Report: As Multi-Channel E-Commerce Has Grown, It’s Inefficiency Can No Longer Be Ignored

Written by Evan Schuman
January 4th, 2007

Few have argued that multi-channel marketing isn’t attractive and most probably essential and fewer still have questioned the maddening inefficiency of such a system. An upcoming report from the Retail Systems Alert Group predicts that those statements are about to collide as multi-channel sales start to become quite significant.

“Until now, consumers who shopped across multiple channels?in stores, on the Internet and through call centers?were more profitable” for most retailers, the report said. But this year, the analyst firm said, “the profitability of multi-channel customers is declining. Although today?s multi-channel customer is certainly not less profitable than her single-channel counterpart, retailers are finding that multi-channel retailing is simply becoming a cost of doing business.”

Is that cost of doing business going to get too high? Report author Paula Rosenblum said that she thinks it will. “Retailers aren’t very efficient with multi-channel. As the volume of multi-channel sales continues to grow, the ability to manage that efficiently decreases,” she said.

A year ago, Rosenblum said, multi-channel profits were “a windfall” and were typically “51 percent or more profitable.” Today, that figure has dropped to about 41 percent, she said. Clearly, 41 percent profit is still superb, but if the trend continues, it is going to force many retail IT operations to act.

The problem is that multi-channel have historically stayed in the 5-7 percent of revenue range, which puts a pragmatic cap on the amount of resources that can be justified. If inefficient but low-cost jury-rigging methods worked, it was hard to justify further investments to do it more efficiently. “If it’s only representing 5 percent of your business, how much energy are you going to put into its infrastructure? You’re just going to figure out a way to make it work,” Rosenblum said.

As multi-channel sales increase, though, two things quickly change. First, the numbers become large enough that developing more efficient methods can be justified. Secondly, the losses from those inefficiencies become much more difficult to ignore.

Rosenblum sees this meaning a lot of IT spending for hardware and software to rationalize multi-channel systems, especially with product information, shipping synchronization, real-time inventory, customer updates and single operational data stores. “Anything to insure that online orders are able to be picked up in the store,” she said.

The reports points to several possible underlying causes for the problems. “Most retailers have still not taken the time to improve their processes for moving product and customer information across channels. Perhaps this problem is the root cause of many of the inefficiencies,” the report said. “With 31 percent of retailers still entering customer and product information separately into their different channel systems, and only 26 percent using one process to get data into all channels? systems of record, there is evidence of significant inefficiency.”

In some cases, the efficiencies are supported by attitude and emotional issues, the report said. “Although 38 percent acknowledged there are budgetary constraints to creating integrated processes, lack of integration, and a technology infrastructure that makes it difficult to change and adapt are larger issues,” it said. “Once again, the pent-up frustration with integration costs became apparent when we asked respondents how they could overcome their organizational issues. While retailers recognized their own needs to prioritize integrated multi-channel data management strategies, our data shows that improved integration tools is their most critical need.”

On the emotional front, Rosenblum used the report to stress that the day for fear of cross-channel sales cannibalization needs to be gone. “We would be remiss to not comment on a topic that we thought would be long-gone: the dominant channel fear of sales cannibalization. It is almost incomprehensible that one quarter of respondents still highlights this as an on-going organizational problem, across all segments, tiers and performance levels,” Rosenblum wrote. “Clearly, C-level executive involvement is required to create an attitudinal shift and there is no doubt overall performance is affected by this problem.”


Comments are closed.


StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.