We’ve seen lots of omnichannel retailers almost go out of business but instead go “online only”.
The list does, and will, go on.
The problem is, most weren’t very good at online when they were omnichannel retailers. How are they going to excel as a pureplay?
Unless you are acquired by an online powerhouse like Kogan, it won’t be as easy as you think.
I get the thinking. The cost of operations is reduced due to no rents, less staff, consolidated inventory. But it’s not as simple as it seems. It’s a different game.
Firstly, you are opening yourself up to a whole new world of pureplay competition. This includes sophisticated online behemoths like Amazon, Catch and The Iconic. It also includes savvy new direct to consumer brands – this year Shopify reached one million shopfronts. Plus, all of the mom-and-pop stores across eBay, Amazon and soon, Facebook. Going online only takes away a differentiator and will make it easier for others to copy and compete against you.
Your stores are a branding exercise in itself. Nothing can replace the instant brand connection that a well designed store, a friendly face and physical product can deliver. The sights, the smells, the touch and the sounds create an instant brand impression. Granted, this can be instantly positive or negative. However, it will take much longer and more investment to maintain, let alone build a brand purely online.
It’s a totally pricing model. While costs should theoretically reduce (Kogan has famously got theirs down to approximately 6 per cent), you will need to factor in a new pureplay pricing model which often incorporates postage, cost to acquire new customers, returns and fraud. This gives you levers to pull when needed. Remember, you are only two clicks away from a price comparison online. Plus, there’s a small premium you can get away with physically. Don’t expect to copy pricing from omnichannel.
Don’t underestimate customer acquisition and retention costs. To be profitable, you need to have a ROAS (return on advertising spend) of at least 5 to 1. That means for every dollar you spend on advertising, expect to get five back directly – assuming your net profit is in the healthy range of at least 50 per cent. Anything less and you are likely to be giving margin away. This is becoming harder to achieve with established platforms such as Facebook and Instagram becoming more expensive. Be prepared to get creative to acquire and keep customers.
You will have to make some hard decisions about your team. Store managers will likely become one store manager. Sales assistants will become online agents, pickers, packers and designers. Property managers become UX designers, developers and technology architects. Marketers become community managers, ad traders and analysts. Your traditional hierarchy model may even be broken into more agile scrum teams. Set yourself, and your team, up for success early.
Of course, there are many benefits that come with becoming a pureplay retailer. Global opportunities, channel expansion, warehouse consolidation, unlimited inventory and scalable teams are just some.
However, to realise these benefits, you need to seriously rethink and relaunch your omnichannel business – not just shift it online. Don’t assume that e-commerce will automatically save your failed omnichannel model.