CSCR Resource OMNICHANNEL RETAILING : TRENDS , OUTLOOKS , AND STRATEGIES Prepare by Kusumal Ruamsook, August 21, 2016 About the Document This document is prepared as background for CSCR speakers on omnichannel retailing at the 2016 Parcel Forum. In this document, highlights of omnichannel retailing trends, outlook, and current strategies are presented. Data are based on a review of literature published within an approximately three-year time frame (up to July 2016), including managerial journals, industry reports, and relevant web resources. The review looks at the three elements of omnichannel retailing—point of interaction, point of fulfillment, and point of return. Considering the audience of the 2016 Parcel Forum, particular focus is on the point-of- fulfillment component, and secondarily on the point-of-return. TABLE OF CONTENTS Retail Sales Trends and Outlooks by Channel .......................................................................................... 4 Retail Sales by Channel ............................................................................................................................. 4 Retail Sales Forecast by Channel............................................................................................................. 6 Projections up to 2018 ........................................................................................................................... 6 Projections up to 2020 .......................................................................................................................... 8 Omnichannel Retailing Overview............................................................................................................. 11 Retail Evolution: Single-, Multi-, Cross-, and Omni-channel .......................................................... 11 Drivers for Retail Evolution ................................................................................................................... 13 Opportunities for Omnichannel Retailers .......................................................................................... 14 Illustration of Omnichannel Purchasing Journey ............................................................................ 15 Key Supply Chain Challenges of Omnichannel Retailing .................................................................... 17 Demand Planning and Forecasting Challenges ................................................................................. 17 “Endless Aisle” Assortment and Inventory Challenges ................................................................... 18 Cost of Order Fulfillment Challenges .................................................................................................. 19 Product Returns Challenges ................................................................................................................... 21 Point of Interaction Strategies .................................................................................................................. 22 Point of Interaction: Discovery (Awareness & Research) and Post-Purchase .............................. 22 Personalized Marketing and On-the-Go Promotion Trends ........................................................ 23 Social Media Retailing Trends: Influence during Discovery and Post-Purchase .................... 24 Page 1 of 69 CSCR Resource Point of Interaction: Evaluation and Purchasing .............................................................................. 25 Pure-Play E-retailer Strategies: Developing Physical Presence.................................................. 25 Brick-and-Mortar Retailer Strategies: Developing Online Presence ......................................... 26 Innovations in Evaluation of Alternative and Purchasing ......................................................... 27 Point of Fulfillment Strategies .................................................................................................................. 28 Fulfillment Network Configurations ................................................................................................... 28 Internally Managed vs. Outsourced Fulfillment Facilities: In-house Dominated .................. 28 Multi-tier Fulfillment Network Design ........................................................................................... 29 Fulfillment Node and Link Operations: Delivery Locations, Fulfillment Operations, and Last- mile Delivery ............................................................................................................................................. 31 Delivery Locations: Click-and-Deliver and Click-and-Collect ..................................................... 31 Fulfillment Operations: Store-based and DC-based Models ....................................................... 32 Store-based Fulfillment Models .................................................................................................... 32 DC-based Fulfillment Models: Multi-channel DCs Dominated ............................................... 39 Last-Mile Delivery ................................................................................................................................ 45 Illustration of Multi-Echelon Fulfillment Network with Dynamic Flows ............................... 49 Omnichannel Inventory Management ................................................................................................ 50 Omnichannel Inventory Management Evolution ......................................................................... 50 Store-Level Inventory Management: Key Enabler for Store-based Fulfillment ..................... 51 Point of Return Strategies .......................................................................................................................... 51 Online Order Returns Policy Trends: Free Return Shipping and BORIS ....................................... 51 Importance of Strategic Return Management ................................................................................... 53 Returned Product Operations and Strategies .................................................................................... 55 Returned Product Facility Operations Models ............................................................................... 55 Strategies to Reducing Cost and Maximizing Income Recovery of Returned Products ........ 57 Key Takeaways: Best Practice Features .................................................................................................... 61 References .....................................................................................................................................................66 List of Figures Figure 1/ Ecommerce as a Percentage of Total Retail Sales .................................................................. 4 Figure 2/ Ecommerce versus In-store Retail Quarterly Sales Growth ................................................ 5 Figure 3/ Ecommerce Sales Share by Product Category ........................................................................ 5 Figure 4/ US Online Retail Sales and Share by Channel (2012–2017) ................................................. 6 Figure 5/ US Retail M-commerce Sales via Smartphones and Tablets 2014–2018 ........................... 7 Figure 6/ US E-Commerce Sales (in Billions) 2014–2018 ....................................................................... 8 Figure 7/ US Online Retail Sales (2016–2020) .......................................................................................... 9 Figure 8/ US Online Retail Sales (2013–2019) ........................................................................................ 10 Figure 9/ Retail Evolution toward Omnichannel .................................................................................. 11 Figure 10/ Channel Agnostic Shoppers ................................................................................................... 16 Figure 11/ Nonlinear Purchasing Journey .............................................................................................. 16 Figure 12/ Profitability Challenges for Typical Retailer with 30 Percent Gross Margin ............... 19 Page 2 of 69 CSCR Resource Figure 13/ Changes in Order Profiles ....................................................................................................... 21 Figure 14/ Fulfillment Methods Used by Leading Retailers (Deloitte Omnichannel Survey) ...... 35 Figure 15 / Commonwealth Supply Chain Advisors survey ................................................................ 39 Figure 16 / Logistics Management’s Annual Warehouse and Distribution Center (DC) Operations Survey ...................................................................................................................................... 40 Figure 17 / 2015 Annual Survey On Retail Fulfillment Practices ....................................................... 41 Figure 18/ Shipwire Online Marketplace for Fulfillment and Logistics ........................................... 42 Figure 19/ Technologies Employed for Omnichannel Order Fulfillment ....................................... 44 Figure 20/ Last-Mile Delivery Method Trends ........................................................................................ 45 Figure 21/ Example of Returned Product Process Flows ...................................................................... 57 Figure 22/ Returned Inventory Disposition Options