Next Frontier in Omni channel commerce and payments at retailers in US

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Executive Summary:

The United States has a well-established retail industry. The retail industry has generated sales revenue of US$4.5 trillion from about 3.8 million retail establishments in 2013. Offline sales and online sales contribute to 94% and 6% of the total sales respectively.

Until early 2000’s, the retail industry in the U.S. was primarily a brick and mortar system. The primary purpose of stores was to distribute products. Stores were in many cases the only means of distributing products to a specified market. Currently the brick and mortar sales are $4.25 trillion which grew at a CAGR of 2% over the last 5 years. The industry has undoubtedly witnessed slump in sales in the last five years with the emergence of ecommerce.

In the last 8 years ecommerce has played an increasingly important role in the U.S. retail industry. Electronic commerce is a type of industry where buying and selling of products or services are conducted over electronic systems such as the internet and other computer networks. The emergence of ecommerce has not affected the product prices, but has also resulted in bringing about a change in the way in which business is conducted.

The primary driver for the ecommerce industry has been the consumer adoption. Today’s, consumers are increasingly embracing digital technologies and devices at all stages of their buying journey. Ecommerce gained momentum since 2005 and since then it has posed threat to the traditional retail system Current sales of ecommerce industry are pegged at $263 Billion. The ecommerce industry has witnessed a phenomenal growth of 14% CAGR in the last 5 years and is expected to grow at a compound annual growth rate of 12.5% through 2018 where as the brick and mortal retail is expected to grow at almost 1/4th of ecommerce.

To overcome this drop in sales and to compete with the ecommerce industry; traditional retailers started launching their own online stores – “Multi-channel” sales strategy. In this process, many retailers attempted ecommerce, by setting up online operations as standalone businesses with separate technology. The channels available to businesses were created through Internet and mobile. This drastically changed the retail landscape. For example, email, text messages, e-commerce services and technology have created new opportunities for business. These multiple channels have helped in creating a reliable distribution channel that concentrate on different demographic populations. Multichannel contributes to the rapid growth of revenue, branding, loyalty and positive word of mouth.

On the flip side server crashes, lack of inventory, data leakage and software updates played the role of a spoiler. Additionally, while shopping through those systems customers witnessed price anomaly between online portal and offline formats. There were also issues of stock out and payment failures.

The poor experiences of the customer lead to decrease in sales and jeopardized the traditional retail’s brand image. The fear of failure still lingers in the minds of many retailers. However in recent times, the advantages of ecommerce/mobile commerce have made it absolute necessary for traditional retails to open their own websites.

The present objective of retailers is to remove the drawback in multi channel sales channel and build a robust sales channel which will help in boosting sales and gaining of lost market share. As a result, retailers are moving towards what is called “Omni-Channel retailing. In its most basic terms, Omni-channel retailing means connected customers can shop for and purchase the same items across different channels. It can be in a retail store, through computer, through smartphones at any place and time. Omni channel will be an integration of technology and retail where the customer experience will be same while shopping through online or offline system.

However, Omni Channel retailing is not easily achievable. Systems will become more complex with the expansion of technology, as a result of which retailers will have problem in managing. Moreover retailers don’t have a large workforce to analyze the enormous amount of data generate through traditional POS, mobile POS, self-serving kiosks, and online shopping to name a few. Additionally, a common ERP system would be needed to overcome problems of supply chain, inventory management etc. As a result, large numbers of technology companies have popped up to help retailers in building Omni-channel sales. In cases, we have also seen retailers planning to acquire technology startups to overcome the challenges associated in building an Omni-channel.

Nordstrom is a very good example of a retailer who has achieved major milestone when it comes to Omni-channel retailing. Nordstrom is a leading specialty retailer offering clothes, shoes, and accessories for men, women and children. It has presence in 44 countries. Nordstrom has created a seamless experience for Nordstrom customers. Customers are able to buy in store, buy online – ship to home, buy online – pick up in stores and return through any channel. The retailer achieved this success through a drop ship process. Customers have started loving the experience and in this process, the company has increased its profitability.

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