- While they are growing rapidly on-line sales is still a small part of retail sales. this year they are only about 5% of retail sales. and
- traditional retailers typically view on-line as a competitor to their traditional stores and they see on-line sales as being primarily cannibalised from existing stores rather than incremental.
On the surface this seems logical but here’s the rub, the new world is not an on-line world vs the real world, it is a multi channel world and in a multi channel world a retailer’s channels are primarily complementary not competitive. They are complementary because each additional channel builds brand and improves access for your customers who increasingly shop in many different ways and across many different channels. To illustrate this multi channel behaviour I recently bought a new TV. I researched for this TV on-line via websites and with iPhone price comparison applications, but I went to store to complete the purchase.
International research suggests this behaviour happens a lot and that for every $1 sale on-line the on-line store also directly influences $5 of sales in store. Best Buy in the USA goes further and say that fully 80% of the customers that walk into their store have already researched their website before bothering to make the trip. My New Zealand experience suggests this research is broadly correct for New Zealand although we are a few years behind the USA.
As Best Buy illustrate, in a multi channel world traditional retailers have one considerable advantage over their on-line competitors. They exist in the real world, in cities and towns near their customers. The challenge is how do you build on this advantage to become a true multi channel retailer? You cannot just flick a switch as multi channel retail is a different (and more powerful) business model than either a bricks and mortar or an on-line retail business model. Instead, you need to build your capability over time ensuring you fulfil all the needs of your new business model. The core capabilities that need to be met for a multi channel retail business model are depicted below in the Multi Channel Hierarchy of Needs.
It starts by establishing your new channel as a credible presence that is capable of providing products and services to your customers. This presence is then progressively integrated with all your other channels until you can provide a seamless integrated service to your customers.
This “journey” is undertaken for each channel you choose to operate. In the virtual world there are many potential channels (eg website, mobile, social media and kiosks just to name a few) just as there are many potential properties in the real world and as with the real world retailers need to decide which virtual “properties” to develop and which ones not to. The retailers who do this well are setting great foundations to succeed in the emerging multi channel world.