What is the value of omnichannel retailing?

Some retailers would argue that this is table-stakes to be in the business and not fall behind the competition.  It is true, but there is also significant dollar value that can be realized if done right. The key value drivers that I most often see:

Sales growth: 1% - 3%

This is primarily driven by recovering some of the lost sales that would have occurred due to a lack of inventory in a store or online. The assumption is that a customer is willing to have the product shipped to his home if it is unavailable in a store or vice-versa. There is visibility to store inventory if a product is unavailable in the e-commerce distribution centers.

The second driver is the ease of shopping. The e-commerce sales experience incremental growth if the merchandise can be picked up or returned in stores.
I typically do not consider the “endless aisle” as an Omni-channel value driver but more of an assortment value driver.

Margin improvement:  0.5% - 2%

Reduced markdowns primarily drive this due to higher inventory productivity. The ability to ship from stores means a higher chance of selling that inventory at a total price versus taking expensive markdowns.

Inventory reduction and productivity:  5%-15%

An omnichannel process centered around global inventory visibility and utilization. Inventory sharing increases the ability to meet customer demand with overall less inventory across the supply chain network. The inventory also turns faster as there is an opportunity to balance inventory globally and not just channel-specific.

In summary, a $1B retailers can expect $10-$30M in top-line growth, $10-$35M in Gross Margin improvement, and a $10M-$75M in inventory reduction from a well-executed Omni-channel initiative.

Some of these benefits will be offset by operational cost increases of shipping and handling returns at the stores. A retailer must understand the cost-benefit trade-off before embarking on an Omni-channel initiative. Irrespective of the ROI, a retailer may still need to embark on an Omni-channel initiative as a table-stake.

About the author

Vikas Goel

Chief Human Resources Officer

Vikas Goel is the Chief Customer Officer at o9 Solutions. He has over 25 years of experience in planning and analytics across multiple domains. In his current role, he is responsible for client success, value delivery, and partner enablement globally.