With the dog days of summer fading in the rearview mirror, we look back at a slew of announcements that may have flown under the radar over the past few months. So what was the common theme among many of them?
Continued investments in technology and omnichannel fulfillment from large retailers that position them for increased market share when consumer spending is predicted to rebound in 2023.
Just a few of the announcements from this summer include:
- Target – announced more sortation centers
- Walmart – added more automated fulfillment centers to accommodate digital orders
- Best Buy – unveiled a new digital-first store that is 5,000 sq. ft.
- Amazon – announced same-day delivery for Prime members with GNC, PacSun and other retailers
- Gap – launched omnichannel fulfillment services for other retailers
So, what should you make of all these announcements? We jotted down some salient observations, given the news and what we have heard through our work.
Omnichannel fulfillment is the tip of the spear in the new digital ecosystem
What emerges from this summer is a clear picture of enhancements to omnichannel fulfillment (picking and delivery) operations as customers continue to engage in digital ordering while costs to fulfill those orders continue to rise.
Digital order penetration continues to grow on a multi-year basis despite coming down slightly from the pandemic highs as service options expand for customers and stores increasingly become hubs for curbside pickup or buy online pickup in-store (BOPIS).
The ability to find and order product from a local store without having to search for it — or be disappointed if the product is out of stock — is a massive time savings for many customers that drives the uptick in usage. Add in the fact that you are not charged extra fees for curbside pickup or BOPIS at most retailers and the offerings are a great value for customers that want the immediacy of getting product in hand without the time spent searching and shopping in a store.
Large retailers are making substantial investments in technology and automation to support the increased convenience for customers. This has meant improvements in everything, from forecasting that alleviates continued supply chain volatility to adding robotics in warehouses and backrooms that enable greater order accuracy and promise times.
Companies that invest at greater rates than peers tend to be rewarded with higher revenues and stock prices which is why many retailers continue to invest even as sales have slowed down. Omnichannel fulfillment is a key driver of these investments in the new digital ecosystem, which positions retailers for greater market share growth going forward.
Larger retailers are exporting Retail as a Service to offset investments and serve brands that cannot justify the same capital outlays
Yes, digital ordering adds additional costs to serve your customers — and operational complexity — but some retailers are finding ways to defray or reduce the investments through the growth of retail media networks or offering services from their fulfillment operations to other retailers.
Retail as a Service is now an offering that larger retailers will provide to other brands or retailers.
Amazon paved the way with Amazon Web Services (AWS) and Fulfillment by Amazon (FBA) to build profitable services that complement a core retail business. Omnichannel retailers have taken note and know that to continue to acquire customers, while driving down supply chain costs, improvements in order fulfillment are fundamental to enable better service options for customers.
The question for so many retailers or brands that do not have the scale to make the investments themselves is whether it is better to partner with Amazon or one of the many players in the space to expand or enhance digital service options for customers.
Expanding your omnichannel fulfillment capabilities to enable a better experience and more trips
If many leading retailers are making large investments to improve their order fulfillment, what prevents you from expanding your omnichannel offerings for customers?
We often hear about obstacles, such as inventory systems, staff scheduling or lack of backroom space, particularly for mall-based retailers. These are real challenges, but your operational setup cannot be a complete deterrent to enhancing your customer experience.
A greater risk is missing out on acquiring new customers or retaining existing customers that want the convenience of digital ordering now offered by your competitors.
Put yourself in your customer’s shoes and go through this exercise:
- How often does a customer shop with you per year? And what is the average time they are in your store on a given trip?
- What is the average time it takes for them to drive to your store, park, get into the store and then return home?
- What happens if they encounter long checkout lines or cannot find the product (or size) they came to purchase?
Most customers are in your stores no more than several times per year, so friction at checkout or on the shopping trip turns away customers over the long run. This causes market share erosion over time.
Retailers like Walmart, Target and Best Buy know that despite the added costs and complexity of digital ordering, the rewards are far greater: they drive higher trip frequency and increase the “share of wallet.”
This is precisely why these retailers are investing billions of dollars in technology and automation. It positions them for increased market share over the coming years.
You can change the dynamics of your business in the same way through operational enhancements and investments that enable easier digital ordering and drive greater convenience for customers.
What’s holding you back from making these changes?