The AlixPartners Retail Restart Playbook is a special weekly series of our Retail Viewpoint newsletter that provides in-depth answers and operational considerations for retailers as they reopen stores and restart business post COVID-19 closures.
Consumers have turned to online ordering in numbers that could never have been predicted even a few months ago. While this change was necessitated, it is expected to leave a lasting mark on consumer behavior and drive an ever-increasing share of ecommerce in retail. This means that the current caliber of a retailer’s digital channels, which in many cases were originally developed as an add-on and lacked true integration with the customer journey and overall operations, must improve.
We have spent the last several weeks outlining pragmatic approaches to restarting retail businesses, focusing first on stores and product. To cap off our Retail Restart Playbook, we are focusing on the rapid shift to online ordering and the consequent challenges it presents for retailers.
For most nondigital natives, ecommerce is still often supported by separate teams. And the larger organization often does not have a common set of operating principles, much less common goals. But as consumers begin to transfer more of their personal engagement and purchasing to digital channels, retailers must not only work to improve their customers’ omnichannel experience but also better integrate and manage omnichannel operations.
At the same time, retailers are also only now coming to terms with the online profitability paradox we’ve talked about before. Simply put, the more retailers sell online, the less money they make. You can see this illustrated in Figure 1 below. This stems from many factors, including higher overall cost to serve the customer on these channels and the tendency to offer discounts and deals and mirror Amazon’s tactics. Other factors that may hurt online profitability include the nature of the online product mix as well as higher return rates and the costs associated with them.
While this problem has existed from the time ecommerce became a measurably significant channel, the extent of the profitability problem only increased as more fulfillment alternatives, like curbside pickup, were added as a response to stay-at-home orders. Buy-online-pick-up-in-store and buy-online-return-in-store options were helpful in minimizing shipping costs in the past, but recent store closures added additional pressures.
Addressing the realities of costs and complexities related to omnichannel execution, then, has become imperative to survival. How can retailers chip away at ecommerce’s higher fulfillment costs while also making these channels a more integrated part of their business? Here are some suggestions:
Identify earnings impact of shift to omnichannel: Establish a common understanding of what is driving the likely negative EBIT impact of the growth in omnichannel sales:
- Capture key changes in channel behaviors and economics, including purchase frequency, average order size, return rates, etc., to understand the overall impact of ecommerce growth.
- Identify near-term and longer-term cost impacts of various pickup, delivery, and return models.
- Establish a revised baseline of EBIT impacts due to the shift in ecommerce penetration.
- Determine key cross-functional priorities across people, processes, and technology for immediate improvement.
Identify and address existing online friction points: While reimagining your customers' journey and personalized omnichannel experiences will be important, your immediate focus should be on identifying and removing existing friction points:
- Pinpoint areas of friction by going over the current customer journey, paying close attention to customer feedback, bounce rates, conversion rates, cancel rates, and other key metrics, to prioritize and address pain points.
- Revisit site search and site merchandising to support improved discovery, conversion, and average order value while also helping stabilize margins.
- Broaden the ways in which customers are supported in all digital channels through increased capacity and capabilities. This could be through introducing or expanding virtual sales support, appointment scheduling tools, self-service tools, relevant FAQs, etc.
- Examine key drivers of returns and address their root causes across retailer-driven and customer-driven reasons. Improvements may come from revisiting return policies and procedures or updating product descriptions and depictions to minimize the need for returns.
- Consider alternative payment methods and refine approaches to your fraud management tactics and policies to support new customer needs and behaviors.
- Evaluate options to make it easier for customers to reorder products and trigger ongoing purchases through memberships, subscriptions, etc.
- Assess ongoing testing platforms and approaches to continue to refine and optimize the online experience.
Address challenges in the fulfillment experience and economics: Add adaptability and flexibility to support both to-the-customer and from-the-customer fulfillment:
- Clarify the role of your stores in supporting click-and-collect and ship-from-store options as well as in handling returns.
- Assess customer-related incentives to align actions with retailer economics. This could include offering discounts for elongated delivery timelines or encouraging store pickup and drop-off as opposed to spending on home delivery and returns.
- Diagnose what updates may be needed to support the post-purchase experience and communication between customers and associates, such as mobile order status, signaling, and exception management.
- Evaluate the current capabilities of your order management systems and their ability to adjust for greater omnichannel fulfillment. You may need a new platform.
- Refine your approach to your warehouse and distribution center network and configurations to support the new mix of direct-to-consumer and store-based click-and-collect requirements.
- Leverage the strength of your vendor distribution network to make deliveries to your customers, which can limit both your costs and risks.
- Revisit alternative delivery models through partners, such as dropship methods.
Align the organization to support omnichannel needs: Improving processes and incentives to encourage effective omnichannel collaboration will be crucial:
- Change in-store enablement policies to encourage your associates to support omnichannel interactions. Examples include making point-of-sale enhancements and adding incentives for store associates to place online and mobile orders.
- Find areas to reduce manual tasks in internal processes and reshape to improve throughput and quality of content in digital channels. This could include changing the item setup process to increase the availability of products displayed on the site.
- Establish ongoing cross-functional processes to continuously review and prioritize pain points as well as find opportunities related to higher ecommerce penetration and omnichannel operations.
The share of ecommerce in retail sales had been consistently increasing, but the situation over the last few weeks has accelerated the pace of growth substantially. By some estimates, consumer adoption of ecommerce channels has been catapulted three to four years into the future. Actively monitoring consumer behaviors and shifting tactics to engage, retain, and add customers will be an ongoing process. Retailers that want to continue being relevant must adapt their attitudes and operations to meet consumers where they are.
This concludes our Retail Restart Playbook, launched with the goal of offering practical operational considerations for retailers restarting business post COVID-19 closures. For a deeper look at the playbook, please contact our Global Retail Co-Leads: David Bassuk, Joel Bines