoppers are no longer significantly more profitable than single-channel shoppers is because the ratio of multi-channel to single-channel shoppers is falling for most retailers. When the comparison (multi-channel shoppers) gets larger than the base (single channel shoppers) the difference between the two becomes less compelling.
In fact, the most important data point is that 27 percent of respondents in 2015 reported that they can’t tell or don’t know if there is a profitability difference at all. If more and more shoppers are becoming cross-channel shoppers, and retailers have no idea if those shoppers are more or less profitable than anyone, how do they know if their investments are working? What are they measuring to understand if those investments are meeting customer needs as they try to cross channels?
I fully expect to see the day when retailers report that cross-channel shoppers are no more or less profitable than any other shopper—primarily because there is no longer any real group of single-channel shoppers worth tracking. I hear technology vendors groping toward that future, in their efforts to ditch "omnichannel" and talk about "just retailing." When cross-channel shoppers are no longer more profitable, then I’m pretty sure that day will have arrived: just retail.
Discussion Questions
Do you see cross-channel shoppers becoming less profitable for retailers over time? Why do you think 27 percent of retailers are unable to say whether single or multi-channel customers are more profitable for their businesses?
Poll
BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
Omnichannel is the new “retail normal.”
I would only change one word in Nikki Baird’s great closing: ” … I’m pretty sure that day HAS arrived: just retail.”
With strategies like BOPIS it is extremely difficult to track where the sale takes place, let alone measure the profit (costs) of each link in the omnichannel chain. The question for today’s retailers (even Walmart) is not one of either/or, but one of how to engage across channels to prevent erosion of your customer base.
As more retailers try to figure out true omnichannel strategies (unlike parallel e-commerce and brick-and-mortar operations), they are finding the logistics to be an expensive proposition. Initiatives like BOPIS, ship-from-store, same-day delivery and others cost money. And right now, stores are in a market share battle where they are trying to absorb many of these costs — just as they do with so-called “free shipping.” Until stores capture some economy of scale in their overall omnichannel strategy, the profitability of these customers may indeed hit a bump in the road.
What’s most important is to understand the cross-channel shopping is now table stakes. There’s no real choice involved. Period.
As for the 27 percent who “can’t say,” there are a variety of reasons:
Still, the over-arching point is definitely that retailers can no longer afford to have sub-optimal digital channels.
Consider this data point from the same report: 46 percent of retailers selling fast moving consumer goods (groceries, etc.) report that digital channels influence at least 25 percent of their sales. That’s a big number for a segment that has barely started selling stuff online. That’s the core message. There’s no choice anymore.
In today’s shopper landscape I can’t imagine that aside from grocery, there has been a single-channel shopper in quite some time. Any retailer and/or brand that doesn’t provide an easy, seamless and rewarding shopping, purchasing and post-purchase experience across all of the channels will become completely marginalized and simply won’t have any shoppers period; never mind profitable.
Early experiments and processes by brands/retailers included incentives (i.e. discounts) to drive traffic and/or purchases to online or mobile channels. As these channels morph into a seamless shopper journey the measure between cross-channel and single-channel simply won’t exist. The new shopper journey status quo is using all the available channels.
Reference my notes from main speakers at the Shop.org Digital Summit two weeks ago in Philadelphia. Projections for this holiday season:
The “single-channel customer” is still there but fading fast … Retailers are better served at this point concentrating on how to optimize and make “channel seamless” their present day (and future-forward) customer experience, etc.
You have to look at a cross section of several studies to get a more complete picture. Furthermore, retailers must define exactly what they are trying to prove. I can tell you that as of now, I no longer call anything “multi-channel,” “omnichannel” or whatever. To me, the consumer IS the channel. Period. The shopper will shop when and where it is convenient. Studies have shown that 65 percent of Millennials don’t even purchase via mobile. Surprised a little? You need to target the individual. We’ve been saying that for years, however I still see merchants targeting Millennials as one demographic. That is not accurate. You have to use the tools available today to leverage the actionable insights that we are all talking about. It CAN be done. You just have to intentionally define what you want to find out, as crazy as that may sound.
Are cross-channel shoppers less profitable? It depends.
Are loyal customers less profitable? It depends.
Cross-channel customers are the most loyal customers.
Once a customer sorts out the retail selling model, promotional frequency and return policy, she becomes more loyal as well as less profitable. It depends upon how loyalty and profitability are determined. It is per transaction? Is it quarterly? Is it lifetime?
During clearance periods, does a retailer care who buys as long as they eliminate the inventory? Do they use the proprietary credit card? Do they purchase merchandise agreements? Do they employ the product repair service? It depends upon how clever a retailer you are.
Or as we like to say, “Retail ain’t for sissies!”
All I will say is that retail is just retail. Who really cares about the channel? No matter the one a shopper picks, you need to be able to support it as a retailer. And retailers that are spinning up performance numbers based on e-commerce and store channels are just playing with the math. The true bottom line is still the margin performance.
Someday, after retailers and others ditch this “omnichannel” thinking and go back to seeing retail is just retail, things will get simpler. There is so much wind and work put into the omni spin that the focus on pure retailing gets lost.
Get back to the basics of retailing—serve, satisfy, be creative—and all will be fine, no matter the studies….
TRedd – Simple is Better!
There is one aspect that Nikki did not mention as a factor here, which is that many retailers are not prepared for omnichannel with the right tools and technology. With the barrage of traffic coming at them from all directions, their processes—or lack of—are impacting their profitability.
Not to mention the “ghost economy” of sales lost that they don’t even know about. When a customer is ready to buy, but the product is not available to them when, where and how they want it for any reason other than price. This is an unrecorded lost sale and if factored into the profitability measure, it would show that cross-channel shoppers may be even less profitable.
If this is “just retail” then many retailers have a ways to go to get things right.
For my 2 cents.
I’m concerned about claims of knowing which is most profitable. It is impossible to track sales and people well enough to know what the profit is. Even estimating research is extraordinarily inexact. We must become more careful about these kinds of broad claims because they lead companies astray.
With this specific research, I am concerned by reliance on marketer perceptions. Given how hard it is to know any of this for certain, what we are measuring here is purely PR for multi-channel — not actual profitability.
The PR response is always heavily influenced by high investment spending of vendors, by common publication in the press and by the peer discussions — and is usually entirely separate from reality.
Of course cross-channel shoppers will demand more aggressive pricing and give lower profits to retailers. However, the retailers who recognize this as a standard for the future will make adjustments now, and will be surviving when others are failing in the future. Adapt or perish is really the key to multi-channel customers.