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Circular DiagramModern retailers need an omnichannel strategy to remain competitive. But can they afford it? According to a recent survey, only 16 percent of omnichannel retailers earn a profit on their operations, and 67 percent of them anticipate further rising costs.

The reasons for the lack of profitability are quite clear: Omnichannel operations increase the costs of handling, shipping, and decision making. For example, for each order received, the retailer needs to determine which channel to use to source it. Should it send an employee in the local store into the aisles to pick the item, pack it up, and ship it? Should it procure it from a centralized distribution center? Should it require the manufacturer to ship it directly to the customer? In addition, return handling becomes more challenging in an omnichannel setting, because retailers do not know where they will receive each return.

In response, the surveyed retailers plan to invest substantially in enhancing their omnichannel performance, including their logistics, transportation, and inventory capabilities. If retailers must create omnichannel environments to stay competitive, they also must engage in intelligence gathering and data analysis that can reveal the most efficient strategies and the most appropriate trade-offs to make in their operations.

Discussion Question:

Many believe that Internet retailing is less expensive than operating traditional brick-and-mortar stores. What expenses make omnichannel retailing more expensive?


Source: Tom Ryan, Retail Wire, April 20, 2015