Omni-channel Execution: “endless aisle” drives sales and margins
The retail, manufacturing and distribution world is abuzz with “Omni-channel,” a term that still draws different responses in what it means. If you ask the consumer about “Omni-channel,” they don’t know or care – it’s just shopping with a great experience, whether in-store, online or through a variety of other channels ….all offering a wide assortment with great prices and ease of shopping.
Within the retail, manufacturing and distribution industries, Omni-channel is variously understood to have different meanings. The fact is that Omni-channel presents itself as a continuum of capabilities and opportunities, with increasing sophistication of technology and integrated processes driving greater benefits to retailers and manufacturers.
For some organizations it is a synonym for simple eCommerce capability: being able to have the consumer buy store-available merchandise online and getting this delivered to her doorstep. For retailers who have been at this longer, more sophisticated capabilities involve offering a slightly expanded assortment for “web only” purchases and tying various “sales channels” together in a manner such that the consumer’s experience is seamless – from product comparison and selection, to purchasing and receiving after-sales service or retuning. Common Omni-channel capabilities have included buy online, pick up at store (BOPS) or Buy Online Ship from Store (BOSS) and others. For sophisticated retailers, these capabilities are being managed through massive IT integration efforts involving IT systems of the enterprise, merchandise vendors and logistics service providers. Newer IT capabilities such as Distributed Order Management (DOM) are being implemented that help retailers determine where a particular order is fulfilled from – internal DC, Logistics Services Provider, a store, or directly from the vendor.
A similar continuum of capabilities and benefits exists for manufacturer-distributor organizations that are attempting to increase their direct-to-consumer sales channels without disrupting existing retail and wholesale channels.
One such capability, which separates the advanced Omni-channel operators from the new entrants is the ability for the bricks-and-clicks retailer to offer an endless aisle assortment across the eCommerce and in-store channels (for example: through store kiosks). With this capability, organizations make available an order of magnitude more items available for sale than what they could through their traditional channels. If executed properly, endless aisle can deliver superior results from much higher
sales, margin and market share growth while driving higher customer loyalty.
At its very basic, endless aisle means that your eCommerce site or in-store kiosk has available for sale, all or many of the items carried by your organization’s extended vendor community. To put this in perspective, a mid-market retailer specializing in toys or consumer electronics may carry 3,000 to 5,000 items or stock keeping units (SKU) in their stores sourced from 300 vendors. The inventory for this assortment is usually carried in one or more Distribution Centres (DC). When this retailer executes eCommerce, the first phase usually involves making the same number of SKUs available online, while fulfillment usually takes place from the DC. With endless aisle, a retailer can easily push the SKU count to 50,000 or 100,000 from the same 300 vendors. Fulfilment is done with “vendor drop ship,” where the manufacturer / vendor receives the web-order in real-time from the retailer and pick-pack-ships the order directly to the consumer. The vendor uses the retailer’s approved packaging and labels that exhibits the retailer’s branding and pre-designated return information. The vendor will also provide automated shipment tracking information to the retailer.
Executing an endless aisle with vendor drop-ship program requires a sophisticated understanding of the extended enterprise operations (i.e. including the capabilities of the vendor community) and a highly integrated supply chain IT and operations environment. For example, for each new item available for sale through eCommerce, the retailer has to “set up” the item in their Inventory Management or Enterprise Resource Planning (ERP) systems, before it can be pushed into the eCommerce application and made available for sale. Many retailers already struggle with complex item data management process for their base SKU count – endless aisle exacerbates poor item setup processes with non-integrated vendor communities.
Furthermore, if the vendor community is not fully set up to integrate their inventory systems with the retailers to accept web orders, while providing near real time inventory position data to the retailer’s eCommerce systems, the endless aisle program ends in disaster from resulting poor customer service.
Successful endless aisle promises significant sales and gross margin benefits, but it requires a rethinking of how a traditional retail (or manufacturing-distribution) organization is set up to operate its bricks-and-clicks operation. At its core, the strategy deep systems and processes integration within a retailer’s four walls – and with the vendor community. It also requires a single, integrated view of the customer and of the extended supply chain, which are much bigger tasks that must be embarked upon.