by Mary K. Pratt

Omnichannel Retail Brings Together Online and Offline Shopping

Oct 25, 201215 mins
Consumer ElectronicsCRM SystemsE-commerce Software

CIOs are merging online and offline retail to retain customers and reclaim the shopping experience. It's a strategy called 'omnichannel retail'--but it's a long and expensive journey.

The smell of the perfume, the drape of the fabric, the grain of the leather–these sensory experiences are about the only advantage that brick-and-mortar retailers have over online stores when trying to sell merchandise.

[Related: Retail CIOs Need to Step Up Their Game]

Unfortunately for traditional stores, today’s shopper carries a smartphone that allows her to scan the price tag in the store and then buy the same thing online for less. The phenomenon, called “showrooming,” causes store managers to harrumph about the “scan and scram” shopper.

But what if physical stores had both: the sensory experience of a boutique plus the click-click shopping efficiency and seemingly endless inventory of What if a sales associate could use a mobile device to order a garment in a different color or size right when the shopper is in the dressing room?

Many of the bellwether retail companies, such as The Home Depot, Lowe’s, Macy’s, Nordstrom, Sears and Staples, are spending millions of dollars on IT to bring online capabilities into stores. The tactics include adding in-store Web kiosks, arming sales associates with mobile devices such as iPads, and (paradoxically) encouraging shoppers to use their smartphones in the store.

But this approach is only one step toward an even more ambitious goal that pundits call “omnichannel” retail, which unites physical stores, e-commerce, mobile and social selling into one seamless experience for the customer.

For Sears, that means customers can order products online and pick them up in stores. They can have online-purchased items shipped to them, and can return unwanted items at stores. They can get text messages alerting them to special deals, or use Sears smartphone or tablet apps to manage their shopping lists or find product reviews.

“Technology plays a massive part in delivering an integrated customer experience, so we’re doing a lot more around servicing you as a customer and delivering products the way you want to be serviced,” says Keith Sherwell, senior vice president and CIO for Sears Holdings.

Consider the role technology plays in how Sears works with a customer looking to buy a lawn tractor. That customer could start with his desktop PC to research which tractor is best for his yard, using the Yard Guru buying guide at Or he could use the Sears app on his smartphone, or in the store at a Web terminal or while working with a sales associate who might have one of the more than 400 iPads and iPod Touches deployed as part of a chain-wide pilot program.

Sherwell says Sears calls its approach “integrated retail,” which in the past few years has required upgrades in both its IT infrastructure and its organizational thinking.

The CIO won’t disclose how much money Sears Holdings has invested in omnichannel efforts across its brands, which include Kmart, but he acknowledges that hundreds of millions of dollars have been spent in hardware, software and infrastructure upgrades.

Those upgrades include adding Wi-Fi to improve smartphone connectivity in the stores. Sears is also experimenting with iPads and iPod Touches to give sales associates greater mobility and flexibility when helping customers. And it’s retraining associates “to understand this integrated retail model and all the tools available to them,” Sherwell says.

How far along is Sears in its quest for integrated retailing? Sherwell says that “we’re already most of the way there…and it’s going to get better.”

The New Normal

For decades, brick-and-mortar stores were information deserts, devoid of customer-facing technology, while consumers raced ahead, shopping online and adopting smartphones, says Greg Girard, analyst at IDC Retail Insights (a unit of CIO‘s parent company). Now, he says in a report, “the most successful strategy to defend stores from becoming showrooms is to bring them into the mainstream of omnichannel commerce and transform them into centers of omnichannel orchestration.”

The term “omnichannel” creates some confusion, though. “A lot of people will right away start thinking ‘multichannel retailing.’ Omnichannel retailing is different,” says Daniel Burrus, founder, president and CEO of Burrus Research Associates. “Omnichannel is integrated, the other is not. An omnichannel approach provides a very consistent experience regardless of the customer touch point and supports the brand and a uniform brand experience.”

Retailers have a growing number of channels through which they can reach consumers–smartphones and tablets, websites, physical stores, kiosks, social media and smart TVs–and they have tended to manage each one as a separate activity. But customers now move fluidly between those channels.

“A consumer might research a product online, look at it up close in a store, solicit opinions from friends via social networks, use a mobile phone to check competitors’ prices, but ultimately buy it in-store using PayPal on their phone,” says Jeffrey Grau, an analyst at eMarketer. “What will matter most is whether the experience was smooth. If the retailer disappoints the shopper during any of these channel handoffs, it will reflect poorly not only on that channel, but on the brand as a whole.”

A Long Journey

But the retail industry has a long way to go before it gets to that full-fledged omnichannel experience. “True omnichannel is really rare,” says Cathy Hotka, who runs a retail IT consultancy.

The obstacles to reaching that goal are both technical and organizational, she says. Many retailers built up their online operations as separate organizations–and in some cases, actual separate dotcom companies–so their physical stores and their Internet sites have different IT systems that may not work well together. As a result, some retailers still manage their online and offline retail inventories differently, and some even have different pricing policies.

