omnichannel commerce

Retail’s changing landscapeEvolving from a multi-channel to an omni-channel customer experience

Presented by: Jennifer Lee

March 27, 2013

© Deloitte & Touche LLP and affiliated entities.

Discussion items

• Retail business model disruption• Implications• Shifting to an omni-channel world• Case study: Starbucks• Our team

Retail’s changing landscape – omni-channel customer experience2


Retail business model disruption



Retail business model disruptionOmni-channel


Customers will come to us

We need to sell online Many customers shop across channels

Relevant products and services anywhere

The past:Store 1.0

The recent past: Store 1.5

e-commerce

The present:Store 2.0 multi-channel

The future:Store 3.0™omni-channel


Deteriorating store metrics

Retail’s changing landscape – omni-channel customer experience

Who’s next?363 stores and growing

We will have to start downsizing our stores over the next five years as customers shift to e-commerce.

On their smaller stores: “When you combine lower rents, lower build out and a smaller total footprint with high sales per square foot, it’s a very powerful economic model.”Walter Robb, Co-CEO

“We’re looking for more ways to combine our e-commerce business into our bricks-and-mortar stores to create an integrated, multichannel shopping experience for our guests.”Daniel Duty, Director of Enterprise Strategy

“The big box store is not the right concept for the future.”Robert Dutton, CEO

Shoppers Drug Mart CEO has commented that shrinking the size of Shoppers stores is part of the company’s strategy going forward.

“This industry is under pressure. We are facing the single worst commercial environment that the drug sector has ever faced.”

Domenic Pilla, CEO


Changing consumer behaviourMobile price checking is becoming a competitive threat


Reduces store transactionsCustomers buy from your competitors in your store!

Reduces the number of store trips to comparison shop

Makes pricing transparent to anyone

… but it’s just the thin edge of the omni-channel wedge


Changing consumer buying behaviour


Smartphone users are interested in using their mobile phone to pay for an item in-store, rather than using a cashier3

41%A

Consumers are using multiple channels to research and purchase

Multi-channel consumers are not loyal; do not research and purchase from the same retailer1

43%

Shoppers use two or more channels to research and purchase an item2

78%

Smartphones have become an integral part of the purchase process5

Research on smartphone and then buy in-store5

67%

Research on smartphone, visit store to check out product and then purchase online5

23%

Research on smartphone, visit store to check out product and then purchase on smartphone5

16%

Tablet owners use their tablets for shopping purposes4

60% Visit store, then purchase on smartphone5

9%

Multiplier effect

A) 45% of male respondent and 38% of female survey respondents indicated that they would be either “very interested,” “interested,” or “somewhat interested” in checking out on their mobile device while in a store,

Sources: 1) 2007 Forrester “Web’s Impact on In Store Sales” , 2) 2011 March “Cross-Channel Commerce: A Consumer Research Study”, Oracle White Paper, 3) 2011 April “Mobile Trends: Consumer Views of Mobile Shopping and Mobile Service Providers”, Oracle White Paper, 4) 2011 July “Why Tablet Commerce May Soon Trump Mobile Commerce “, Forrester, 5) Google Insights

Retail’s changing landscape – omni-channel customer experience8 © Deloitte & Touche LLP and affiliated entities.

Implications


Purchase path was seen as traditionally linear


• Social interaction• Product discovery• Marketing• Price-checking

Pre-Purchase

Purchase

Post-Purchase

But there’s a new reality…

• Cashless/cardless purchase online or in-store

• Self-checkout

• Order management• Customer service• Loyalty


Connected consumers define the path – It is not linear!


How Erica buys

Ultimately, she buys the game in a physical store, but would have bought online if she had a gift certificate or pre-paid credit card.

Erica is 13 years old and an example of the connected consumer. She is interested in a new game for her PS3.

She checks for blogs and posts on the manufacturer’s web site.

She checks with friends on Facebook to see how they liked the game followed up by face-to-face interaction at school.

