Have omnichannel initiatives taken attention away from stores?
Sidetracked by past investments in mobile and digital initiatives, The Finish Line last week revealed plans to reinvest more in its stores.
The shift comes as the athletic footwear specialty chain reported a steep drop in earnings for its fiscal year ended Feb. 27. While the decline partly reflects write-offs for technology assets and the expense of closing stores, sales have also been generally sluggish in a marketplace where its nearest competitor, Foot Locker, is thriving.
First, spending on remodels will be ramped across the chain to significantly update the look of stores. On its fourth-quarter conference call, Sam Sato, who was just promoted to CEO, stated, “We have underinvested in our physical presence over the past few years as we dedicated the majority of our capital spending to essential technology and infrastructure projects.”
Second, increased investments will be made in training and development programs for associates. Mr. Sato said, “We have set out to rebuild the store service culture that was the bedrock of Finish Line’s early success before the surge in digital commerce shifted more of the focus to online.”
Third, IT spending priorities will shift to smaller upgrades and enhancements to its core systems infrastructure following aggressive spending the past few years on a “mobile first” strategy. Key consumer-facing technology investments in its digital platform and CRM will continue.
Finally, the chain will give greater priority to “execution” and driving profitable growth “consistently over the long-term.” The last point addresses numerous missteps in recent years, including a failed warehouse and order-management system installation that led to supply chain challenges, a loss in the third quarter and a write-off in the fourth.
“Our focus and attention to the basics of the business has been the foundation of this company for many, many years,” said Mr. Sato. “And we’ve got to get the attention back on that.”
Discussion Questions
DISCUSSION QUESTIONS:
Have retailers overinvested time and money in omnichannel initiatives at the expense of physical stores? How should leaders balance devoting attention to the new without neglecting the old?
Poll
BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
Adrian Weidmann
Managing Director, StoreStream Metrics, LLC
Maybe. It is when the store staff become so lazy that when an item cannot be found and is clearly in stock, they go directly to recommending the customer order it online, that the store brand suffers. Store managers are needed to ensure staff do their job and improve customer service. The combination of in-store and online does work but only when management enforces the correct selling. Selling to consumers online is a convenience as well as an alternative to visiting the store. The store should continue to be the primary focus of the retailing and providing in-store only specials helps keep that focus on track.
When online commerce began, retailers were throwing around the word “cannibalism” frequently. Today I believe there is no threat of that to physical stores if the merchants maintain compelling reasons to shop the stores. Several retailers make their stores attractive to visit with innovative merchandising strategies. Online commerce only augments the overall revenue stream. It need not merely spread it out.
Finish Line took its eye off the basics of retail and paid the price with a sales drop — it wasn’t a matter of devoting too much attention to omnichannel. Retailers today are faced with challenges that were non-existent five years ago. They need to do well with the basics of running physical stores, they need to compete online with well designed websites and they then need to marry the two to meet consumer expectations. Neglect any one aspect at the risk of declining sales and customer satisfaction.
As stores have seen underperforming locations and declining comp-store sales, their response has been a case of circular reasoning. The thought process of converting physical stores to “omnichannel” centers has led stores like Macy’s in some directions that are actually hastening the sales shortfalls.
Just in the past week, BrainTrust panelists have discussed the risk of trying to perform multiple functions (including omnichannel initiatives like BOPIS) without adding payroll — putting stress on the existing associates and cutting into expected levels of customer service. I’ve been in several mall anchors recently (not just Macy’s) where the store needs a physical refresh, or more sales associates or more competent restocking of the selling floor.
It’s not a simple question of how to manage competing expenses, but neglect of a company’s core mission can only cut into its topline sales and profits.
It goes back to the question, what is the right business model and strategy for the company? In this case with Finish Line the focus back on physical stores still needs to be balanced with e-commerce because, as we all know, e-commerce selling is a growing channel for most segments. The most important thing is to align the company’s financial and business goals with an understanding of current business results of which the distribution strategy will be one of a few key areas of focus.
Nice to see a retailer that gets it. I’ve been ranting a lot on stage lately about how retailers have taken their eye off the prize they already have — thousands of willing customers already entering their stores. With online sales predicted to grow to about 15 percent (I know, it’s a hotly debated number) by the end of the decade, that means 85 percent will still be done in stores. And I promise you this: Retailers are losing more than 15 percent of potential sales every day in their stores because of poor staff performance and bad execution (another staff thing). Refocusing on running the stores better and regaining those lost sales will pay back faster than most any other investment.