“Retailers also still struggle with who should get credit for a sale. So if you get something online and I return it to the store, does the store take a hit for a customer having taken it back? You’d think for 2012 that would be solved,” Hotka says.

Meanwhile, some retailers don’t have an accurate view of their actual inventory, which is a huge problem for omnichannel practices, Hotka says. It means a sales associate can’t scan a barcode to search the company’s online inventory for an item in a desired color or size when it’s out of stock at the store. It also means that the retailer can’t offer same-day pickup for online orders, and in-store consumers can’t easily access the store’s online reviews to help them decide on a purchase.

“Retailers understand they have to get everything sorted out and integrated, but that doesn’t mean they are. There’s a lot of this work that has yet to be done,” she says.

That work isn’t cheap. “You’re talking about hardware, networking, security, interoperability, multi-protocol networks. It’s a lot to make sure they have the bandwidth they need today–and think about the kind of bandwidth they need tomorrow,” Hotka says.

In a Wall Street earnings call, Nordstrom announced plans to spend nearly $1 billion over five years on upgrading its digital operations, which gives an indication of just how expensive the task really is.

Nordstrom–which analysts say is a leader in omnichannel retailing–has distributed 6,000 handheld devices (modified iPod Touches) so store employees can ring up customers in the aisles and email them receipts, just like at Apple stores. It has had a single inventory-management system supporting stores and the online business since 2009. And it has a mobile shopping app that lets customers scan an item’s barcode to check on its availability and browse styles based on personality types.

“It’s about meeting and exceeding customer expectations no matter how they choose to shop,” says Nordstrom spokesman Colin Johnson.

Kasey Lobaugh, a principal at Deloitte Consulting, says investments like that are bringing the retail industry closer to omnichannel. “We should envision a time when every customer is constantly connected, when they can be in the store and online at the same time connected by their mobile device, so then the two shopping experiences aren’t disparate,” he says.

Some consumers are already there: According to Deloitte’s survey of 2,598 smartphone users, 58 percent use their smartphones to shop. And 61 percent of those who use smartphones to shop use them while actually in a store. Some 52 percent use them on the way to the store, while another 45 percent use them on the day or night before shopping.

That usage pattern seems to correlate with sales, too, according to the survey. It found that 72 percent of the smartphone owners who used their devices on their last shopping trip actually made a purchase that day, compared to 63 percent of those who didn’t own smartphones or who didn’t use their devices while shopping.

Merging the Digital and the Physical

“When you start to treat [the experience] as a singular organization rather than channels, and you think about inventory as a singular concept versus store or online, it unlocks a ton of value for consumers and for the retailer as well,” Lobaugh says.

“It’s really the convergence of the digital and the physical. That’s really omnichannel. But you have to get over the paradigm that the online business is about a Web page and a disparate experience and mobile is just a website on a smaller device. It’s more about the capabilities to drive the experience.”

This new way of thinking creates tremendous pressure on the technology organization, because convergence of the digital and the physical means the IT department–indeed, the whole company–needs to think differently about its technology.

“It has to fuel the business, not just online shopping, so the entire stack of IT systems has to be re-evaluated,” Lobaugh says. “You have to invest for a world in which digital is a fundamental for every point of contact. Omnichannel is ubiquitous. It’s so fundamental to a retailer’s future strategy.”

That message is heard loud and clear at Ahold USA, the $24 billion parent company of several regional grocery chains, including Giant Food Stores, Martin’s Food Markets and Stop and Shop, as well as the online Peapod store.

“Customers are going to define how they want to shop, and if we’re not enabling that, we’ll become irrelevant,” says John Dettenwanger Jr., CIO at Ahold USA. “To me, omnichannel is really about omnipresence. It really flips the view from ‘What’s the advantage to us?’ to ‘What’s the advantage to the consumer?’ We try not to silo this as a brick-and-mortar or Internet issue. It’s about creating a more seamless environment for the consumer.”

Some of Ahold’s stores have deployed Scan It, an in-store scanning device, and Scan It Mobile, which works with personal smartphones. The tools allow shoppers to scan and bag groceries as they shop, so they can just pay and go rather than waiting at registers to check out. Scan It users also have access to budgeting tools and exclusive offers.

Dettenwanger says that’s just the start of what’s coming. Shoppers soon will be able to order items, such as deli products, from their smartphones and then pick them up at the store. Someday they’ll be able to access store maps on their smartphones so they can easily find the row and shelf location of the items they want. They’ll be able to view online 3-D images of items, so they can check out ingredient lists and nutritional items from anywhere, just as they would while picking up the actual item in the store. And they’ll be able to create grocery lists by using their smartphones to scan barcodes of items they have at home.

Further down the line, Dettenwanger envisions rolling out a Guess My Order program, which will use customer data to help build their shopping lists–and help build brand loyalty.

