Logistically Speaking: Omni-Channel Is Not Quite Ready for Prime Time Yet

Sept. 18, 2013
Consumers still prefer to do their holiday shopping the old-fashioned way, despite the promise of omni-channel distribution.

In the old days, at this point in the year we'd be deep into the traditional peak shipping season. Back in the day (and by "the day," I mean before the Great Recession), manufacturers and retailers would be closely monitoring port activity to ensure their goods arrived from overseas, timed with precision to make it to the store shelves in time to meet the demand of the upcoming holiday shopping season. The concept of a shipping season as we used to know it, however, is gone. 

According to transportation analyst Rosalyn Wilson, author of the 2013 State of Logistics report, the traditional peak shipping season has been phased out. "Recent peak shipping seasons," she says, "have either been almost undetectable or protracted so that their impact is minimal on capacity and rates."

One of the reasons the shipping "season" has basically vanished is because of the continuing rise in popularity of online shopping, which has "changed the way we manage and distribute our inventory," Wilson notes. "Real-time transparency in our distribution networks allows us to fulfill orders faster with less inventory. The same inventory is used to fill store orders and online orders. If the store doesn't have the item in the color or size you want, your order can be placed right at the store."

What Wilson is describing is a trend known in the popular press as "the me-tail revolution," and within supply chain circles as omni-channel distribution (see "The Ten-Step Omni-Channel Challenge," p. 33). The idea is a simple one: Retailers don't want to lose a sale to a customer due to a stock-out, so no matter where a customer interfaces with a retailer—a brick-and-mortar store, a kiosk, an online catalog, or a mobile device—that retailer can fulfill the order within a day. Executing on that idea, however, can be quite complicated. 

As industry consultant and MH&L Editorial Advisory Board member Joe Andraski explains, retail giants such as Walmart and Macy's are transforming some of their brick-and-mortar stores into replenishment centers for their other stores (see "Introducing Talent to Opportunity," p. 14). "If my wife goes to Macy's for something and they don't have it, they'll have it sent the next day from St. Louis to our home in Philadelphia," Andraski says. "If they don't have it in St. Louis, they'll ship it from a distribution center in Arizona that has been set up primarily to service direct-to-consumer business."

But guess what? Despite all the promise of an "anytime, anywhere, to any consumer" supply chain, omni-channel to date represents something considerably less than a seismic shift in retail because, frankly, consumers haven't yet warmed to the idea. A recent study by consulting firm Accenture reveals that while 43% of consumers expect retailers to offer the same products online as in their stores, only 19% of retailers actually do so. And despite the constant hype that consumers prefer the convenience of shopping online, the opposite is still the case: In-store shopping is 20% more popular among consumers than online shopping, maybe because only 16% of retailers offer the same prices online as they do in their brick-and-mortar stores.

What's more, according to The Wall Street Journal (August 28, 2013) traditional retailers are now being pressed by the U.S. Government to reveal exactly how much of their business comes through online channels, and wouldn't you know it, the numbers are much smaller than we've been led to believe. For instance, when pressed by the SEC to quantify claims of double-digit percentage growth in online sales, Target sheepishly admitted that "digital sales represented an immaterial amount of total sales," reportedly less than 2% of overall sales. At PetSmart, the impact of online commerce is even smaller, amounting to less than 1% of total sales. Even at retail giant Walmart, which is desperately trying to close the gap between itself and Amazon, online sales account for only about 5% of annual revenues.

Online retail is pretty much a one-horse race right now, according to the WSJ, as Amazon sells more online than its 12 biggest competitors combined (Amazon's sales last year were $61 billion, dwarfing Walmart's nearly $8 million in online sales). With the government breathing down the retailers' necks and consumers demanding a seamless shopping experience (including same-day and next-day delivery options), omni-channel as it exists today isn't quite ready for prime time this holiday season. Unless your name is Amazon.

Follow me on Twitter @supplychaindave.

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