In a world where ecommerce has become mainstream and retailers raced to build unified commerce business models, some brands are starting to consider returning to multichannel structures. While this may present an opportunity to unlock value for stockholders, it is the opposite of what consumers are looking for in retail.
Unified commerce is a total ecosystem of seamless, frictionless processes that put the consumer first. Today it is no longer about getting the right product at the right price, it is about getting the right product, at the right price, to the right place and at the right time—as selected by the customer.
When the industry no longer sees the world in terms of channels and starts to see the various points of engagements as customer touch points, the conversation about spinoffs for pure short-term value at the expense of the customer will become irrelevant.
Working with over 300 retailers for 20 years, the industry experts at Columbus Consulting have seen the benefits of focusing on the consumer first by creating and embracing a unified commerce business model. This model is an end-to-end view of providing a customer-centric approach to multichannel commerce. BOPIS (buy online and pick up in store) is only one example of how customers are dictating how they shop and where they want to fulfill their purchase. But this type of control requires retailers to become more unified, not more separated like the Saks’ approach. Retailers who are seeking an accelerated omnichannel strategy need to also consider what it takes to support a unified model. This requires a hard look at prioritizing logistics/supply chain, managing inventory, building the right organizational structure and leveraging smart technology to enable agility and accuracy. Something we refer to as the L.I.S.T. (Logistics-Inventory-Structure-Technology).
Unified commerce does not start at the store or online; it is the collective sum of having complete visibility to your supply chain, delivering a proactive and agile inventory system, supporting the customer with customer-centric teams focused on the total experience and maximizing today’s smart technology to make faster, more accurate decisions that ultimately fulfill the consumer promise. So why are board members and stockholders open to returning to earlier, less scalable business models?
Saks’ spinoff of its ecommerce business in November 2021 unleashed a movement by activist investors and board members that is, frankly, shortsighted. These conversations gained the most traction in the department store sector which has long been struggling to find a solution to stagnating growth in a century-old, tired format.
Activist investor groups mounted serious challenges within Kohl’s and prompted Jeff Gennette, CEO of Macy’s, to engage AlixPartners to explore the merits of a spinoff strategy (AlixPartners also worked with Saks to execute its ecommerce spinoff). Interestingly, Macy’s concluded that separation was not the best path forward and an integrated company would maximize shareholder and customer value over the long term. I couldn’t agree more.
Given the value Wall Street has attached to ecommerce pure plays, these separation movements would seem to provide an understandable means to unlock value for shareholders in the short term. But the stakeholder that really matters as the source of any retailer’s long-term value is being ignored — namely, the customer.
Chasing a Mirage
Retailers are partially responsible for activists’ surge in separating the businesses by continuing to report sales results by channel at the point of sale where the order took place. Technically, where the sale is concluded is a better measure of customer intent and retail channel performance. The growth of services such as BOPIS, curbside pick-up, and same day local delivery from store are all recorded as ecommerce sales. In reality, these sales are the result of a value chain that blends digital and physical elements as integrated parts of a total ecosystem of customer touchpoints. In other words, unified commerce.
A compelling illustration of this accounting misunderstanding was Target’s April 2020 results during the initial lockdown period tied to Covid. Digital sales grew by $1.1 billion with $950 million of those “digital” sales coming from store fulfillment. Bottom line: Activists are chasing a mirage. And while the media headlines may fuel a hope for short-term rewards, long-term value will be lost in pursuing ecommerce spinoffs.
What Customers Really Want
News flash: Customers don’t care about channels. They just want to buy products from brands they like and trust. Today’s customers are armed with smartphones and co-create their shopping experiences with brands. They choose where and how their orders will take place — and they also choose how and where those orders will be fulfilled.
The overriding choice has been about convenience not shopping channels. Customers are time starved and seek solutions that help them manage their lives better. In many cases this means they still want to take possession of their merchandise in store. Research confirms that many want to examine the merchandise in person before making a purchase official. Buying online and picking up in store works because it solves customers’ desire for convenience, provides immediate gratification, and in some cases, saves them money on delivery charges. Long-term retail winners will continue to create innovative solutions for customers. And that means further improving fulfillment speed and convenience through unified commerce.
Separate Is Not Equal
What activist board members pursuing ecommerce separation strategies fail to recognize is that separate structures create zero-sum games that leading retailers have been eliminating in their operations. Separate means:
- Separate inventory
- Separate balance sheets
- Separate resources/organization/staff
- Separate consumer marketing and loyalty programs
- Separate and disparate fulfillment systems
While the industry is feeling the pains of supply chain delays, the need to maintain separate channels based on legal and accounting requirements only reinforces inventory silos and can add additional complexity and costs.
Furthermore, the separation of channels creates a competitive scenario between operating divisions. This results in friction regarding incentive and reward programs that are no longer synchronized with seamless execution delivering a unified customer experience.
In actuality, how do you effectively enforce omnichannel practices such as shared inventory or a single brand experience when one channel gets rewarded at another’s expense? It seems obvious that this practice is designed to benefit the retailer’s accounting systems, not the customer-first experience.
As reported in the Wall Street Journal, Saks CEO, Marc Metrick described why the ecommerce split made sense. He explained how Saks memorialized certain processes in contractual agreements to retain the ability to deliver various omnichannel services. However, this would seem “to having one’s cake and eating it too.” In other words, is it really a spinoff?
Going back as far as 2010, I led omnichannel transformation efforts at many retailers, and experience has taught me that process changes are not nearly enough. Success lies in establishing the right organizational structure, KPI measurement system, and aligning customer incentive and reward programs to coordinate with the right set of processes to deliver a great customer experience. Creating a separate legal entity through a spinoff does not create a set of conditions for the customer experience to thrive.
Retailers and shareholders of retail companies win when customers win. It is my hope that the retailers that are currently facing challenges from activist investors listen to their “better angels” and resist the temptation to pursue a short-term return that would be to the detriment of their long-term prosperity, namely the customer.
To reiterate, leading retailers are customer-led and structure their organizations to reduce friction and increase alignment to serve the customer. The right KPIs and the right incentive and reward programs need to be aligned. This is much easier to accomplish operating as a single entity. When the industry no longer sees the world in terms of channels and starts to see the various points of engagements as customer touch points, the conversation about spinoffs for pure short-term value at the expense of the customer will become irrelevant.
Note: Columbus Consulting is a Robin Report Collaborative Partner
Republished with permission from The Robin Report