2014 retail insight: the impact of omni-channel trends for 2014 and beyond

2014 RETAIL INSIGHT: THE IMPACT OF THE OMNI-CHANNELOCTOBER 17, 2013

LEARN THE LATEST ON OMNI-CHANNEL RETAIL• The rise of the digital consumer

• The fundamentals of omni-channel

• Retail’s reset moment

• Findings from the Retail Insight industry benchmark survey

• Q&A

PRESENTED BY OMNI-CHANNEL EXPERTS

Paula Rosenblum, Managing Partner, Retail Systems Research

Paula is widely recognized as one of the top analysts in the retail industry. She formerly served as Vice President of Research & Content at Retail Systems Alert Group (RSAG), and as Vice President of Aberdeen Group's Retail Research practice. Prior to that, Paula spent over 20 years as a retail technology executive and CIO.

Pete Zaballos, Vice President, Marketing,SPS CommercePete is responsible for the marketing strategy that is defining, executing and scaling SPS Commerce’s enterprise cloud services. He is a sought-after visionary focused on perfecting the power of retail trading partner relationships through the intersection of communities and technology.

$83,000,000,000

29%13,000,000,000

68%

OMNI-CHANNEL FUNDAMENTALS• Item Management Adaptability

• Sell-Thru Velocity

• Item Sourcing

• Frictionless Scale

October 2013

Paula RosenblumManaging Partner

Retail Systems Research, LLC

Retail's Reset Moment: How Omni-Channel Selling Affects The

Supply Chain

Agenda

About RSR

Retail’s RESET Moment

• Innovations On The Selling Side Affect the Supply Chain

SPS Commerce and RSR Joint Survey

• How is the Supply Chain responding?

About RSR

Founded in 2007. Quickly became the leading source of insights for trends in retail technology, and retail ecosystem in general.

Mission: To elevate the conversation about retail technology to a strategic level within the retail enterprise by:

• Providing objective, pragmatic advice to both retailers and solution providers • Leveraging our extensive retail industry experience• Providing a deep bed of research into retailers' technology investment plans and

the business opportunities and challenges that drive those investments.

We help retailers keep their IT strategies aligned with corporate objectives.

We help solution providers align their products and messages with retailers’ needs.

RETAIL’S RESET MOMENT

RSR’s Take: The Retail Industry Is At A “Reset Moment”Today (As Before) Technology Is The Trigger For Major Shifts In Business And Society

Agrarian Age

Industrial Age

Information Age

Time

Participation Age

Consumer Behaviors Are Fundamentally Changing … From This …(very orderly)

Investigate Select Pay For Fulfill

Investigate Select Pay For Fulfill

Investigate Select Pay For Fulfill

Investigate Select Pay For Fulfill

Store

Web

Catalog

Direct Sales

…To This (Many Paths To Purchase – Chaotic Patterns)

Web

Investigate Select Pay for Fulfill

Store Store Store Store

Call Center

Call Center

Call Center

Direct Delivery

Web Web

Mobile

Anything

…and

Direct Sales

Direct Sales

Direct Sales

This is the Omni-Channel Phenomenon

What Does That Mean to Us?

The Retail Model Was Built On An Uni-Channel Assumption

Buy

Plan Sell

Monitor

€$£Expense

Run Better

Revenue

€$£

Sell More Stuff

€$£Margin &

Profitability

Buy Better, Turn It Faster

But the World Has Changed Forever…

A Worldview Designed Around This:

Or This:

Met a Worldview Enabled by This:

A dramatic shift in the power dynamic between the retailer and the consumer.

And This:

Omni-Channel Enables One Brand Across All Selling Channels – But That Requires Aligning Supply To Demand Differently

Buy

Plan Sell

Monitor

Buy

Plan Sell

Monitor

The Addition Of Multiple Selling Channels Didn’t Change The Model… But Did Add InefficienciesBuy

Plan Sell

Monitor

Buy

Plan Sell

Monitor

Buy

Plan Sell

Monitor

Cross-Channel Enables “One Brand Across All Selling Channels”, But Doesn’t Address Inefficiencies Buy

Plan Sell

Monitor

Buy

Plan Sell

Monitor

The Question That Is Only Beginning To Be Asked Is…

“How Do We Meet These Fulfillment Requirements Profitably?”

The Payoff? Beyond Any Doubt

Don't Know/Can't Tell

Less Profitable Than Single Channel Customers

Equally Profitable

Slightly More Profitable Than Single Channel Customers

Significantly More Profitable Than Single Channel Customers

17%

10%

7%

28%

38%

18%

3%

3%

29%

47%

Multi-Channel Customers Are:2013 2012

RSR Research, June 2013

But how much profit are we leaving on the table?

