Omnichannel Efforts Increasing, but Not Profitable

A new JDA study reveals an enormous amount of money, energy and time retailers and consumer goods manufacturers are spending to improve their omnichannel sales capabilities.

While this may not be surprising given the current business environment, the report, prepared for JDA Software Group by PwC, reveals an unexpected and disturbing fact: despite these significant investments, only 16% of companies say they can fulfill omnichannel demand profitably today.

What is eroding retailers’ margins as they sell and deliver products across multiple channels? It’s simple: the high cost of fulfilling orders. A full 67% of respondents reported that these costs are growing as they increase their focus on selling across channels. Survey respondents reported their highest costs associated with omnichannel selling as:

  • Handling returns from online and store orders (cited by 71% of respondents)
  • Shipping directly to the customer (67%)
  • Shipping to the store for customer pick-up (59%)

The CEOs in the JDA study recognize that they need to continue investing in business improvements to enhance their omnichannel performance. However, reducing the associated logistics costs is not their primary focus. When asked to rank their top initiatives for improving business operations, CEOs’ number-one choice (57%) was spending capital on creating new customer experiences . Similarly, when asked to rank strategic growth enablers for the year, reducing/reformatting physical store footprints to focus on expanding the ecommerce business was the top choice at 53%.

“Every time retailers receive an online order, they have a number of options to fulfill that demand. They can pull the product from a local store, send it from a centralized warehouse or ship it directly from the supplier,” said Kevin Iaquinto, chief marketing officer at JDA. “Most retailers lack the insight to make these decisions in a profitable manner—and are not sufficiently focused on this critical capability gap.”

While they might not be focused on actions today to create profitable fulfillment and delivery schemes, the JDA study leaves no doubt that CEOs are aware of the importance of profitable omnichannel fulfillment to their future survival. Seventy-one percent of respondents said omnichannel fulfillment is either a high or a top priority. And these CEOs are planning to invest an average of 29% of their total capital expenditures for 2015 on improving their omnichannel fulfillment performance.

The fulfillment capability most cited as needing attention was transportation and logistics, named by 88% of CEOs as a priority for the future. The second capability CEOs will focus on is improving inventory availability to fill orders, cited by 85%.

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