Anything that can be digitalized will be, and the Internet will be the dominant mode of distribution. But, Jerry Storch, CEO of Toys R Us, stressed today at the Shop.org conference, that for physical products, the internet (direct to home) will not dominate sales...until they invent the transporter.
Stores make money and a lot of money. Now Storch didn’t represent a bricks and mortar retailer ranting and railing against the internet and selling online. Rather he kicked off the conference with a call to action urging retailers not to search for the magic pill but to be where the customers are and have an omnichannel approach to retail.
The internet is one of the most transformational, revolutionary forces of our lifetime but it’s not transcendent. It’s huge but it isn’t everything. In retailing, you are good based on what you buy. Merchandising still needs to be at the core of your skills.
Storch went through some perceptions we have of online retail and how it compares to purchasing in store.
MYTH: Store chains need to shrink massively and rapidly
Massive shrinking would be a self fulfilling prophecy, essentially receding the market without economic justification.
This assumption believes that online retailers are always able to offer lower prices. If you compare classic retail to direct to home, the cost of the supply chain is greatly impacted. Direct to home is 1.5x – 2 x higher than classic retail as shipments at Distribution centres are not cross-docked, they have to have people pick and pack. Freight to home is 30x-40x higher then sending truck loads to a single store.
So can you really charge less? The product costs the same and the supply chain is three times higher so really it comes down to how much profit you are willing to lose. Anyone can sell an infinite amount of commodities below cost. It’s a very efficient way to lose money.
MYTH: Customers prefer online shopping to stores
Some customers do love internet shopping as primary way to shop. But most customers love to shop in stores and it is a major national pastime in the US.
Some categories and purchase occasions work well with the internet, others are more store-friendly. Logistics also tell a different story. Stores are the most efficient delivery vehicle for many large products and purchase occasions. Kids rate a trip to Toys R Us just below a trip to Disney Land.
MYTH: The future belongs to internet only companies.
No. The future belongs to BRANDS. Storch joked that he wanted to say this is capital letters and wanted us to remember it that way.
It belongs to brands that create the best customer facing experiences across all channels. Those brands that build the best consumer-facing network, incorporating stores, interest mobile social and local components.
All companies will be internet companies or they won’t be companies at all. The internet is heavily used by almost everyone for product and retailer research but most of this occurs on RETAILER websites. So the majority of the growth of internet retailing is coming from the links people have with bricks and mortar companies.
To succeed you need product that people love that they can’t get anywhere else but from you. This is why omnichannel retailing is so important.
Omnichannel: Model of the future
This can’t come as a surprise to any of the retailers in this room or across the globe. The world is changing and so are customer expectations.
The omnichannel matrix allows you to:
Order from: home, elsewhere (work), your store, different store, mobile
Fulfilled by: Direct DC, Store DC< Your Store, Different store, vendor
Where received: Home, elsewhere, your store, different store
There are over 80 permantations when you use this matrix to determine where you order, how your orders are fulfilled and how you receive them. Customers are evolving from stores or websites to networks.
This model allows customers choice, convenience, product that is more available and a vast selection. For retailers, it actually gives more foot traffic, inventory utiliszation (use from any location), customer retention, and an increase of sales.