BFV — Research Dive #6 — Thinking About Omnichannel

Hello from Charlottesville, VA! Feels good to be back in the Commonwealth for one final academic year before oh another ~35 years of working. Brand Foundry Ventures’ Andrew Mitchell and Sumeet Shah have kept me involved in the deal pipeline, BFV Fund II raise, etc., and I am in turn continuing to work with them on their investment due diligence and biz dev efforts.

In July, I wrote about millennial spending trends and the fact that e-commerce has steadily taken market share from brick and mortar retail on an annual basis since 2000. (Please see the “Previous BFV posts” links below.) However, conversations with AM, SS, and my younger sister Julia — previously a buyer/analyst at Bloomingdale’s, a recent hire at Jet.com, and someone whose background makes her exponentially more knowledgeable than myself on this topic — made me reflect that my prior posts fell short of accurately characterizing today’s evolving customer experience. Specifically, not once did I refer to omnichannel strategy. Tisk tisk.

There have been various indicators of late that “big retail” is re-orienting itself to face customers in as wide-reaching a manner as possible. (Whether recent moves are an example of too little, too late, we shall see.) And this goes well beyond the integration of offline and online platforms. Take Macy’s, for example. Several weeks ago, they announced plans to expand their existing partnership with Starbucks, with the added possibility of opening full-scale restaurants that serve wine and beer. Further, Macy’s will be opening an Apple Store within its own flagship Herald Square, NYC location. We view strategic decisions like these as an effort on the part of big retail to maintain their relevance as the aforementioned shift toward e-commerce continues.

But, with regards to the omnichannel theme and how it overlaps with BFV’s investment viewpoint, there is no shortage of eye-opening research that indicates how important it is today for companies in the retail space to offer a seamless, fluid customer experience. Granted, BFV portfolio company founders typically have only had a couple of years max/if that to put their visions into practice. That is to say, BFV does not expect web, mobile, brick and mortar, and pop-up stores to be available to customers of early-stage companies at the snap of a finger. We invest with an underlying thesis geared toward direct-to-consumer models and millennial-focused products, but we find the most compelling pitches by founders to be those with a concise, simple, and (ideally) disruptive vision, i.e., as opposed to implementing a go-anywhere, all-angles approach right off the bat. Still, we have gleaned useful lessons from the strategic decision-making of big retail and its broad attempts to serve consumers.

What is clear is that the lines between offline and online shopping are blurring, particularly in the retail segment. Big Commerce neatly distills some of the trends in an interesting series of infographics. Please see Exhibits 1 and 2 below for detail.

Exhibit 1 // Source: https://www.bigcommerce.com/blog/consumer-behavior-infographic/
Exhibit 2 // Source: https://www.bigcommerce.com/blog/consumer-behavior-infographic/

Big picture takeaways from these graphs: a) nearly all Americans shop online today, b) in the U.S., two-thirds of consumer spending by dollar amount is still done in-store, and c) the lack of immediacy, frustration around logistics, and shipping costs are components that can dissuade consumers from making online purchases. In our view, the survey results above lend credibility to current efforts by Amazon.com, Walmart eCommerce, and Jet.com to both expedite delivery times and lower shipping costs for customers.

Back to omnichannel. We find this topic especially relevant right now as we enter the holiday season, a period where many companies intend to roll out new technology in their efforts to connect brick and mortar operations more closely with computer and mobile. For example, “Timberland will unveil a ‘TouchWall’ at its White Plains, NY location, using a sizable interface that’s powered by near-field-communication (NFC) technology. It will let shoppers zap product information from the digital wall to their phones with a couple of finger taps, saving the items for later purchase — not to mention data that can be used for re-targeting when they are sitting at home” (Adweek). A well-established company like Timberland has the resources to employ a strategy like this, sure. That said, we think the move again speaks to the importance of online purchasing. Here, Timberland is looking to gather data on the tendencies of its in-store customers, yes, but more importantly the company is facilitating the online experience for those individuals who showed up in person. When push comes to shove, in this case Timberland has enhanced the in-store experience, but the core objective of the company’s new technology from our perspective is to drive e-commerce results, capturing a channel whose share only continues to grow.

We will close by highlighting four groupings of omnichannel strategy by Digitalist Magazine. After all, the purpose of omnichannel is to both best support the needs of your consumers and augment the monetization opportunities for your company. Please see Exhibit 3 below for detail.

Exhibit 3 // Source: http://www.digitalistmag.com/customer-experience/2016/03/31/era-of-omnichannel-customer-centricity-04103209

Not surprisingly, mobile and tablet apps comprise a key element of omnichannel strategy. Better yet, apps that incorporate reviews, rankings, and critiques are more dynamic for the sake of the customer looking to make a purchase, not to mention for the company looking to analyze its own products. Similarly, customer feedback can be collected by engaging in social media; Facebook, Twitter, and Pinterest, among many others, also provide obvious opportunities to advertise sales and promotions. Organizational integration is the topic we have spent most of this post discussing and is the area of omnichannel that we believe generally requires the most long-term strategic consideration by the companies themselves: it takes hard work to get this right. Achieving efficiency in inventory management and having platforms that are equally capable at handling mobile, online, and in-store orders are among the efforts that big retail has had to come to grips with in order to remain relevant in today’s environment. Innovative technology such as tech-enabled kiosks and pop-up shops are a fourth means of generating new, loyal customer interest. This is an often overlooked sub-strategy that we anticipate getting increased attention over the next several years; in fact, we have evaluated a few companies in the sector to date.

In this post, we tried to aggregate some of the more thoughtful articles on omnichannel strategy. This was not a quantitative analysis, but we figured it would be most useful to look at a few specific company decisions to assess the increasing prominence of accommodating an omnichannel customer experience. Brand Foundry Ventures considers investments in companies whose founders have a grasp of (and plan of action concerning) the aforementioned trends.

Previous BFV posts:

Other interesting articles on omnichannel: