What you will discover in this report
The speed of the pandemic and the resulting lockdowns took everyone by surprise – for retailers, it required overnight change as consumers moved in droves to shop online.
Now – with Covid-19 part of everyday life – these shoppers see no distinction between e-commerce and brick-and-mortar stores. Likewise, for retailers – physical stores are now central to an e-commerce fulfillment strategy.
This report – created with VDC Research- provides a detailed view of how this trend has affected the retail industry. It shows how retailers adapted, the challenges of building an omnichannel offering, and where the market is heading.
According to our research, the demand and use of omnichannel services like BOPIS and Curbside Pickup increased an average of 97% at the beginning of the pandemic. More importantly, 51% of retailers said this demand has stayed consistent to date.
These numbers show just how important it is for retailers to invest in online order fulfillment systems to stay competitive. In this paper, we’ll dive into the areas to focus on how to do just that, not just now but for the long term.
- How omnichannel services have appealed to customers and raised sales.
- Challenges in developing omnichannel solutions, such as improving inventory accuracy.
- Types of store associate technology and how different choices have helped retailers adapt to the pandemic.
- Retail in-store order fulfillment strategies – third party services vs in-house solutions.
About this research
In a partnership with VDC Research, we spoke to US retail executives across sectors like fashion, grocery, specialty stores, as well as mass merchants, about how they have implemented and scaled order fulfillment and omnichannel services since the beginning of the pandemic.
We asked them about the technology they are using, staff attitudes to fulfilling orders in-store, customer reactions and sales, and future investment plans. Retail executives also told us how they rated their organization’s effort to adapt to the changing situation.
Demographics – the retail executives we spoke to work across a variety of verticals including*:
- 50% Fashion
- 28% Grocery
- 11.7% Mass Merchant
- 15% Specialty Store
Working in roles like:
- 46% IT Management
- 15% Operations
- 6.7% Executive Management
*The total adds up to over 100% as there is overlap in sub-verticals for some accounts.
Omnichannel and order fulfillment challenges
The most significant challenge for retail in 2020 were the lockdown-enforced store closures. This, in turn, triggered a second major event – the massive shift to e-commerce.
However, it also brought capacity issues. The steady move to e-commerce over the last 10 years allowed for incremental expansion in terms of fulfillment. When the pandemic hit, retailers faced up to the realization their operations and logistics systems were not designed to deal with this volume.
More customers shopping online
There is clear evidence more people are shopping online. 97% of retailers said that demand for services like Buy Online Pick Up In-store (BOPIS), Curbside Pickup and Ship from Store increased or stayed consistent once customers became accustomed to the Covid-19 outbreak.
51% of organizations said demand for omnichannel services, like BOPIS and Curbside Pickup, remained at peak ‘early Covid’ levels, while 46% said it had actually increased.
An increase in basket sizes
Sales also increased with 44% of retailers saying online basket sizes had risen between 16-30%. 11% saying they were over 51% up on pre-pandemic levels.
Top omnichannel challenges
However, scaling up the omnichannel capabilities has presented challenges. The top problems cited by retailers include:
- Logistics and inventory visibility.
- Managing staff requirements to respond to the increase in orders.
- Limited availability of mobile scanning devices.
It is worth it despite these challenges. The vast majority of retailers (88%) felt omnichannel services brought something extra to the store and were a worthwhile long-term strategy.
How retailers rate their response to the pandemic
More consumers have learned to shop online. As a result, retail brands needed to discover new ways to make the most out of their retail chain and operations.
Most retailers thought they adapted well
Despite the logistical pressures brought by huge online sales increases, around 70% of retailers were positive about their organization’s response.
On a scale of 1-5, with 5 rated as ‘highly agile’ – 42% of retailers rated their organization as 5. 27% rated them as 4. No retailer gave their organization less than 2 (10%). These numbers are broadly reflected at a sub-vertical level – 38% of grocery and fashion retailers rated their response as ‘highly agile’.
What were the most important factors in delivering these services?
The rollout of e-commerce delivery options such as BOPIS and Curbside Pickup was regarded as crucial to keeping retailers open during the pandemic. Grocers, in particular, cited a 109% increase in these services at the beginning of the pandemic.
To achieve this there was a huge reliance on mobile and digital solutions expertise, with 53% of retailers describing this as ‘extremely important’. The integration of e-commerce and in-store solutions followed closely behind – underlining the need to bring these areas closer together.
The impact of store associate technology
However, the retailers’ opinion of how they responded to the pandemic varies markedly when split by the type of store associate technology they use. 48% of organizations that use smartphones rated their response as ‘highly agile’, compared with 37% of stores that use dedicated devices.
This reflects a growing trend amongst retailers, in general, to utilize the smartphone’s camera as a barcode scanner and design apps for several store operations responsibilities. As a result, store associates can efficiently perform critical omnichannel tasks like order fulfillment and inventory control from one device.