I’m not saying digital-this and digital-that isn’t important. It is. But let’s keep it in perspective.
Perhaps stores have taken their eyes off the ball.
Honestly, I feel part of the blame is in the term “omnichannel” which has become distorted and synonymous with online activities. Nothing can be farther from the truth. We should be talking about the retail experience, transaction opportunities, shopper loyalty and relevance at every juncture and stop separating the physical store from other retail touch points.
Have some retailers over-invested at the expense of physical stores? Yes. The goal, however, should be to start integrating and stop creating siloed conversations. Only then will retailers put focus back on their consumers (anytime, anywhere)!
Finish Line lives in a category where more is better and new styles create desire. “Sneakerheads” may browse online and via mobile, but there’s nothing better to trigger senses and emotions than having a coveted pair of kicks on your feet.
So Finish Line is right to re-focus on the store, but not just on how it looks. Associates need more training too, because they have the power to bring the sensory experience and emotional triggers to the forefront while the shopper is in the store.
I’d suggest they add video of the try-on to successful sale, invoking the mirror principle that essentially triggers a viewer to crave the same kind of successful experience they watch.
We probably end up being over-stored given the percentage of business that is being done online. Still the in-store business is (and likely always will be) the vast majority of a retailers’ total turnover, and what a customer sees when walking into a store is still the largest brand statement a retailer can make. So yes, paying attention to the store is still the number one priority.
Without a doubt. Retailers have been chasing Amazon for almost a decade now and trying to figure out how to stay abreast with that beast. The cost has clearly been on the physical side.
But it’s not only remodels and better lighting, it’s total experience that’s lacking. I just got back from Europe and the U.K. and all the new stores had cafes in them. Why aren’t we doing that here in the U.S.? Other than the new third-wave retailers, I just don’t see innovation at store level.
Self fulfilling prophecy: stack stuff on shelves and hope they come = competing with Amazon = closing stores. It’s time to re-invest. A wise move by Finish Line.
Look no further than perennial darling Nordstrom who laid off 120 digital tech team members as they try to figure out how to make their stores work better. As I said in Hey Retailers! Nordstrom’s Customer Service Problems Are Yours Too, wouldn’t you think you’d make sure not to kill the goose that laid the golden egg?
Too many retailers simply don’t own their own lack of customer focus or deliver best-in-class training. They settle. They get by.
And when shoppers don’t come back, the mirror is never a forgiving item. Especially when you’re no longer the fairest one of them all.
Retail executives have been largely bufooned into the alluring e-commerce sales reports. If you were to ask them what consumers are buying online and why the disconnect would be relatively easy to see. That is, for those able to differentiate spin from response. When we add to this mess a factor of overhead costs for the existing or new brick-and-mortar facilities that brought them to the dance and have been left for naught, things get real bad.
Things like declining floor traffic and smaller sales and receipts. Maybe retailers should wait for a single definition and design for omnichannel business plans that is tested and proven to be successful. I am not advocating that we take all of the fun and exploration out of this migration just the removal of high risk guess work along with the tendency for reckless abandonment.
When you are trying to catch up to now-established consumer trends, the easy path is to purposely over-invest in time and money to effect such a strategy. The trade-offs in these decisions imply that the legacy is ignored.
What’s more difficult to think through and get the organization behind is a more complete strategy that purposely views all the pieces with phased timing and dependencies, so you don’t have an either/or situation.
So, have retailers over-invested time and money in omnichannel initiatives at the expense of physical stores? Certainly many have, but a few understood from the start that omnichannel means all channels which is inclusive of stores. Moreover, retailers are increasingly convinced that the future belongs to the blurring of the physical and the online worlds in which they operate seamlessly and in harmony to deliver the best customer experience.
Providing an illusion of action, we tend to swing the pendulum back and forth to compensate for existing shortcomings and to appease pundits and analysts. Taking a customer-first approach (instead of a technology-first or a product-first, etc.) retailers and others can greatly reduce the chances of going off the rails.
The headline misses the point as it shouldn’t be an either-or question. The whole point behind omnichannel before it became an overused buzzword was to invest in initiatives that spanned both digital and stores. Retailers who get this are bringing technology to the store experience as well as building up online and arming associates with data and tools to help them better serve customers.
Finish Line has execution and vendor relationship problems that should not be blamed on omnichannel.
I believe the contrary. Part of the difficulty in the food retail environment is the economics related to omnichannel versus store remodels or upgrades. Many of the food retailers I talk with tell me that they know the ROI associated with a remodel, while conversion to omnichannel (versus multi-channel) represents somewhat of a black hole to them. Omnichannel development is neither an easy or inexpensive journey.