The State of the Union: RSR & SPS Commerce Asked YOU

How We Structured the Survey:RSR’s BOOT MethodologySM

B O O

T

How We Structured the Survey:RSR’s BOOT MethodologySM

A simple, yet powerful modelPuts technology in the context of business

issues

B O O

T

Business Challenges

Opportunities Organizational Inhibitors

Technology Enablers

Who You AreTotal of 306 Respondents.

• 71% Vendors/Suppliers

• 21% Retailers or Distributors

• 8% Logistics providers (LSPs)

Executive Management 40%

Marketing 6%

Merchandising 2%

Procurement/Product Development 3%

E-Commerce 4%

Information Technology 9%

Business Development 7%

Supply Chain 7%

Logistics 7%

Warehouse 4%

Finance 9%

The State of the Union at a Glance

OVERVIEW

Overview

• The omni-channel imperative and how we got here

• A 360 degree viewpoint

• A Supply Chain still bullish on the future

• Retailers lagging suppliers in buy-side readiness

• Budgets reflect a willingness to spend, but some lack of clarity on what to spend it on

In The Next 18-24 Months, Retail Will Move To Address How To Profitably Serve Anytime/Anywhere Shopping

2010-13 2013 2014 2015-16

The Impact of the massive adoption of

consumer technologies

(mobile, social) on the retail selling

environment

The harmonization of the digital and physical selling

environments

Next Generation of Sales & Marketing

Next Generation Supply Chain

Bullish on the Future

These percentages almost identical to last year’s survey.

A Sorry State of Affairs

RSR Research, September 2013

Retailers lag… likely needing a champion (as marketing was for sell-side).

… and It’s Not About the Money

RSR Research, September 2013

“Bearing in mind that an equal number of respondents reported budget increases last year, we can assume that those whose budgets rose continue to keep those increases intact. The ecosystem

recognizes that it is behind, has some headroom for growth, and is continuing to invest.”

Bad Memories Die Hard

BUSINESS CHALLENGES

Business Challenge Headlines

• Optimism colored by painful memories

• Meeting customer expectations remains a key challenge• The Amazon Effect

• Demanding customers across the entire supply chain

• Transparency informs decision-making• Wanting broader assortments • Loyal to valued partners

• What if the future looks like the past?

• Fear of economic and supply chain shocks color our world• Regulations and politics shape our decision-making• Consumer preferences constantly shifting

The Economy and Customer Color our Worlds

RSR Research, September 2013

Customer expectations increase pressures on the entire ecosystem“The Amazon Effect”

Man…These People Are Demanding

Loyal to brands

Loyal to retailer

Looking for variety/broader assortments

Knowledgeable on products

Seeks information from social networks before buying

Knowledgeable on pricing

Knowledgeable on competitive offerings

Requires immediate availability/shipping

17%

11%

67%

78%

33%

72%

79%

84%

37%

23%

63%

65%

63%

74%

77%

77%

35%

37%

65%

76%

82%

82%

84%

85%

How has your customer changed vs. 2 years ago?"They are more likely to...."

Retailers Vendors LSPs

RSR Research, September 2013

Man…These People Are Demanding

Loyal to brands

Loyal to retailer

Looking for variety/broader assortments

Knowledgeable on products

Seeks information from social networks before buying

Knowledgeable on pricing

Knowledgeable on competitive offerings

Requires immediate availability/shipping

17%

11%

67%

78%

33%

72%

79%

84%

37%

23%

63%

65%

63%

74%

77%

77%

35%

37%

65%

76%

82%

82%

84%

85%

How has your customer changed vs. 2 years ago?"They are more likely to...."

Retailers Vendors LSPs

RSR Research, September 2013

Glimmers of good news

The Future Brings More of the Same

RSR Research, September 2013

The economy, the customer and political climate will drive us.

Meeting Customer Demand Wherever It Comes, but Driving Traffic to Stores

OPPORTUNITIES

Some Differing Points of View

Retailers are pragmatic

• Fulfill customer orders from inventory, regardless where order is generated

• Drive increased traffic to stores

Vendors deliver mixed messages

• Top priority is to drive customers to retailer stores• Following closely behind: selling direct

Their approaches differ… as we’ll see.

