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Retail CEOs Need to Remove Organizational Silos

Feb. 24, 2016
75% of retailers have failed to remove silos and are vulnerable to customers facing a disconnected brand experience.

The rise of omni-channel retailing and the age of ‘me commerce’ in which the consumer is the new boss has led retailers to transform their business models towards a more integrated, seamless experience for consumers, regardless which channel they choose to shop.

However, to succeed at developing an omni-channel model also means doing so profitably, no small feat for retailers today. The third annual JDA survey of more than 300 retailers finds that only 18% of CEOs say they have eliminated operational silos and are delivering seamless omni-channel shopping experiences for their customers.

This means that the majority of retailers surveyed are still operating in silos, which is taking a toll on retailers’ profitability and ability to create a seamless shopping experience for customers. 

This and other findings are highlighted in CEO Viewpoint 2016: The Journey to Profitable Omni-Channel Commerce, a new report prepared for JDA Software Group Inc. by PwC. The study is based on a global survey of more than 300 retail and consumer goods CEOs conducted in late 2015.

This year’s report highlights crucial differences between CEOs surveyed who eliminated operational silos and now deliver a customer-centric omni-channel shopping experience (18%) vs. those who had not eliminated such silos.

Companies without operational silos expressed greater confidence in revenue growth (59% vs. 48% average for all CEOs) and profit growth (63% vs. 43%) than their peers.

The elimination of such silos speaks not only to stronger positioning for revenue and profit growth in the year ahead, but considerable differences in omni-channel maturity across the companies and countries surveyed (these include: China, Germany, Mexico, United Kingdom and United States).

CEOs that have removed silos are also achieving significant competitive advantage though lower costs and increased investments in customer-centric services.  

Omni-channel Fulfillment Costs Threatening Retailers’ Profitability

Not only are CEOs who have removed business silos less concerned about the impact of omni-channel operations, they also may have significant cost advantage over those companies still operating in silos. While a staggering 74% of CEOs in companies operating in silos say their costs for omni-channel fulfillment are increasing, only 59% of the companies that have eliminated silos say these costs are increasing. The highest costs for omni-channel fulfillment centers around shipping to consumers:

  • 32% of CEOs who have eliminated silos and 45% for those with silos indicate shipping directly to consumers from a distribution center is their highest omni-channel fulfillment cost
  • Processing returns was second highest; 51% without silos vs. 67% with silos

This data strongly suggests that removing silos from omni-channel operations can give companies a competitive cost advantage. To deal with the high costs of omni-channel fulfillment– particularly for those operating in silos – CEOs are planning to offset increased costs in the following ways:

  • Raising the minimum order value for free home delivery (39%)
  • Raising the minimum order value for free Click & Collect services (31%)
  • Increasing the cost for home delivery (29%)

However, putting cost increases back on the consumer may dissuade consumers from shopping with them, as the recent JDA 2015 Consumer Survey indicates that consumers are unwilling to pay for returns and may choose an alternate retailer instead.

Click & Collect Options Increasing in Emerging Markets

This survey also reveals that retailers who wish to compete in global markets (China and Mexico) realize they must offer a wider range of fulfillment offerings to their customers, to compete with companies in those markets already offering such services.

Over the next 12 months:

· 60% of retailers in emerging markets are offering or plan to offer in-store Click & Collect services vs. 41% of retailers in mature markets

· 46% of retailers in emerging markets are offering or plan to offer Click & Collect services in commuter travel hubs vs. 22% of retailers in mature markets

· 42% of retailers in emerging markets are offering or plan to offer Click & Collect services via third-party retailers vs. 18% of retailers in mature markets.

Of note, more mature omni-channel companies (non-siloed) are more likely to offer in-store Click & Collect (56% vs. 47%) than their peers with silos, but are less likely to offer any of the other Click & Collect options such as picking up purchases at lockers or commuter travel hubs. These companies appear more focused on the speed of delivery, favoring same-day over next day deliveries and are more likely to offer specific time slots for customer deliveries. In mature markets, speed to delivery can be a loyalty-building competitive advantage.

Where Are CEOs Investing in Omni-Channel? Order Fulfillment Options

Ultimately, the data from this survey reveals that CEOs are investing in the one area that is costing them the most, and potentially impacting their profitability: order fulfillment options.

CEOs surveyed are spending 26% of their investment capital on omni-channel readiness in 2016, with some of these investments centering around extending omni-channel fulfillment options for customers (51%), providing a seamless customer shopping experience (49%) and most importantly, understanding social media for business use (49%). Understanding and analyzing customer data is critical to mastering omni-channel in 2016 and beyond.

“Understanding customer sentiment and shopping preferences by way of social media and big data analytics is key to meeting the omni-channel imperatives dictated by consumers, ensuring customer satisfaction and increasing retailers’ profitability in the years ahead,” continued Usie.

“It’s important to note that CEOs’ investment intentions are higher now than they are over the next three years, especially around the critical omni-channel functions of extending the range of customer fulfillment options and providing seamless customer shopping experiences. Retailers need to get it right now in order to stay competitive and expand into emerging markets, particularly as big box retailers and discount retailers continue to proliferate and threaten smaller retailers globally.”