Omni-Channel Planning Blog Series ? Are You on the Right Track? ? Thought03

Posted by Drew Larson on May 19th, 2016

Some retailers would argue that this is table-stakes to be in the business and not fall behind competition. It is true but there is also significant dollar value that can be realized if done right. The key value drivers that I most often see:

Sales growth: 1%-3%

This is largely driven by recovering some of the lost sales that would have occurred due to lack of inventory in a store or online. The assumption is that a customer is willing to have the product shipped to his home if it is not available in a store or vice-versa there is visibility to store inventory if a product is not available in the e-commerce distribution centers.

The second driver is the ease of shopping. The e-commerce sales experience incremental growth if the merchandise can be picked up or returned in stores.

I typically do not consider the “endless aisle” as an Omni-channel value driver but more of an assortment value driver.

Margin improvement: 0.5%-2%

This is largely driven by reduced markdowns due to higher inventory productivity. The ability to ship from stores mean there is a higher chance of selling that inventory at full-price versus taking expensive markdowns.

Inventory reduction and productivity: 5%-15%

An Omni-channel process center around a global inventory visibility and utilization. Inventory sharing increases the ability to meet customer demand with overall less inventory across the supply chain network. The inventory also turn faster as there is an opportunity to balance inventory globally and not just channel specific.

In summary, a B retailers can expect -M in top-line growth; -M in Gross Margin improvement and a M-M in inventory reduction from a well-executed Omni-channel initiative.

Some of these benefits will be offset by operational cost increases of shipping and handling returns at the stores. It is imperative for a retailer to understand the cost-benefit trade-off before embarking on an Omni-channel initiative. Irrespective of the ROI, a retailer may still need to embark on an Omni-channel initiative as a table-stake.

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