The retail omnichannel experience

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Online shopping today accounts for around 7% of global retail sales. That might sound low, but when you consider that in five years’ time the figure is predicted to reach 20%, you get some idea of the phenomenal growth rate of this channel. Clearly, shopping behavior is changing and, in the most mature markets, stores are declining unless they are discounters or convenience outlets.

Speaking at CODE_n, Andrew Cosgrove, Global Lead Analyst, Consumer Products and Retail at EY, said the shopping journey is evolving rapidly into an “omnichannel” experience — meaning consumers use many different routes to reach the point of purchase. Even if they don’t buy online, around 65% use the internet in some way during the shopping process. “It’s non-linear,” explained Cosgrove. “Consumers browse online and visit comparison sites as well as going to stores.”

Changing business models

So what are the implications for retailers? Clearly, they can no longer rely purely on traditional business models. But the sheer cost of setting up omnichannel services — including delivery to the customer’s home or drop box — risks dragging down margins. Said Cosgrove: “The problem is that if you don’t do it you may protect your profits in the short term but, ultimately, you might lose your customers altogether.”

In a recent EY survey of the world’s largest companies, 81% said their supply chain was not fit for purpose for omnichannel.* Cosgrove said the solution is that omnichannel has to stop being an afterthought and instead be built into the entire value chain, starting with product design. So, for example, businesses have to design products that are cheaper and easier to ship individually.

More agile supply chains

As part of this overhaul, the supply chain must also change. Traditionally, supply chains are set up to deliver large boxes and pallets, whereas online customers want single items. “Supply chains have to become much more agile and flexible,” said Cosgrove. “Now that supply chain is responsible for customer delivery, it’s very visible. It’s gone from being back of house to front of house.” In some emerging markets, manufacturers are exploring going direct to consumers and bypassing retailers altogether.

These trends will only accelerate over the coming years: the dawn of the Internet of Things means that sensors will track our every purchase. “We will start to see a shift from shopping to automatic subscription and fulfillment. We are already starting to see this for items such as baby milk powder for example,” said Cosgrove. The implication of shopping being replaced by “auto-replenishing” presents yet another challenge for retailers to master, if they are to survive.

EY and CODE_n at CeBIT 2015

CeBIT is the world’s largest annual trade show covering issues relevant to IT in business, described as the “worldwide hotspot for innovation.” An important element of the CeBIT agenda is the CODE_n conference program and contest for 50 of the most promising digital start-ups from across the globe. This is an opportunity for pioneering young digital entrepreneurs, established businesses, investors and leading thinkers to discuss and showcase their ideas on how new technologies will transform the way we live.

“Into the Internet of Things” was the theme for the 2015 CODE_n contest, which was supported by EY. While contest finalists presented ideas based on four subthemes (smart city, industry 4.0, future mobility and digital life), panel discussions and keynote speakers deep dived into the issues. Topics ranged from the cybersecure city, smart factories, the future of automotive and living the digital life.

* Re-engineering the supply chain for the omni-channel of tomorrow, EY, 2015, www.ey.com/GL/en/Industries/Consumer-Products/ey-omni-channel, accessed June 2015

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