Omnichannel retailing: Digital transformation of a medium-sized retailer

Introduction

The ongoing and dynamic changes in the retailing industry can be considered as a disruptive development and a transformation process into “Digital Retail,” the combination of traditional retailing with digital technologies (Brynjolfsson et al., 2013; Hagberg et al., 2016; Rigby, 2011; Verhoef et al., 2015). Consumers utilize multiple channels, move across them during their customer journey, and expect a seamless transition among all channels (Hansen and Sia, 2015). Along with these developments, “Omnichannel Management” emerged as a new strategic approach to manage the simultaneous and synergetic interplay between channels in order to provide seamless customer experience and meet those expectations (Piotrowicz and Cuthbertson, 2014; Shi, 2017; Verhoef et al., 2015). Studies show that an omnichannel approach is positively related to the retailer’s performance as, for example, omnichannel customers spend more than traditional ones (Cao and Li, 2015; Criteo, 2020; Sopadjieva et al., 2017). However, implementing an omnichannel approach to generate a seamless customer experience requires the retailer to coordinate and integrate all existing channels along various perspectives (Bijmolt et al., 2019; Rigby, 2011). Especially for small- and medium-sized retailers, this poses an extremely challenging task. On top of that, the dramatic impact of the COVID-19 pandemic on the retailing sector revealed the vulnerability of many retailers dealing with this exceptional situation and their insufficiency in committing to digitalization initiatives. In 2019, however, a medium-sized traditional Irish retail company started already its initiative to “Go Digital” with the ambition to become an omnichannel retailer and was confronted with difficulties in transferring its exceptional in-store experience to the web-shop environment. This case study describes these difficulties from various perspectives and demonstrates the complex task of achieving channel integration in order to provide a unique and seamless customer experience.

The teaching case is structured as follows. The next section provides general background details about recent developments in the retailing industry and insights about the Irish retail landscape. After that, the retailer’s background, along with its motivation to follow a digital strategy, is described. In the subsequent main section, major challenges are outlined. Concluding case questions complete the article in the last section.

Background

Analyzing challenges in aligning on- and offline channels

In 2019, the management set up a “Go Digital” initiative and defined a range of important steps and investments around channels, technology, and organizational restructuring to realize an omnichannel strategy. In this ambitious and challenging endeavor, due to its digital coverage and scalability, the web-shop represented a particularly important role. However, since its introduction in 2011, it was still considered to be behind expectations and not developing its full potential regarding sales performance—unlike the flourishing offline business. The retailer’s aspiration was to become the gifting platform of choice, which is interpreted as becoming “Amazon of gift shopping.” However, the first strategy meetings revealed several shortcomings to overcome first in order to realize the vision.

The web-shop was characterized by a weak performance and inefficiency as it merely accounted for around 5% of the company’s overall revenue but still made use of about 25% of the overall marketing budget in 2018. One of the reasons was attributed to the fact that a substantial amount of resources was invested in short-term campaigns that failed to bond customers and ensure customer retention. The performance mismatch of both channels was also evident through a significantly lower number of online repeat customers compared to offline buyers. In fact, most of the online sales the company achieved were largely generated from customers located in counties where the retailer owned physical shops. Especially, value-driven customers were prominent as online customers, underlying a discrepancy to quality- and service-driven offline customers. Moreover, online sales were over-reliant on two to three major brands. From a website metrics perspective, organic search was dominating and substantial referrals from the company’s social media presence failed to appear. This indicated a weak connection to customer activities on social media. Another issue concerned the continuous downtime of the website and issues such as product listings not being displayed. The company recently moved its website from Magento 1 to Magento 2 and was still coping with operational issues arising from the change. However, the most significant aspect the retailer was concerned about was the company’s web-shop providing no experiential features as such and not being able to deliver a similar shopping experience as the company’s physical shops do. The management agreed that this issue represented a major flaw in the online channel.

In this context, a problem was also the quality of product images and videos provided by the suppliers for the web-shop. The retailer could not use around 80% of the content provided by designers since they were either of poor quality and/or were inconsistent across suppliers. More importantly, the fact that many of those suppliers were setting up their own websites and selling their products directly was, in fact, a bigger concern for the management. The lack of an efficient and integrative customer relationship strategy with Irish suppliers of high-quality design products was addressed in this regard and considered another major shortcoming. The management realized early that one of the reasons the company was facing such difficulties was the fact that going digital represented an afterthought. Before the idea of following an omnichannel approach, physical store and online shop managers were judged based on the performance of the channel they were responsible for. Store managers were only looking after sales in their shops and were completely indifferent about the performance of the web store. The same applied to online managers who were focusing on their efforts on online performance.

Another difficulty the retailer was facing concerned content personalization. The company was struggling in retrieving insights about its customers and was not capable of identifying if the customers were online or in-store shoppers, whether they were frequent shoppers or occasional/seasonal shoppers, gifting shoppers, or just looking for something for themselves. The major reason was assumed to be the absence of a well-established practice to capture customer data and use the data stored into a database to understand clients’ interests, preferences, genders, and names to establish a well-organized and advanced procedure to customer segmentation for better targeting of customers and connections with them. On top of that, the retailer did not utilize any loyalty program and email targeting system to provide precise and personalized offerings. Instead, all email sending campaigns were based on common sense on occasions like Valentine’s Day or Christmas.

Interestingly, during the meetings, the management made another critical observation concerning the general lack of effort toward international exposure despite tourists representing a substantial number of customers. The missed potential in this regard was accompanied by the fact that there was no strong relationship management with tourism customers. However, sales associates play a significant role in building up and keeping a relationship with customers. With tourists who are very likely not returning to the shops, bonding is made difficult. Certainly, tourists are able to visit the web-shop anytime and anywhere.

Discussion

On the way toward an omnichannel approach, the retailer identified several key problems along the strategic, operational, technological, and structural levels. The management agreed that the online channel plays a major role in becoming omnichannel. It is designed to scale quickly, but there are no volumes to realize this. In fact, “the web-shop could be four to five times more profitable than the physical stores, once substantial sales volumes are reached.” In order to facilitate digital growth beyond physical scalability, these issues need to be resolved in the course of the retailer’s digital strategy formulation.

Case discussion questions