Retailer Pragmatism

RSR Research, September 2013

Provide more detailed product information

Deliver a consistent cross-channel experience for your customers

Build a social community around our company/brand

Fulfill customer orders with inventory, regardless of channel originating order

26%

26%

34%

34%

42%

50%

58%

Retailers' Top 3 Omni-Channel Oppor-tunities

Retailers presume that consumers can find detailed product information on their own, yet interest in “endless aisle” grows.

Vendor Mixed Messages

Support new order management models for retail customers, especially drop-ship

Increase direct sales from our company’s e-commerce site

Provide more detailed product information

Drive increased traffic to retail stores

35%

35%

38%

42%

Top Vendor-Identified Opportuni-ties

Sales made through vendor eCommerce sites

Sales made through retailer eCommerce sites

17%

53%

22%

78%

The Rise of Vendor-DirectVendors Report:

A new world of frenemies:

Private Label vs. Vendor Direct

RSR Research, September 2013

What Do Retailers Want?

Size of company

Digital assets

Drop ship experience

Years of business

Visibility to sales and order status

Item assortment

Compliance with trading requirements

Brand recognition

Item availability

Price

4%

5%

25%

14%

22%

50%

32%

36%

76%

81%

7%

14%

18%

18%

21%

29%

32%

46%

71%

75%

Top 3 Vendor Capabilities That Retailers Value

Retailers' POV Vendors' POV

RSR Research, September 2013

Vendor perception on assortment depth value far outweighs retailers’.

Management and Employees Hold the Key

ORGANIZATIONAL INHIBITORS

Internal Forces Affect Change

• Strong leaders a must

• The next generation of employee emerges across the Supply Chain

• Technically savvy• Good interpersonal skills

• Vendors anticipating retailers’ future needs

• Retailers are very slow in synchronizing

• Mixed messages on “product information”

• In a world where we’re used to sharing documents, is it time to think about sharing all kinds of structured and unstructured data?

The Visionary Leader and The Empowered Employee

Employees’ use of social media

Mobile workforce

Mergers or acquisitions

Employee interpersonal skills

Employee technical skills

New technology adoption

Management’s vision/strategic planning

9%

11%

25%

24%

34%

55%

86%

11%

13%

27%

31%

52%

62%

91%

Top 3 Internal Forces Impacting the Business in the Next 5 Years

2013 2012

RSR Research, September 2013

All the technology in the world will not help if people cannot use it.

Retailers Lag, Vendors Waiting

User ratings/reviewsVisibility in social media conversations

Images/videoAccess to helpful employees

Breadth of product assortmentPromotions

Product availabilityProduct information

Pricing

31%

12%

26%

27%

22%

39%

72%

55%

84%

17%

17%

31%

35%

38%

41%

62%

66%

69%

Cross-Channel ExpectationsVendors vs. Retailers

Retailers report "Fully Cross-Channel" Vendors report "Important to our retail customers"

Retailers lack of omni-channel capabilities also reported in other RSR’s 2013 reports.Vendors generally doing a better job anticipating customers’ omni-channel needs.

Example: Cross-channel price synchronization. Retailers struggle. Vendors recognize it’s important to their retail customers; retailers just have to make it work.

RSR Research, September 2013

WHERE IS ALL THAT BUDGET MONEY GOING?

TECHNOLOGY ENABLERS

Tech Enabler High Notes

• LSPs focus on warehouse improvements

• All others making investments “across the board”

• Can EDI drive visibility? And why aren’t retailers planning to invest in the most important tool in their omni-channel toolkits?

• Can retailers use the data they get?

• How many item attributes are enough?

A Harmonized Omni-Channel Environment: Wishes vs. The Budget

Source: RSR Research, June 2013

20%

30%

40%

50%

60%

70%

80%

90%

Omni-Technology: Current Status vs. Perceived Value

Implemented "Very Valuable"

?#1#2#3#4#5

Then How’d We Get Here?

Then How’d We Get Here?

The World of Product Attributes

• Generally, vendors provide more than retailers use

• Vendors expecting to provide more in the next year

• Most currently provide mundane, but necessary attributes

Are we setting our sights too low?

The Rise of Drop Ship?

FINAL THOUGHTS

Vendor Direct With or Without the Retailer

• All agree drop ship volumes will rise• Vendors shipping on their own behalf• Also shipping on retailers’ behalf• LSPs supporting both

• A reliance on the empowered employee• Dated means of communication may slow the process• Further shifts coming. The wise company will invest in

improving product information capabilities and supply chain

efficiencies

Thank You!

Paula Rosenblum, RSR Researchprosenblum@rsrresearch.com

Further Information on Products & Services: info@rsrresearch.com

www.rsrresearch.com

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