Multichannel Retailing – The fight to stay ahead

Technology influences almost every aspect of our lives today. The web has altered the way we communicate, the way we consume information and even the way we think. So how have supply chains changed with the web? We have seen more efficient inventory management, just-in-time production by monitoring retail shelves but how is business changing? Is differentiation easier or tougher? Is customer retention easier or tougher?

In a paper by Jie Zhang et al. “Crafting Integrated Multichannel Retailing Strategies”¹, the authors mention that all of the large retailers and 94% of the winners were multichannel operators. The advantages of multichannel retailers have been identified as Proprietary customer information and Knowledge to provide a seamless customer interface. Both of which give firms a competitive advantage.

The most successful multichannel retailer today is Amazon. The cycle of ordering online to receiving the package at an Amazon Locker² to returning the package is complex but increases customer satisfaction. WalMart has followed suit by introducing lockers³and has taken customer experience to a new level by allowing returns at a WalMart store. All this makes the supply chain even more complicated. Tracking an item from the warehouse to the customer to the store and back to the next customer and then paying the supplier based on a sale is a very complex process. This proves advantageous to the retailer as the SKUs on their books are very low and the risk is entirely with the supplier.

 

How does the retailer benefit with services like Amazon Locker? Apart from the suppliers, now the carriers or logistics partners share the burden of meeting customer delivery requirements⁴.  It is estimated that retailers who master the multichannel supply chain model with logistics arrangements mentioned, “can achieve increases in DC throughput of 40 percent, reductions in lead time to customer of one to two days, and DC cost reductions of up to 20 percent”⁴.

Companies like Zappos are bringing the shoe-store to your door-step. They are moving away from the showrooms to a completely “online” model. Best buy is known as Amazon’s showroom. WalMart is fighting it out in the online retail space with Amazon by going the multichannel retail way and reducing the number of super-stores. Is multi-channel going to mean different online channels in the next few years? Are physical stores going to become a luxury? How much customer information is too much for comfort?

Sources:

¹http://www.hbs.edu/faculty/Publication%20Files/09-125.pdf; "Crafting Integrated Multichannel Retailing Strategies"; Jie Zhang et al

² http://www.amazon.com/gp/feature.html?ie=UTF8&docId=1000841451

³ http://bits.blogs.nytimes.com/2013/03/27/wal-mart-introduces-lockers-as-it-battles-amazon-in-e-commerce/?_r=0

4 “The future of retail supply chains” by Nitin Chaturvedi, Mirko Martich, Brian Ruwadi, Nursen Ulker

References:

Information Technology in a Supply Chain (Chopra and Meindl, Supply Chain Management

A Different Game (The Economist, February 25, 2010);