“Omni-channel” format blurs retail’s boundaries

by Yinmeng Liu

Ellen Morris shops at her favorite store, Amazon, once every week. From mugs to sports gel, coffee filters to rugs, she acquires most of her everyday items through the online retailer. For her, the e-commerce mammoth offers a convenient and cost-efficient shopping experience.

For brick-and-mortar retailers, of course, Morris’ shift to online shopping is part of an unwelcome trend that has cut into sales, and profits. But the new format can’t be ignored, either: many old-style stores have launched their own online sales sites to help fend off e-commerce competition.

And now, as big-name retailers like Macy’s and Target step up their offensive against the rapidly growing digital marketplace , something new is emerging.   Their most recent strategy integrates online and offline platforms, creating what’s known as the “omni-channel” shopping experience.

“The truth is that both the digital world and the physical one are indispensableparts of life and of business. The real transformation taking place today isn’t the replacement of one by the other, it’s the marriage of the two into combinations that create wholly new sources of value,” wrote Darrell K. Rigby and Suzanne Tager, both retail industry consultants at Bain & Company, in a June research note.

That perception is the reason that many retailers have started implementing a shopping experience that fuses together the multiple channels, designed to let shoppers enjoy the benefits that different media platforms provide.

“In order to compete with pure online retailers, it’s tempting to start offering a combination of features that are more unique to brick and mortars,” said Antonio Moreno-Garcia, an assistant professor of managerial economics and decision at Northwestern’s Kellogg School of Management.

According to Moreno-Garcia, omni-channel is a fairly recent phenomenon that has only been around for four or five years.

Macy’s was a frontrunner in the retailers’ digital transformation race. The department store chain started its “buy online, pick up in-store” initiative in 2010. Then other retailers followed suit; Target rolled out its own BOPIS program in 2013.

Long fight for shoppers

The rise of popular digital stores like Amazon and eBay in the late 1990s has enticed a steadily increasing group of shoppers every year.

According to the U.S. Census Bureau, online retail sales accounted for 6.4 percent of total retail sales in the second quarter of 2014. That’s an almost three-fold increase compared to 2004, when cyber sales only made up 1.7 percent of total sales.

Percentage of e-commerce sales, helped by companies such as Amazon and eBay, has enjoyed a steady growth in the last decade. Data Source: U.S. Census Bureau
Percentage of e-commerce sales, helped by companies such as Amazon and eBay, has enjoyed a steady growth in the last decade. Data Source: U.S. Census Bureau

In the cyber store industry, Amazon is among the top contenders taking business away from physical stores. In 2013, it reported revenue of $74.45 billion in sales, just over three times from the company’s revenue in 2009. The revenue for the e-commerce giant this year is also projected by analysts on Yahoo Finance to climb again, to $89.43 billion.

For Morris, Amazon’s review system is a main ticket-winner.

“I like that I can read reviews online and then go to the stores to try them on,” Morris said of her preference in buying clothes.

But e-commerce has never been able to push physical stores completely out of the picture. Despite the popularity of cyber stores, brick-and-mortars have still been able to maintain a sizable portion of the pie. For one thing, they offer physical display of merchandises. And that’s no small thing in the world of retail.

“We humans are physical and social beings. We like to go out, to interact in person with other people, to touch and handle and make things,” wrote Rigby and Tager.

Morris said even though she relies on Amazon for household items online, she buys 75 percent of everything else in store.

“It’s hard to determine sizes and colors online sometimes. I hate returning things I bought online, ” Morris said in an interview

Moreover, some cyber retailers have begun to see the importance of having a physical location.

In October, reports circulated that Amazon had a plan to open a brick-and-mortar store in New York City before the holiday season. But Amazon never released further updates related to the matter.

E-retailer Bonobos, an online business that sells men’s attire, began launching physical stores called Guideshops in 2011. On its website, the company said that its Guideshops “deliver personalized, one-to-one service to those wanting to shop the brand in person.”

A recent Harris poll reversed a common showroom trend. Instead of browsing items in store and purchased them online, the poll found that 69 percent of people enjoy reverse show room, browsing for items online, then shopping in stores. The survey is a possible indication of the popularity of physical stores among shoppers.

The buy online, pick up in store format that Macy’s first rolled out continues to gather steam. GapsInc. began testing its “Reserve in Store” program in 2013. The program allows consumers to reserve up to five items online per day, and gives them until the end of the next business day to try the clothes on.

Sears, despite all its problems, was among the pioneers in integrating online shopping experience with its brick and mortar store format. It opened its first MyGofer store in Illinois May of 2009. MyGofer is a warehouse which combines online and showroom orderings.

Some people have questioned the viability of the strategy for different formats of stores, despite the increasing popularity of BOPS, or “buy online, purchase in store” technique among retailers.

In his article “Integration of Online and Offline Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information,” Moreno-Garcia argued that the BOPS programs helped retailers increase their offline sales — but reduced their online sales.

Moreno-Garcia reasoned that BOPS indirectly escalate store sales when consumers who came to pick up items at brick-and-mortars choose to buy additional merchandises. BOPS might also have the effect of converting e-commerce consumers to physical store shoppers.

Gina Crevi, store owner of gigi BOTTEGA, a clothing boutique in Evanston that also combines online and offline shopping channels, said the size of her store makes it difficult to compete with giants like Amazon.

The inside of gigi Bottega in Evanston, IL. Gigi Bottega is a boutique which specializes in female fashion. It started its e-commerce business four years ago. Photo by Yinmeng Liu/Medill News Service
The inside of gigi BOTTEGA in Evanston, Il. Gigi BOTTEGA is a boutique that specializes in female fashion. It started its e-commerce business four years ago. Photo by Yinmeng Liu/Medill News Service

Crevi, who owns two stores, one in Evanston and the other in Bloomington, also said her main focus right now is on the physical stores.

“It’s more a look book of what we have in store,” Crevi said about her e-commerce business. “It gives customers a chance to preview what we have and see if they like it.”

Morris, who also works at Evereve, a Edina, Minnesota-based clothing store which has both online and offline presence, said her mployer also focuses mainly on the in-store sales.

Regardless of the imperfection, many retailers are still in the process of testing BOPS or have just completed rolling the program out.

It’s hard to forecast how long BOPS, or the integration of omni-channel experience, will sustain retailers until the next competition comes along. However, Moreno-Garcia said he believes omni-channel will probably be around for quite awhile.

“Not every single retailer has to offer this. Some retailers will be able to survive through specializing in certain kind of service but most of the big box retailers are going to be offering this kind of service for foreseeable futures,” Moreno-Garcia said, “because Amazon is not going away.”