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History of omnichannel part two: the tipping point

In my last piece on the history of omnichannel, I talked about when customer centricity seemed to hit the mainstream retail consciousness and reaffirmed that even today, customer centricity is central to any successful omnichannel strategy. How can you think omnichannel without putting yourself in your customer's shoes?

The next big milestone in omnichannel, for me at least, is when online sales grew to the point where retailers could no longer afford to treat the eCommerce 'store' as just the online equivalent of a bricks and mortar store, or maybe a flagship store. By my take, this happened as soon as online sales reached somewhere between 3-5% of total sales, sometime around 2007-08.

It happened at different speeds for different kinds of retailers. Part of the theory goes that if the information about a product that is important to a purchase decision can be easily digitised, then it moved online faster. Electronics is a perfect example. If all you need to know about software is a few screen shots and whether it's for Mac or PC, then why would you need to go to a store to see it? And when the product itself can be digitised – like for software, music, books, and increasingly video, then you don't even need to have it shipped to you. You can just download it directly.

Once upon a time, I saw a chart that showed exactly this phenomenon – basically how long it took for sales of a category of goods to reach some set penetration via online sales, like 25% or something (if you know what I'm talking about, let me know because I can't find it anymore). Electronics was first, media was second.

People predicted that it would take clothing a long time to reach that goal, and then they were surprised at how quickly it happened. Their assumption was that 'fit' would be a major barrier to buying clothes online. Fit information is not easily digitised, because, literally, that information is not one size fits all. Fit is very personal. But what I think they forgot is that if a shopper knows a brand’s fit already, then as long as they aren’t experiencing any drastic body changes, they can buy the size they know without needing to try it on, because they trust their knowledge of the brand's fit. Thus, while that information wasn't easily digitised, once it was known everything else about the product – the look, the colour, the sizes available – could be very easily digitised.

I saw the tipping point on a larger scale in the industry hit in 2007. In the US, eCommerce as a percent of total sales was still barely at the 3% mark, but for retailers in those leading edge categories that were experiencing rapid online growth, they were already well past that mark by 2007. That's when I stopped hearing retailers talk about their e-stores and start talking about what online might mean to the larger business.

I mean, at the time it was pretty scary to brick and mortar retailers: something that was supposed to be the equivalent of one very nice store was suddenly growing double-digits, and it was organised badly. It literally was like a store with an eCommerce person who was the equivalent of a store manager, who went off and hired people to make the store run. Except those people turned out to be pretty technical, and much more expensive than a store associate, and in supporting such rapid online growth became almost a mini-IT empire with little to no connection back to the rest of the enterprise.

And then they started getting demanding about inventory, either wanting to carry a broader assortment than stores, or suddenly asking to hold a lot more inventory than just a rounding error in a product buy. And they had different marketing requirements too, which required a whole other type of hire, who while theoretically marketing somehow spoke a completely different language than any marketers at corporate.

This was where retailers first started realising that the organisational foundation that they had laid for eCommerce was all wrong. And many retailers are still struggling with the implications of this today. By 2007, the leaders in multichannel retailing finally had enough information over enough years to be able to see trends, and the trends they were seeing for online promised a lot of disruption ahead. For many retailers, 2007 was the year the executive team started not just paying attention to eCommerce, but worrying about what it meant.

Now, from a history perspective, this is interesting, but not necessarily valuable. However, I have watched as eCommerce has grown around the world, and there are still many places where eCommerce is less than 3% of the business. For some countries, it has taken the entry of Amazon into their market to wake retailers up to what eCommerce can really mean to their business. For others, market leaders saw what was happening in other countries and took the initiative to invest in the eCommerce side of the business before Amazon came in and stole their lunch.

But for a short-hand rule (nothing mathematical), it seems to work everywhere: when online sales reach somewhere between 3-5% of your business, suddenly online is going to matter. The question is, will you have prepared for that? Or are you going to have to suffer through the same growing pains (and trust me, for many retailers they are still extremely painful) that retailers in mature markets are struggling with? Why not avoid that all together?

Even better question, and one that impacts all retailers, in mature markets or otherwise: How does that play out for the mobile channel? Does mobile follow the same rule of thumb? 3-5% of sales is a tipping point? I’ll have some thoughts on that in part three of this series.

This article originally appeared on The RSR Research website. It is reproduced with the organisation's permission.

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