Internally sourced vs third-party order fulfillment
With the rise in online orders, third-party fulfillment suppliers have provided retailers with a way to ensure delivery. Grocery retailers in particular have used this with third-party fulfillment suppliers hiring 1000s of new workers to handle the extra demand. However, this reliance has also presented a dilemma for retailers.
How third party fulfillment services fit with wider retail strategy
The majority of retailers handle their fulfillment internally or they use a combination of internal fulfillment and outsourcing. Overall, only 5% of respondents outsource their fulfillment process exclusively.
However, this is not uniform across the different sectors. Grocery, in particular, places a greater reliance on third-party fulfillment services with approximately 20% saying they outsource some, or all, order fulfillment services to them.
The importance of brand connection and profit margins underlines concerns retailers have about outsourcing a key function externally (more on this below).
Concerns about outsourcing order fulfillment
The low numbers for third-party fulfillment overall reflect uncertainty about handing over such a crucial customer-facing role to an outsider. For an online purchase, the only human-to-human link the customers get with the retailer is in the last mile.
The majority of respondents said it reduced the connection between the store and the customer – the most important factor. With cost control, data loss, and brand loyalty cited among the other concerns.
It is worth noting that this sentiment exists even in sectors like grocery where there is a greater reliance on the use of third party services.
Future omnichannel investment focus and priorities
While retailers dealt with the immediate uplift in sales during the pandemic, it is clear they are now investing in omnichannel systems for the long term.
Top three omnichannel investment priorities
Improving the alignment between physical and online stores is central to future investment focus. We found the top three investment priorities are integrating e-commerce and store systems, inventory accuracy, and consumer app development.
A good example of this is Target. Prior to the pandemic, it upgraded its e-commerce apparatus to support a 145% increase in digital sales. This allowed it to hit a $10 billion milestone in 2020. Between Curbside Pickup, In-store Pickup, and Same-day Delivery, stores handled about 90% of Target’s e-commerce last year.
What ‘highly agile’ retailers are focusing on
Of the retail organizations that were rated as ‘highly agile’ in their response to the pandemic, 36% said that integrating e-commerce store systems was a top investment priority.
This was closely followed by the need to improve in-store inventory visibility. This again highlights the role physical stores will continue to play in fulfilling online orders.
Future focus on store associate technology and devices
Store associate scanning devices will play an increasingly crucial role as retailers evolve their omnichannel services. It is here we see a move away from the shared dedicated device for separate tasks, to a smartphone scanning model with different apps covering a range of tasks.
There is already a clear shift in this direction. 51.7% of respondents stated that their stores used smartphones with mobile solutions for associates, while 35% used dedicated mobile computers and scanners.
Store associate attitudes to in-store order fulfillment
Even pre-pandemic, retail experts were warning about problems with in-store fulfillment. In late 2019, former Guess executive and Bed, Bath & Beyond board director Andrea Weiss warned store staff were ill-prepared for it.
She said: “Part of the challenge involves how to fairly incentivize in-store staff to support online sales.” Some staff, she said, may even hold back “best sellers” so they can sell them in-store. Especially if they are paid on commission.
Store associate attitudes towards the additional task of order fulfillment have presented a major hurdle for stores.
What staff initiatives retailers are carrying out
Staffing has been crucial to keeping stores and fulfillment running smoothly. Retailers have taken on a number of initiatives in an effort to keep store staff on board and able to handle additional duties like inventory management and Ship from Store.
Most retail executives said their organization had carried out specific initiatives to bring store associates on board. These have included training (74%) and communication of the overall strategic impact (62%).
Other moves have included performance-based incentives (30%), and customization of the store technology (30%). 12% went for a corporate owned, personally enabled (COPE) strategy and handed their staff smartphones, which could also be used personally.
Summary - clear omnichannel retail trends
We hope you found this report a useful snapshot of the challenges and changes seen in the US retail sector following an eventful 2020.
It is clear the changes over the last 18 months are here to stay. Customers no longer distinguish or make allowances for differences between shopping online or in a store. This presents an enormous opportunity for retail organizations to transform the way they work and connect with these consumers.
To help with this, we have identified some clear trends that will shape the future of omnichannel retail.
- When implemented correctly, omnichannel services significantly enhance customer satisfaction and loyalty. Moreover, retailers are seeing a substantial increase in basket size for customers purchasing through online channels.
- The vast majority of retailers use an in-house solution for fulfilling online orders. The likely reason being an overwhelming perception that outsourcing to a third-party brand or supplier lessens the store’s connection with its customers.
- Retailers are shifting to using smartphones over dedicated devices to support in-store operations and customer engagement.
- Challenges implementing in-store order fulfillment solutions range from logistics and inventory visibility, managing labor requirements to responding to the surge in orders placed.
Clearly, store associate technology will play an increasingly critical role in helping bridge the gap between physical retail and e-commerce. There is evidence that stores are adopting a more flexible smartphone-based approach – utilizing apps rather than separate hardware.
Scandit can help you create a high-performance smartphone scanning app that will empower your store associates and add to the bottom line. If you want to know more about what we do go here.