She uses a PC to check for online reviews of the game.

She uses a mobile device to check prices at retailer’s web sites. Note: she will abandon web sites with poor functionality.


The future role of the store will be very different


Present… … Future

Retail’s changing landscape – omni-channel customer experience12 © Deloitte & Touche LLP and affiliated entities.

Shifting to an omni-channel world


Retailers recognize the need to change


As a result, omni-channel retailers are evolving into a more integrated business model where all channels share a common strategy for profitable growth

"It's clear to me the customer has evolved and changed the way they shop and we have to change with them. There's no going back… The power of e-commerce extends far beyond the keyboard and onto the sales floor.” Terry Lundgren, Chairman, CEO, and President of Macy’s, Inc.

“Much of our focus on digital is because we think the survivors in the industry are going to lead in this category.” Myron Ullman Chairman and CEO

“We are now as much a media-content company as we are a design company because it is all part of the overall experience.”Christopher Bailey, Creative Director for Burberry

“Technology will form the way people shop and the way retailers need to redefine their model…I think there are many developments coming down the line which will transform how we define ourselves and how customers define what a good shopping experience looks like.” Andrea McDonnell, Head of Multichannel strategy

“The ability to allow our customer to take advantage of Walmart’s price leadership whenever and wherever she wants is what underpins our multi-channel strategy…In order to fully evolve into a multi-channel retailer here in the US, we need to make our organization, particularly in Merchandising and Marketing, channel agnostic.” Eduardo Castro-Wright, Vice Chairman of Walmart


Transforming the business modelThe multiplier impact of omni-channel


2010 2015f

7.117.84.06.026

79.6

9.4

13.1

$37.1 billion

$103.4 billion

Multiplier effect (2010)Online research/In-store purchase = 5.77xMobile research/e-commerce purchase = 2xMobile research/In-store purchase = 2x

Multi-channel effect (2015f)Online research/In-store purchase = 5.40xMobile research/e-commerce purchase = 2xMobile research/In-store purchase = 4x

E-commerce

M-commerce

E/M-commerce influenced sales

Digital goods


Transforming the business model of retailers

Retailers will experience significant profit improvement and brand awareness by investing in omni-channel capabilities


Conversion 20% 3%

Traffic (000’s) 90 200

StoreOmni-channel

e/m-commerce sales

Sales ($000’s) $900 $300

Gross margin 47% 47%

Occupancy and labour 26% 0%

Online costs 0% 15%

SG&A 11% 11%

EBIT ($000’s) $90 $63


Nordstrom and Macy’s are outperforming peers since the launch of their omni-channel initiatives


Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr2006 2007 2008 2009 2010 2011

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Quarterly growth rate of Nordstrom and Macy’s vs. Department store sector

Difference in quarterly growth rate

Nordstrom 10% 15% 17% 12% 7% 7% - 1% - 1% 1% 9% 11% 16% 22% 17% 15% 15% 9% 9%

Macy’s n/a 8% -2% 2% 0% 2% -2% 2% 1% 3% 2% 5% 4% 3% 6% 8% 9% 10% 4% 3%

Nordstrom

Department store sector1

Qu

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ev

en

ue

Gro

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(Y

oY

)

Nordstrom launched omni-channel initiative

Macy’s

Macy’s launched omni-channel initiative


Pure plays are realizing the economics of having physical presence


• WIRED magazine introduced a pop-up store featuring gadgets, art installations and special events that embodied the “WIRED lifestyle”

• The WIRED store provided a unique channel to physically interact with its consumers that WIRED had not previously met

• The eBay Christmas boutique in London was stocked with 350 eBay best sellers

• Customers connected with eBay via smartphones and learn about how easy it is to shop eBay with mobile

• Dubbed “Chrome Zones”, Google introduced a pop-up store to introduce “Chromebook”

• While sold online only, Google offered customers an opportunity to test and experience

omnichannel commerce

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