“People are creatures of habit, and we can predict what you’ll need to buy, so it will look at your history and it will tell you want you need,” he says. “If we take that insight and turn it into real value, that’s where it’s really different. It’s not just pushing stuff at [customers]; that’s not what they want. They want more help. And from a consumer perspective, I’m in a busy world and I’m going to go where I get the biggest help.”

Dettenwanger acknowledges that there are challenges to getting there. He says the company needs to standardize and modernize its technology–a task that has been pushed to the forefront because of the pressure to move toward omnichannel retail. And then there’s determining how and when to roll out new capabilities to customers, who, despite their penchant for smartphones, still need time to digest all the possibilities.

“There’s a change-management aspect with our consumers. [Retailers] have spent many years training them to act in one way, so we have to be judicious in how we roll capabilities out so we don’t overload them too quickly and so it doesn’t become confusing,” he says.

That is the art behind this push toward omnichannel: using technology to enhance a customer’s experience and drive sales without creating a clunky or cumbersome process.

Craig Young, vice president of IT for Verizon Wireless, says the company has been working toward omnichannel for several years, following an “Aha” moment when its own study found that more than 60 percent of customers were researching products online before heading into a store to buy.

Young says Verizon Wireless wanted to take the online research that its own customers were doing at the company’s website and provide it in useful formats to in-store sales representatives so they could be as helpful as possible to shoppers. That’s crucial, he says, because 80 percent of Verizon Wireless items are still sold in stores.

Now a sales associate will know, for example, what phones a customer recently viewed. In the future, as the company gets deeper Facebook integration, Young says the company will pull in information gleaned from social media sites to further tailor interactions to each customer.

In the past several years, Verizon Wireless has invested in its CRM tools, data warehousing and standardized pricing and inventory, all of which created a strong base from which to launch into omnichannel, Young says.

When the company is setting up new systems, he says, it has an eye toward omnichannel. For example, Verizon Wireless developed its Iconic Sales Portal two years ago. It was initially designed to handle the anticipated high demand for the iPhone 4, but now it can be used to support high-volume sales during launches of new iPhones or Android phones. Young says the portal serves as a platform for uniting retail stores with shoppers using online, call center and indirect sales partners. “It was a consistent and seamless customer experience,” Young says.

That’s the kind of shopper experience that retailers are aiming for, experts say. “You’re seeing technology as the strategic enabler. You have to be everywhere your customer is, and you have to serve that customer on every device that customer wants to use,” says Tom Litchford, vice president of retail technologies at the National Retail Federation.

Case in point: In fiscal 2011, the CEO of Home Depot added interconnected retail to the $70 billion home-improvement retailer’s list of core principles, which up until then included just three others–a passion for customer service, being the product authority for home improvement, and disciplined capital allocation driving productivity and efficiency.

“We’d like to serve our customers whenever, however and on whatever device they’d like to use to buy from us,” says CIO Matt Carey, who came to Home Depot from eBay in 2008 to help deliver on this vision.

Carey points out that the company now allows customers to return online purchases to stores and to pick up items bought online at stores–features that Carey says “people have come to expect, the table stakes.”

Carey is pushing beyond basics, too, moving closer to true omnichannel retail by deploying mobile apps that tell customers where they can physically find their desired products in the store and offering computer users visibility into store inventory and pricing so “you’re not wasting a trip to the store, you know it’s there.” Home Depot also lets stores to see each others’ inventory so they can immediately help in-store customers locate what they need, even if it’s in another location.

In late 2010, Home Depot rolled out 34,000 handheld devices with inventory lookup and voice communications capabilities for the sales associates. These devices are also used for remote checkout, for example, when stores need to quickly move lines of shoppers preparing for hurricanes, or when associates are helping customers buying Christmas trees from outdoor lots.

This year the company is rolling out 25,000 “junior versions” of the handheld devices, which will give more associates access to the core functions, specifically inventory lookup and voice communications.

In both those cases, Home Depot is using Motorola hardware with applications primarily developed in-house, according to company officials.

As IT-enabled shopping experiences continue to evolve, Litchford sees retail as on the edge of a technology frontier. Ahead, he sees retailers engaging customers in whole new ways. A customer watching a smart TV that shows a leather jacket on an actor will be able to click the screen to find out where it’s sold or will send a tweet that triggers a response from the customer’s favorite retailer with some suggested items.

“Maybe they know me personally because I’m in their loyalty program, and they can go get the sales associate who helped me last time,” he says. “Then there’s all the augmented reality, companies playing with [virtually] putting clothes on me.”

That’s already here. This spring, Bloomingdale’s launched a virtual try-on window outside its New York City store, where passersby who stop in front of the window see an image of themselves wearing one of six pairs of sunglasses. (For more, see “Augmented Reality Helps Customers Visualize In-home Installation.”)

Welcome to the future, Hotka says. “It’s nothing short of a complete, fundamental disruption of how shopping works.”

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