3 Myths: Why omnichannel will beat online-only retailing

Last year, at the annual shop.org summit in Denver, Gerald Storch, who was at that time CEO of Toys”R”Us, a dedicated toy multichannel retailer, predicted that “the future belonged to the internet”.

At first, this statement may not seem particularly new, but Storch wanted to emphasize that it was time for traditional “brick and mortar” retailers to implement omnichannel strategies in order to be able to compete in this evolving world.

Not only traditional retailers, but also mail order companies are facing significant changes. Most of our customers have invested considerably in online commerce during the last years in order to become multichannel retailers.  The main challenge at present is to link all of the available channels.

Let’s get back to Mr. Storch and his speech at the Shop.org summit. He outlined a few myths he believed led – even at Toys“R“Us – to strategy mistakes.

Myth no.1

„Online retailing is causing the downfall of traditional retail“

This presupposes that online retailers can offer lower prices. In traditional retail, distribution of goods accounts for only a small proportion of the overall product costs. With mail order business, however, items have to be packaged and shipped. Online retailers’ shipping costs are about 30 to 40 times higher than those of traditional retailers. Thus, mail order supply chain is three times as expensive as in retail. If we compare interest margins, conventional retailing is definitively better off.

Myth no.2

„Customers prefer online shopping“

Fact: Some customers prefer online to in-store shopping, but the vast majority of sales still occur in physical stores. Some categories of goods are better suited for being sold online than others. Storch pointed out that, according to surveys, for kids a visit to Toys “R” Us stores is only slightly less attractive than a visit to Disneyland.

Myth no. 3

„The future belongs to online-only companies“

„No, the future belongs to brands“, says Mr.Storch. Strong brands keep in touch with their customers through all available channels. But one thing is clear: sooner or later all companies will be internet companies. Many multichannel customers use the internet to research items online, not only to buy. They will then go to a local store to buy items they found over the internet.

That’s why omnichannel is so important. Still, many companies are reluctant to implement these business models. For example: One of our clients had been selling for a few years top-seller items through the internet. After some time this strategy turned out to be a major problem: This way, our client’s customers were virtually encouraged to get information in stores and then buy online from a competitor.

No wonder: Customers went to our client’s stores that (of course) did not have a full assortment of goods. But neither could they buy the chosen item online through the client’s website because of the top-seller strategy. The ideal scenario would be: customers go to stores and benefit from the advantages of trying something on and getting some advice and then order online if the chosen item is not available in-store in the chosen color or size.

In order to achieve that, the strategy should be reversed: The concept of “a web shop offering the best of what is available in stores” should be changed to “a store offering the best of what is available online”. In terms of IT this shift in strategy implies a significant investment in excellent master data management.

Data quality is critical in driving consumer buying patterns. Poor data quality undermines the customer’s confidence in an online shop: he will probably not buy a product for which he doesn’t get relevant and detailed information.

Thus, omnichannel retailing entails IT investments. But buying new software is not enough. Many retailers realize during a project that there are more aspects involved. Quite often, responsibilities have to be identified first: Who is responsible for determining which assortment of goods should be offered through a certain channel? Which product features have to be promoted through which channel? These are all critical aspects for retailers‘ omnichannel strategies.

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