Four omnichannel strategies retail CFOs should consider

As consumer spending moves to digital, retail CFOs must develop new management strategies for capital expenditures.

Shopping has never been easier for consumers.

But for executives behind the scenes, digital advances have created complexity. It takes an omnichannel approach to meet these new consumer demands, requiring companies to retool their strategies and operating models in areas such as marketing, merchandising, store operations and IT. 

As the world has digitized, the tools and structure of retail organizations have changed dramatically. Numerous retailers have significantly reorganized their merchant and marketing teams to consolidate or coordinate online and store strategies and organizations. Likewise, IT organizations, once considered back-office utilities, have become strategic business partners.

These changes, in turn, have driven multiple new capital requirements. This creates a unique set of challenges for the CFO in managing the internal competition for CapEx amid the migration from historically recognized investments. Instead of more stores, more inventory and more single-channel distribution capabilities, there is a switch to expenditures that will better support e-commerce and omnichannel enablement.

In the omnichannel era, getting a better return on capital requires a multi-pronged approach — and new ways of thinking.

Omnichannel: Creating a coherent customer experience

E-commerce is not just evolving, it is expanding. The growth of digital commerce is far outpacing traditional retail, a trend that seems sure to continue. Yet digital-first brands, subscription services and peer-to-peer sales and auction platforms are increasing competition and putting additional pressure on margins.

Consumers can now shop through various channels, often using six or more touch points before making a purchase. Retailers broadly agree their organizations must deliver a consistent experience across each touch point.

Virtually all omnichannel capabilities require technology investments. Most are not channel-specific but instead impact the entire technology infrastructure. CFOs, however, are still determining how to best define these investments’ impact on sales by channel, which then makes measuring return on capital that much harder to calculate — especially at the channel level. There is a growing lack of clarity around performance and management accountability.

As channels have blurred, time-tested retail metrics have lost some of their meaning and value. For example:

• Same-store sales: Online purchases, ship-to-store and ship-from-store omnichannel practices can skew this number beyond its original intent.
• Gross margin return on inventory investment: Crossover makes it more difficult to measure the productivity of various inventory deployment strategies.
• Returns percentage: Returns are no longer contained within a single channel.

Each channel yields data that makes it easier to track customer behavior, and marketers are using emerging sales attribution models to better allocate marketing spend. These models — single-channel, last-click, multi-touch, multi-channel and the like — could be adapted for broader use in informing capital decisions as well.

By getting more specific about where and how sales originate, finance teams can better estimate the real margins and profits from different touch points. This will lead to more informed decisions of how to deploy scarce capital.

Enabling omnichannel strategy through technology and measuring the impact

Capital allocations should align with business strategy, but technology changes so rapidly that it is tempting to take a wait-and-see approach. Delays, however, could put a retailer at a competitive disadvantage.

Unified inventory management systems and integrated distributed order management systems are examples of platforms that harmonize order fulfillment, regardless of channel. Mobile investments can help retailers coalesce new digital strategies while providing experiences unique to mobile.

Other investments include:

• Customer journey and touch point mapping
• Managing web properties for optimal customer experience
• Global payment and content management systems
• Process and technology investments to support cross-channel fulfillment

The question is, which options are the most advantageous, and how do you measure the impact? In an omnichannel environment, parsing out returns and costs across the business becomes trickier:

• Sales: Intertwined channels make attribution difficult.
• Cost of goods sold: Costs may differ by channel.
• Operating cost: Costs spill over to multiple channels due to fulfillment complexities.
• Depreciation: Rapid innovation makes it hard to determine how long technology will remain relevant, and it is often unclear whether new digital innovations will have the impact projected in the business case.