New study by EY-Parthenon and Arvato SCM Solutions explores the opportunities of cross-channel commerce
Multichannel: selective investments as the key to success
Gütersloh /Düsseldorf – For multichannel companies, there are real opportunities for additional growth if they accept the specific success factors in each channel and compete against the respective leading players. This does not imply that they have to offer fully integrated omnichannel services to meet every customer requirement. On the contrary, companies can demonstrate their clear advantages through a very selective integration of their systems. Two often overlooked fields of application are marketing and inventory management. This is an outcome of the current study in which Arvato SCM Solutions and the strategy consultancy EY-Parthenon jointly investigated the opportunities for multichannel retailers in the future, especially in competition with online pure players.
The study titled "The king is dead, long live the king" is based on a representative sample of 1,500 customers in Germany who were asked about their specific purchasing behaviour in multichannel-relevant product categories. Furthermore, the analyses draw on detailed sales and inventory movement data in online and in-store channels of several multichannel fashion brands. Dr. Armand Farsi, Arvato SCM Solutions: “Our data analysis allows us to make in-depth inferences about customer preferences and behaviours, as well as an assessment of the potential that comes with crosschannel inventory management."
Not all multichannel services add value
When buying across channels, customers expect, above all, professionalism and efficiency in every single channel. This is all the more important as channel-hopping has become the norm today. Around 70 percent of those surveyed no longer rely solely on brick-and-mortar stores, but buy also, or even exclusively, online - especially younger consumers. Nevertheless, according to the study, both channels evidently have their clear right to exist across all age groups. Similarly, classic purchasing criteria such as a good price-performance ratio and high product quality remain by far the most important facets, regardless of channel. "Nevertheless, multichannel providers are struggling because the performance of their own online shop is often inadequate, or retailers lack a sophisticated social media strategy and therefore lack access to young customers," says Rolf Pensky, EYParthenon. “Only those who can offer the customer a convincing, specific proposition in each channel – and support this with the right information policy and targeted marketing – will be able to win the customer over in every channel.”
Cross-channel services do not per se create a competitive advantage because, according to the survey, the customer does not value every possible service offering. Companies therefore must carefully scrutinize exactly which omnichannel solutions they want to invest in, particularly as a double channel presence drives up cost. According to the study, building an omnichannel model is worthwhile if it is understood as a selective integration between channels – and not necessarily on the customer side, but also in the backend. Compared to online pure players, multichannel retailers then not only gain an additional advantage in terms of customer acquisition and loyalty through exclusive access to their in-store data. Cross-channel data transparency in inventory management also makes it possible to increase the efficiency of the overall system, for example, by reducing the clearance and discount rates.
Up to 10 million euros of sales potential without additional inventory
Currently, companies too often manage their stock by channel. The survey and inventory movement data from several multichannel fashion brands examined in the study show that typically between 10 and 20 percent of SKUs (stock keeping units) sell at different speeds online and in-store. This generates the potential to serve one channel's demand with verstock from the other channel.
"In order to achieve cross-channel product availability, retailers primarily use the two core concepts of ship from store and in-store ordering," says Dr. Armand Farsi, Director of the eCommerce Competence Center at Arvato SCM Solutions. "In the ship from store process, incoming online orders are processed and shipped not only from the e-commerce warehouse, but also directly from a local store, whilst in the in-store ordering process, an employee in the store can order an out of stock article for the customer online and have it shipped from the e-commerce warehouse or from another store.” However, both concepts generate additional cost – for example, when picking, packaging and shipping processes are relocated to the store, which is not primarily set out for the shipment of goods.
Nevertheless, investment in inventory transparency and the meeting of demand across channels is indeed worthwhile if the additional revenue generated by the reduction of out of stock articles and discounts also covers the fulfillment costs of shipping from the store. Although reliable statements are only possible with regard to one's own data, a sample calculation by Arvato SCM Solutions’ eCommerce Competence Center for the study shows that a sales potential of up to ten million euros for a multichannel company with annual sales of one billion euros is quite realistic – and that without additional cost of sales.
About Arvato SCM Solutions
Arvato SCM Solutions is an innovative and international leading service provider in the field of supply chain management and e-commerce. Partners come together with industry specialists in the fields of Automotive, Banks, Insurances, Consumer Products, Healthcare, Hightech, Entertainment, Publishing and Telecommunication. More than 14,000 employees work together to provide practical and relevant solutions and services worldwide. Using the latest digital technology, Arvato develops, operates and optimizes complex global supply chains and e-commerce platforms, as the strategic growth partner for its customers. Arvato SCM Solutions combines the knowhow of its employees with the right technology and appropriate business processes to measurably increase the productivity and performance of its partners.
As a leading European full-service e-commerce, omnichannel and retail logistics service provider; Arvato SCM Solutions has worked in the Consumer Products segment with world-renowned fashion, beauty and FMCG brands for over 15 years. Arvato’s brand-specific service portfolio covers retail logistics, omnichannel and the entire e-commerce process chain: development of online shops, frontend management, mobile app, B2B & B2C logistics and shipping including returns management as well as financial services, customer service and e-commerce consulting.
With 70 distribution hubs in Europe, Russia, Asia and the US, Arvato SCM Solutions provides the necessary scalability, flexibility and experience to give their customers the decisive competitive edge.
Arvato is a wholly-owned subsidiary of Bertelsmann.
For more information, please visit scm.arvato.com.
EY-Parthenon is a strategy consultancy, committed to bringing unconventional yet pragmatic thinking together with our clients’ smarts to deliver actionable strategies for real impact in today’s complex business landscape. Innovation has become a necessary ingredient for sustained success. Critical to unlocking opportunities is EY-Parthenon’s ideal balance of strengths — specialized experience with broad executional capabilities — to help you optimize your portfolio of businesses, uncover industry insights to make investment decisions, find effective paths for strategic growth opportunities and make acquisitions more rewarding. Our proven methodologies along with a progressive spirit can deliver intelligent services for our clients, amplify the impact of our strategies and make us the global advisor of choice for business leaders.