While brick-and-mortar retailers must never lose sight of their opportunity to romance the in-store experience, making it a real experience versus simply stocking rows of shelves with merchandise, the future will be omnichannel retailing with a combination of seamless transactions online and in-store. Make no mistake, the advantage of brick-and-mortar retailers over pure-play e-commerce is in the store experience. Physical store retailers should never lose sight of this differential advantage.
Now it is clear: digital easily consumes far more resource than it has potential to generate in profit. And that the best way to build strong online sales is to have strong stores.
So, yes, it is time to return to putting investment into stores. But also to refocus on creating that magic of product mix, merchandising, store infrastructure, and associates that has always been the foundation of retail.
Sadly, we’ve had a distracted decade — distracted by “entertainment theories” and digital distraction (now mobile). Retailers must pivot back to their stores in order to build health. Why? If nothing else, it’s where 90% of their sales come from.
Two names to remember when thinking about the results that come from concentrating on digital while neglecting stores — Kmart and Sears.
I think we (including me) may have misread the trend to online shopping at the expense (pun) of the physical store. Despite the purported need for tactile experiences and BOPIS, I think digital is getting easier and easier and easier for the customer — quick delivery, better prices, more convenient, handier, quicker, etc. And with more devices coming like DASH button (see RetailWire question today), it seems that IoT is coming on fast and hard and is going to change the way we view and use physical places.
Comparing investments in stores vs. omnichannel is a bit of an apples-to-oranges comparison. ROI on store investments are fairly easy-to-predict given that it’s a mature sales channel. Omnichannel is more of a strategic investment — a bet on a future state — with a fairly unpredictable ROI. It isn’t justified on the basis of its short-term ROI, but instead on a prediction of how important an integrated multi-channel experience will be to customers in the future.
It’s certainly clear that cross-channel integration is getting more important, but just how important it will be — for a given retailer in 3-5 years — is a matter of conjecture.
As with any strategic investment, leaders should look for ways to hedge against being wrong. In this case, it’s certainly smart to recognize that the majority of sales for most retailers will come from stores for the foreseeable future … and avoid underinvesting in the channel. Some retailers haven’t been that smart. 🙂
I don’t think there is any retailer that has “over-invested” in omnichannel initiatives, as there is still a lot of work to be done in this area. According to our research, while many retailers are offering omnichannel services, most state that these services are not working well. That said, retailers can’t take their eye off the store. Two-thirds of online transactions occur after a shopper visits the store and 90% of all retail sales transactions still occur in the store. The store is still the cornerstone of retail as it is accessible, convenient, instant, and now digital. It is where the tactile and sensory experience comes together for the consumer.
Online shoppers have become accustomed to features such as product reviews, extensive choices, one-click transaction processing, and personalized recommendations. Unfortunately, these expectations don’t dissipate when they walk into a physical store. Consumers’ expectations are likely magnified given that one-third of consumers shop more than one channel as part of their shopping journey. Retailers must therefore infuse digital features into the store environment to exceed customer expectations, compete more effectively with online pure-play retailers and offer a better, more complete, shopping experience. Retailers must understand the customer journey across their customer personas, understand their preferences, apply a contextual overlay and effectively communicate (either push or pull) the brand value proposition to convert todays customer. To compete effectively in today’s market you need to harmonize the attention across all channels.
Absolutely, and that’s natural: Omnichannel is mostly a buzzword designed to sell eCommerce solutions. However, it has shifted focus away from the physical stores, which remain the primary channel.
(Full disclosure: I am not impartial on this topic as my company FutureProof Retail makes in-store technology.)
In the specialty retail segment, invest in associates, store managers and field operations to ensure consistent, chain-wide execution of store level sales programs with an emphasis on customer service. Investments in store level operations are highly strategic when you consider the potential impact on store sales, customer loyalty and margin, yet often de-prioritized next to e-commerce, supply chain and merchandising initiatives.
On the positive side, select investments on the store operations side can yield growth within a quarter while some major tech initiatives can take years to implement and pay off. Clearly a balanced approach is necessary and sometimes, the short term investments with a faster time to benefit can help fund the longer term investments that still must be made.
Never neglect the store. Customers pass through it because they need to try on the merchandise, embrace the brand experience , and be catered to by a dedicated associate. Just look at the online only retailers that are starting to open select stores, just to let customers see and try the merchandise — and they are not stocked to sell it. Orders are shipped. It’s time to re-ignite the commitment to the store as part of a true customer centric sales model.