Key Points
  • The retail industry continues to see widespread store closures and staff layoffs. However, most of these are part of retailers’ long-term strategy to evolve into omni-channel entities

  • Stores will be an important part of the omni-channel ecosystem. They have inherent benefits and economies, allowing them to be more profitable as fulfillment centers. They also offer unique marketing and customer engagement opportunities that are not available online

  • Many e-retailers are opening physical stores to gain these advantages. Focus is now on transforming stores to be profitable in an omni-channel setup

It may definitely seem that way if one follows recent headlines in the retail industry. Over the first half of 2016 alone, prominent brands such as Walmart, Macy’s, JC Penny, Target and Kohl’s have all announced closing hundreds of stores. Tens of thousands of retail store workers are losing jobs, and the layoffs won’t stop soon.

It is certainly a grim picture. But if we take a slightly longer view, we see an industry in the throes of a definitive change. Retailers need agility and fitness to compete in today’s dynamic and digitally-driven market. Almost all the brands discussed above have been making serious technology and business model upgrades to balance their presence online and in the real world, backed by a seamless view of their customers. The store closures, in most cases, represent dollars invested in moving toward the omni-channel vision of retail. And the Wall Street performances of retailers such as Target and JC Penny seem to bear out this strategy.

So, what’s the role of physical stores in omni-channel retail? A pretty important one, in fact. Brick-and-mortar stores bring inherent advantages and efficiencies that pure online models cannot match. In the age of free shipping, stores have the existing infrastructure and economies of scale to operate at higher levels of profitability. Fulfillment, a key feature of omni-channel, includes options like ‘buy online, pick up in store’. With over 82 percent ordering and fulfillment scenarios involving stores, their significance in the omni-channel value chain is pretty firmly established.

Additionally, physical stores offer unique, differentiated marketing opportunities, giving them a strong advantage over digital-only stores. Online commerce is a competitive and crowded environment governed by search engine marketing rules that are beyond the control of retailers. Equipped with the latest technology such as magic mirrors, navigation apps and touch screens, stores can offer an unmatched brand engagement experience to customers. More importantly, customer data already available with the store, and gathered in real time, allows well-trained store staff to score significantly high cross-sell, upsell and conversion rates. Again, data seems to bear this out. According to the WNS DecisionPoint™ analysis, leading omni-channel adopters have higher customer retention/conversion ratios, with lower selling and marketing costs, giving them a better earnings margin.

Endorsing this assessment is the number of e-retailers, particularly Amazon, who have opened physical stores since last year, adopting the ‘click-and-mortar’ model. Of course, transformations are needed for physical stores to perform the desired role in an omni-channel setup. Most notable is the re-skilling and re-tooling of in-store people and processes, which is imperative to drive the necessary benefits of digitization. The question then is, ’What are the key drivers for profitable stores in an omni-channel ecosystem?’

 

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