Customer Experience Transformation | Varying Levels of Omni-Channel Maturity | Investments to Develop Advanced Omni-Channel Retailing Capabilities WINNING THE OMNI-CHANNEL RETAIL RACE TRUE VALUE OF OMNI-CHANNEL RETAIL Showrooming is emerging as one of the biggest threats to traditional retailers (physical stores). Predatory pricing and easy, convenient and consistent buying experiences offered by the internet retailers have disrupted the traditional retail industry. Despite offline retail having a high market penetration of ~94.1 percent in 2014 maintaining profitability |of physical stores is becoming difficult. The reason lies in the inherent high number of fixed cost components embedded in running brick-and-mortar stores WINNING THE OMNI-CHANNEL RETAIL RACE TRUE VALUE OF OMNI-CHANNEL RETAIL SHOWROOMING - BIGGEST THREAT TO PHYSICAL RETAIL STORES With majority of mobile users final price. He checked a number experiences offered by the Internet owning smartphones and multitude of e-commerce websites (including retailers have disrupted the of customers carrying the Internet mobile optimized sites) for the traditional retail industry. Despite in their pockets, the use of mobile same product and, to his surprise, offline retail having a high market devices in-store to compare finds that there is a price difference penetration of ~94.1 percent in product prices has become very of more than 25 percent. John 2014i, maintaining profitability of popular. Customers visit the foregoes buying from either store physical stores is becoming physical stores to see and try in favor of ordering the product difficult. The reason lies in the products in person, but ultimately online. inherent high number of fixed cost intend to order them online (which components (as seen in Exhibit 1) increasingly involves mobile touch). Showrooming, as displayed in embedded in running brick-and- Looking at a typical example, John John's behavior, is emerging as one mortar stores. Therefore, even if goes into a retail mall to buy an of the biggest threats to traditional sales reduce by a meager four-five Internet router. He visited two retailers (physical stores). percent, the chances of maintaining stores to buy the same product, Predatory pricing and easy, margins become extremely thin, as and both quote him $100 as the convenient and consistent buying fixed costs will still be incurred. Exhibit 1 Key Costs in a Retail Store Key Costs Type Description Comprises the majority of business costs but gross margins Costs of Goods Solid (COGS) Variable are generally fixed Warehousing and Logistics Fixed/Variable Costs related to transit, storage and packaging (variable) Expenses related to advertisements, loyalty management, Advertising and Promotion Fixed/Variable discount offers, etc. Store leases typically contain percentage rent provisions Rent Fixed/Variable that are based on store sales, however, most of the portion is generally fixed Electricity and Other Utilities Fixed Costs related to electricity, telephone and water Some portion of the costs could be on a commission basis Floor Staff Costs Fixed/Variable but the majority is likely to be fixed Depreciation of Fixed Capital invested in furniture and fittings depreciates periodically Furniture and Fittings Expenses related to technology including hardware, software, System Costs Fixed services and administration Source: WNS DecisionPointTM Analysis wnsdecisionpoint.com 1 WINNING THE OMNI-CHANNEL RETAIL RACE TRUE VALUE OF OMNI-CHANNEL RETAIL To make matters worse, the apps, websites, social media, fulfillment and after-sales service. customer's purchase journey has interactive voice response systems) Customers switch channels totally transformed and is very apart from physical stores, have continuously, especially when unpredictable due to the advent made the buying decision journey searching for information on of online shopping. The increase in more complex, right from products and while buying. customer touch-points (mobile stimulation to research, purchase, Exhibit 2 Customers Purchase Journey Problem Recognition Research Buy Fulfillment After Sales Service Problem/need recognition Acquiring Buying the stimulated via advertising Obtaining product details product, Engaging with the on editorials, trade product at the from stores, whether in a brand to provide magazines and reports, store, home, Internet, store, online or feedback and to enter consumer awareness warehouse or telephone and by mobile into loyalty programs programs on TV and the workplace friends application Internet Source: WNS DecisionPointTM Analysis To overcome this situation, many Omni-channel retailing is becoming This research report attempts to brick and mortar retailers adopted the new normal in the retail identify the