The profitability challenge: building a successful omni-channel strategy

Creating a profitable omni-channel strategy is proving to be no mean feat for retailers, who are faced with increased costs, incumbent back-end systems and more complexity than they’ve ever experienced before, says Wayne Usie at JDA Software

By Guest on 10 September 2015
The profitability challenge: building a successful omni-channel strategy

This article was first published in the Summer 2015 issue of OnWindows

According to the latest annual CEO survey conducted by PwC on behalf of JDA Software, CEOs have indicated that deriving profits from e-commerce and other ­omni-channel revenue streams is extremely challenging. In fact, according to the report titled Global Retail & Consumer Goods CEO ­Survey: The ­Omni-Channel Fulfillment Imperative, only 19% of the CEOs from the top 250 retailers (and only 16% overall) say they are fulfilling omni-channel demand profitably.

To echo these findings, The Wall Street ­Journal recently reported that Urban Outfitters’ earnings dropped 13% in the most recent quarter, which the retailer attributed to increased expenses for e-commerce. As a result, Urban Outfitters’ share price plunged.

The JDA/PwC CEO survey report was based on responses from 410 retail and consumer goods companies across Australia, China, France, Germany, Japan, Mexico, the United Kingdom, and the United States. CEOs are worried about escalating omni-channel fulfillment costs, with 71% saying omni-channel fulfillment is a top or high priority for them this year. The problem is that most retailers are not structured to handle omni-channel fulfillment efficiently. In the survey, 30% say they are still operating distinct channels individually, and another 31% say that while they can offer ­omni-channel front-end shopping experiences, they struggle to handle back-end fulfillment. Even the 19% of retailers who can offer both front-end and back-end omni-channel service to their customers, say it is too complex and expensive. That leaves only 16% who say they can execute omni-channel profitably.

The reasons that profitability is so challenging can be deduced from the survey data. For example, 67% of respondents reported that cross-channel fulfillment costs are rising. The top order fulfillment costs identified were for handling online and store returns (71%), shipping direct to consumers (67%), and shipping to stores for customer pickup (59%).

CEOs are taking steps to address these challenges, spending almost 30% of their total capital budgets this year on improving their ­omni-channel fulfillment capabilities. For the top 250 retailers, this investment represents an over 60% increase compared to last year. CEOs recognise that omni-channel is the new way of life for retail and they must adapt their operations if they want to be profitable going forward.

Wayne Usie is JDA Software’s senior vice president of retail

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