For classic brick & mortar retail companies there has not been lack of warning about the growth of e- commerce in the last 15 years. The actual impact has been slower to materialise, but turns out to be more dramatic than expected. We suggest therefore that a reactive approach will not suffice to deal with this trend, instead retailers need to approach online and offline in an integrated way with a new integrated business model.
As Amazon posts another 41% revenue growth to $48.1 billion, we are now at tipping point and in response many retail organisations have recently accelerated cross-channel investments.
- Walmart has spent more than $300 million acquiring five tech firms since May and hired more than 300 engineers and code-writers in the U.S. and India.
- Ahold has acquired Bol.com, the leading e-tailer in the Dutch home market, for €350 million2.
- Sears Holding Corporation, the owner of Sears, Kmart and 1995 e-tailer “Land’s End” states: «We are accelerating actions intended to drive our strategic agenda to become the leader in Integrated Retail. Profound changes in technology have an impact on the entire retail landscape, the way customers shop and the way they live… We are accelerating our actions to bring together a unique set of technology and retail assets to deliver a seamless, integrated experience for our ‘Shop Your Way’ Rewards members and customers—at the store, online, and at home.»
Many smaller retail companies have invested in cross-channel initiatives, making the assortment available online, experimenting with Facebook and introducing new technology in store. These initiatives have often been responsive, ad-hoc and separate from the core business; not delivering the turnaround and volume growth that was expected.
There are six reasons why this transformation requires an integrated and urgent response from the retail industry:
- Alternative innovative ways to deliver retail services pose an increasing threat to classic brick & mortar focused retail companies in the market
- New competitors introduce innovations that pose a substantial threat by profoundly changing the business system and delivering higher value to customers at lower costs
- An effective response to the cross-channel opportunity links innovation to the existing formula position and leverages the existing channels. Cross-channel is not a bolt-on; it is an integral part of value creation by retail companies
- Cross-channel innovations should address the same needs as the core retail formula addresses. Existing and new points of contact with the customer should reinforce the value perceived by the customer
- The impact of innovating these existing business models is substantial, as a shift has to be made from product/outlet-centred processes towards more customer/order-oriented processes. This transformation therefore affects all aspects of the retail company operating model
- As the future is increasingly dynamic and uncertain, successful transformation requires continuous innovation based on connected processes and empowered organisation. This requires a cultural change that will open up the organization
We propagate a more profound response to the developments in the market. Retail should transform its business system to reap opportunity for growth in cross-channel. Read more about the transformation in the recent point of view: Growth strategy, Cross Channel Retail