relationship between a multi-channel strategy for selling industry and this means that EVA and omni-channel retailing products, i.e. selling products companies, who are accustomed to and draws up the implementation through various channels such as delivering through either a single blueprint for delivering 'one' physical stores, online websites and channel or through multiple customer experience. mobile applications. Each channel disconnected channels, need to Understanding the strategy was managed and operated rethink their strategy of customer roadmap (goals envisioned, separately (in terms of customer engagement. execution capabilities for cross- relationship management, ordering, channel buying, returns inventory, and so on), resulting in management, etc.) and higher overall investments and infrastructural requirements inconsistent customer experiences (uniform product and price across channels. The whole objective of information across channels, single omni-channel retailing is view of inventory and orders across Omni-channel retailing has to enhance revenue the enterprise, aligned finance and emerged to address the drawbacks growth and profitability supply chain processes) for being of multi-channel retailing and the amid high market an omni-channel retailer is a unpredictable buying behavior of saturation and rising necessary precursor for identifying customers. In an omni-channel the aforementioned relationship. Internet penetration, model, irrespective of how, where, The following report highlights all thereby, enhancing when or why consumers interact these points and lays down a clear with the retailer, they are offered economic profit roadmap for a converged retailing the same product selection, (Economic Value-Added experience. purchase and fulfillment options or EVA). and level of service. 2 wnsdecisionpoint.com WINNING THE OMNI-CHANNEL RETAIL RACE TRUE VALUE OF OMNI-CHANNEL RETAIL OMNI-CHANNEL RETAILING - THE EVOLUTION Increased internet usage and the rising penetration of mobile devices has redefined the customers purchase journey at every step, from building awareness, to driving consideration, and ultimately inspiring purchase. This has led to huge growth in the online sales market globally (refer Exhibit 3) as customers demand products anywhere, anytime and from any device. Exhibit 3 E-Retail Sales, Global Key Costs 2013 2014 2015F 2016F 2017F 2018F E-Retail Market Size ($ Billion) 694.8 839.8 994.5 1,155.7 1,328.0 1,506.0 E-Retail Market Size Growth (YoY %) 17.38% 17.66% 17.81% 17.95% 18.05% 18.12% Source: Euromonitor; F-Forecast Despite a high growth rate of ~18 After a week or so, Wet Seal filed correctly, the online retail boom is per cent within the E-Retail market, for Chapter 11 bankruptcy a blessing in disguise for the the overall retail industry (including protection. Abercrombie & Fitch, wounded brick and mortar E-Retail) only grew by a paltry 5.3 another mall staple, closed ~60 retailers. Traditional retailers have percent in 2014ii, indicating that it is stores in 2015 as leases expired.v already focused or are in the a two-paced growth paradigm. process of strengthening their As per Business Monitor omni-channel capabilities in a bid An increasing preference for online International, a Fitch group to capitalize on the rising online buying has led to a huge number of company, there were around 3,500 retail market and ensure a retail store closures around the shop closings announced in Q1 seamless, on-demand customer globe. RadioShack, running more 2015 in the U.S. alone, holding experience. The idea behind this is than 1,700 electronic goods outlets around 0.1 percent of the country's to create a competitive advantage vi in America, filed for bankruptcy in stock . Most of the downsizing was (in relation to online retailers), February 2015 prior to being announced by fashion, household leveraging stores' fulfillment acquired by a hedge fund, goods and consumer electronics capabilities, with stores acting as a iii Standard General. Wet Seal, an retailers. warehouse. American clothing retailer, closed 338 stores in January 2015 to So does that mean the end of store concentrate on its online business.iv based buying? No. Approached Increasing preference for online buying has led to a huge number of retail store closures around the globe. As per Business Monitor International, a Fitch group company, there were around 3,500 shop closings announced in Q1 2015 in the U.S. alone, holding around 0.1 percent of the country's stock. wnsdecisionpoint.com 3 WINNING THE OMNI-CHANNEL RETAIL RACE TRUE VALUE OF OMNI-CHANNEL RETAIL Traditional retailers' supply chain Moreover, stores present significant fulfillment, and receiving products costs are roughly three times lower cross-selling and up-selling