Is e-commerce oversold?

Australian retailers should be looking to integration of their traditional and online businesses to survive into the future.

Independent research group Forrester Research estimates that e-commerce will be worth some $27 billion in 2010, of which 25 per cent will go to offshore retailers.

Australians have been slow to embrace internet shopping but the strong dollar has encouraged shoppers to compare prices and more people are buying goods online from local and international retailers.

What does this mean for bricks and mortar retailers?  

It is no longer a binary question of whether the retail industry will ultimately be all online. No one claims that. It is about the opening up of the industry and combining a bricks and mortar offer with e-commerce.

Over the last few years retailers have increasingly accepted that multi-channel retailing is a real trend and, in addition to flowing through the ordinary bricks and mortar stores, stock is now beginning to flow through web stores, wholesale channels and concession stores.

But what many retailers fail to realise is that this is not the end of the transformation. The next logical step for a multi-channel offer is full sales channel integration, and customers will increasingly expect and demand this. Such sales channel integration will ultimately lead to a customised supply chain.

Currently, purchase and delivery options are limited. When customers buy online they select products via the web and the delivery comes to their home.

When customers buy in a bricks and mortar store, they choose the products in the store and take the goods home with them. The introduction of the customised supply chain model opens up the purchase and delivery process.

To start with, it’s obvious that a customer should be able to return goods purchased online to a retailer’s bricks and mortar store.

The customer should also be able to come to a store, select products, pay for them and have them delivered. Equally, the customer should be able to select and pay for the products on line and then turn up in a store to collect them.

In a nutshell, the customer must be able to purchase goods in a variety of ways and take delivery of these items in an equally flexible manner. However, process and technology changes are required to put such a business model in place.

The first change is the introduction of a consolidated customer database, so that all data about a retailer’s customers is kept in one place, together with transactional information. This allows the business and its customers to view, update and query the customer data from any place – from store’s POS system, using a kiosk in a store, from the retailer’s head office, or online from the customer’s home.

The second component of the customised supply chain is the provision of general access to sales order placement facilities.

The customer should be able to order products using the store’s POS system, instore kiosk, or retailer’s website. When placing the order, the customer must be able to select the products, choose the fulfilment process (from a list of multiple delivery options, including instore pick up) as well as delivery dates and times.

Finally, the customer needs to pay for the products. In summary, it must be possible to get various products delivered to different destinations at different points in time – in response to a single customer order.

The third and final component of the customised supply chain is a dynamic stock sourcing system.

The retailer’s computer system must be able to identify the best source for each item ordered by the customer, whether this is local store for cash and carry; local stock for later pickup or delivery to a nominated location (via stock reservation); delivery from the warehouse to the store or to a nominated location; pick up from a store or from the warehouse; and even direct delivery from a supplier to the customer.

This may sound complex but there can be little doubt that in 10 years this is what customers will expect from every retailer – even from supermarkets. This means that the systems used by the retailer must support the customised supply chain model, or at least they must be able to evolve to do so in the future.

Old systems, unable to support real time collaboration and composed of non-integrated components, will struggle with the challenges presented by the customised supply chain and their architecture will be the restraining factor. The single, most damaging factor will be lack of internal system integration. Any retailer who is currently pursuing the so called ‘best of breed’ system strategy will pay a heavy price.

*Andrew Gorecki is MD of Retail Directions. He can be contacted on (03) 9561 3888.

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