Multichannel E-Commerce Inefficiency Can No Longer Be Ignored

A report from the Retail Systems Alert Group argues that as multichannel sales grows, the ability to manage such sales efficiently decreases.

Few have argued that multichannel marketing isnt attractive and most probably essential, and fewer still have questioned the maddening inefficiency of such a system.

An upcoming report from the Retail Systems Alert Group predicts that those statements are about to collide as multichannel sales start to become quite significant.

"Until now, consumers who shopped across multiple channels—in stores, on the Internet and through call centers—were more profitable" for most retailers, the report said. But this year, the analyst firm said, "the profitability of multichannel customers is declining. Although todays multichannel customer is certainly not less profitable than her single-channel counterpart, retailers are finding that multichannel retailing is simply becoming a cost of doing business."

Is that cost of doing business going to get too high? Report author Paula Rosenblum thinks it will. "Retailers arent very efficient with multichannel. As the volume of multichannel sales continues to grow, the ability to manage that efficiently decreases," she said.

A year ago, Rosenblum said, multichannel profits were "a windfall" and were typically "51 percent or more profitable." Today, that figure has dropped to about 41 percent, she said. Clearly, 41 percent profit is still superb, but if the trend continues, it is going to force many retail IT operations to act.

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The problem is that multichannel has historically stayed in the 5 to 7 percent of revenue range, which puts a pragmatic cap on the amount of resources that can be justified. If inefficient but low-cost jury-rigging methods work, it would be hard to justify further investments to do it more efficiently. "If its only representing 5 percent of your business, how much energy are you going to put into its infrastructure? Youre just going to figure out a way to make it work," Rosenblum said.

As multichannel sales increase, though, two things quickly change. First, the numbers become large enough that developing more efficient methods can be justified. Second, the losses from those inefficiencies become much more difficult to ignore.

Rosenblum sees this meaning a lot of IT spending for hardware and software to rationalize multichannel systems, especially with product information, shipping synchronization, real-time inventory, customer updates and single operational data stores. "Anything to ensure that online orders are able to be picked up in the store," she said.

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The report points to several possible underlying causes for the problems. "Most retailers have still not taken the time to improve their processes for moving product and customer information across channels. Perhaps this problem is the root cause of many of the inefficiencies," the report said. "With 31 percent of retailers still entering customer and product information separately into their different channel systems, and only 26 percent using one process to get data into all channels systems of record, there is evidence of significant inefficiency."

In some cases, the inefficiencies are supported by attitude and emotional issues, the report said. "Although 38 percent acknowledged there are budgetary constraints to creating integrated processes, lack of integration and a technology infrastructure that makes it difficult to change and adapt are larger issues," it said. "Once again, the pent-up frustration with integration costs became apparent when we asked respondents how they could overcome their organizational issues. While retailers recognized their own needs to prioritize integrated multichannel data management strategies, our data shows that improved integration tools is their most critical need."

On the emotional front, Rosenblum used the report to stress that the day for fear of cross-channel sales cannibalization needs to be gone. "We would be remiss to not comment on a topic that we thought would be long gone: the dominant channel fear of sales cannibalization. It is almost incomprehensible that one quarter of respondents still highlight this as an on-going organizational problem, across all segments, tiers and performance levels," Rosenblum wrote. "Clearly, C-level executive involvement is required to create an attitudinal shift, and there is no doubt overall performance is affected by this problem."

Retail Center Editor Evan Schuman can be reached at Evan_Schuman@ziffdavis.com.

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