By Brian Kilcourse, Managing Partner
2/5/2008
How big is the multi-channel business in retail, and how big is it likely to get? These are not new questions, and so it’s surprising that after nearly ten years of multi-channel growth powered by consumer access to the Web, that there still are such wild variations in how the questions are answered. Not that we want facts to get in the way, but… here are some real numbers that give the ring of truth to the inexorable march towards multi-channel retailing in the United States:
In November, 2007 (the last report to-date) The Census Bureau of the U.S. Department of Commerce announced that the estimated U.S. retail e-commerce sales for the third quarter of 2007 totaled $34.7 billion (3.4% of total 3Q07 retail sales of $1,020.4 billion). The third quarter 2007 e-commerce estimate increased 19.3 percent from the third quarter of 2006 while total retail sales increased 3.8 percent in the same period.
The National Retail Federation (NRF) projects that total retail sales will increase 3.5 percent in 2008 over 2007. But the Census Bureau is also projecting e-commerce sales to rise over 17% in 2008 (to be led by apparel/accessories/footwear, auto/auto parts, and consumer electronics categories), and over 70% in the next five years.
Here’s another one: Amazon.com sales grew 42% during the holiday season just ended, and profits doubled. Amazon’s traditional business (books, movies and music) rose 33%, while sales of electronics and other merchandise climbed 58% in the December quarter.
Finally, here’s a factoid for you: approximately 50% of U.S. adults have hi-speed internet connections at home.
So, if there was any doubt in anyone’s mind about the efficacy of multi-channel retailing, those doubts should be dispelled. Time-starved and demanding consumers are not only bringing the store to their homes. They are also now showing every sign of wanting to start transactions outside of the store to be completed in the store, and visa versa. This cross-channel behavior is being enabled by smart retailers such as Best Buy who are using their systems capabilities to integrate their multi-channel capabilities into a seamless brand offering to consumers, and it ups the ante for all retailers.
In our 2006-07 research report on multi-channel retailing (“Searching for the True Multi-Channel Retailer,” by Paula Rosenblum), we learned that the newness of the channel had worn off, as evidenced by a decline in the relative high profitability of e-customers, meaning that consumers were no longer willing to pay an upcharge for the convenience of the Internet. Because of this shift, retailers began to focus on synchronizing internal processes to reduce or eliminate operational and systems redundancies that increase the overall cost of multi-channel operations.
Consumers are driving the multi-channel agenda, and they aren’t satisfied if all channels can’t work together to deliver a “total” solution for their lifestyle needs. It is no longer enough to have separate channels, even if those channels are “equal” (equal assortment, equal price, etc.). Consumers expect all channels to work together to form one “solution,” and integration of the e-channel to the store is being emphasized more than ever as customers engage in cross-channel shopping. The notion of the e-channels replacing stores finally appears to have been debunked (you don’t hear the word “disintermediation” much anymore). And although “multi-channel” is essential to a company’s brand, the store remains the most important focus both for consumers and retailers. At the NRF conference in NYC last month, IBM’s Fred Balboni, Global Retail Industry Leader, discussed some fascinating results from recent consumer research the company undertook. IBM’s research showed that there are seven key factors that drive customer ‘advocacy’ for a retailer. In order of importance, they are: the store experience, assortment & range, quality & freshness, customer service, convenience, multi-channel, and on-shelf availability. Ten years ago, it’s doubtful that “multi-channel” would have been on the list, but now it ranks even higher than on-shelf availability!
What this means for retailers is that they need to get over any remaining fears of channel cannibalization. In the 2006 study, 32% of respondents stated that “fear of cannibalization by the dominant channel” was still an inhibitor to addressing the multi-channel challenge, and a preliminary look at responses from RSR’s recently launched survey, “Finding the Integrated Multi-Channel Retailer” indicates that about 1/3 of retailers still fear this. Retailers need to get on with the business of building their company’s brand image to enable cross-channel consumer shopping. In the 2006 study, 55% of respondents rated “creating a single brand identity across all channels” as very important, although larger retailers were much more in tune with consumers, with 75% rating this as “very important.” Consumers certainly see it that way. It’s hard to imagine it being acceptable for any retailer to say, “Sorry, you’re out of luck – but check our website!”
RSR will be publishing a new updated look at the multi-channel challenge near the end of March, 2008. If you would like to add your point of view to our research, please take the survey, “Finding the True Multi-Channel Retailer” by clicking here. We will measure the extent to which retailers are working to enable consumer cross-channel shopping with an integrated multi-channel brand offering.
|
