OMNICHANNEL RETAIL| INTERSPORT | LYKO | GRANNGÅRDEN |

The modern consumer has high expecta-tions, placing great demands on retailers to provide a seamless buying experience – whenever and wherever they choose to make a purchase.

Several big retailers opt for an omnichan-nel solution to meet these expectations. Increased loyalty and profitability are just a couple of the benefits, as pointed out by retailer Macy’s in 2014. But living up to customer requirements while generating good profitability has proven to be a chal-lenge for many. Only 16 percent of compa-nies say they can currently fulfil omnichan-nel demand profitably, according to a 2015 PwC study.

In the following pages we aim to provide an overview of not only the benefits, but also the challenges with omnichannel – based on valuable insights from retailers successful

Johan HallgårdeOmnichannel advisor Avensia

Anders AnderssonMarketing managerAvensia

within their respective fields. As omnichan-nel is very broad, we have chosen to focus on the interaction between the two channels that usually constitute the largest contact surfaces with the customer: e-commerce and physical stores.

Finally, we look forward with unified commerce, an omnichannel solution set to take on current challenges and work for a more synergetic and seamless customer experience.

* By ‘e-commerce’, we mean a transaction for a product or service that is made over the internet by the customer via the company’s e-commerce website or app, regardless of device used, such as desktop computer, tablet, mobile or any other smart device.

To ensure a good selection of companies, we had a number of specific criteria. We looked for Swedish operators with strong brands within their sector. It was important that they conduct their trade via both physical stores and e-commerce, and that they work actively to develop their omnichannel.

The respondents hold leading positions within their respective companies, and are responsible for pursuing omnichannel issues and strategies for their development. They work actively to improve the interaction between their stores and e-commerce by driving sales between the channels. And they all agree that investing in an omnichannel is a never-ending journey, requiring continuous work with a range of activities that enable progress.

Beauty products

30 + Stores

1 bn revenue

Sports products

150 + Stores

1 bn revenue

Garden and animal products

100 + Stores

1.8 bn revenue

Granngården was founded in 1880. With over 108 stores all over Sweden and an online shop, the company inspires and makes living an earthy life easy. Granngården has functioned as a hub for Swedish farmers for over a century.

Granngården primarily sells garden and animal products but also provides services, advice and inspiration within cultivation, animals and nature.

GranngårdenMonika Dagberg,E-commerce manager

Intersport is a part of the world’s biggest sports chain. Since its found-ing in 1961 the company has pro-vided consumers, Swedish clubs and associations with sports and outdoor products.

The retail conducts both standard and franchise stores all over Sweden. Through a combination of traditional retail and new digital investments, the company works hard at being at the forefront on a highly competitive market.

IntersportDaniel Anvell, COO

Lyko was founded in 2003 and is one of Scandinavia’s leading retailers for beauty products, both online and in physical stores.

Lyko started as a pure player, but the acquisition of the retail chain Bellbox transformed them into a full feathered omni-channel player.

LykoRickard Lyko,

CEO

SUMMARY

One of our main findings in this report tells us that omnichannel solutions no longer represent a competitive advantage, rather, they have become essential for companies to remain competitive at all. This is because working in various channels makes it pos-sible to reach more customers, and digital-ization has had a huge impact on customer behavior.

What’s more, the customer journey has become more complex, causing e-commerce and physical stores to increasingly overlap each other, and making it difficult to discern profitability between them. But as om-nichannel moves towards seamless experi-ences and combined efforts across channels, distinguishing between them becomes less relevant.

One major challenge with developing omnichannel solutions for a great customer experience is being able to pick up data from one channel to use it in another. The report shows that well-developed customer clubs

play an important role in bridging this gap, by collecting data needed to follow customer behavior and needs. With consumers being increasingly concerned about their privacy, great demands are being placed on companies to provide them with value in return for data.

On the technical side, it is obvious that many systems haven’t been designed with omnichannel in mind. Even relatively new systems lack the basic functionality needed to be able to engage in omnichannel busi-ness, requiring special integrations to get up to speed. Business systems, e-commerce platforms and checkouts make the corner-stones of a good omnichannel experience. Should either one of them not be built with omnichannel in mind, the ability to main-tain, develop and improve the offer will be compromised.

The omnichannel solution set to address these challenges is called unified commerce, and it will lead the next big paradigm shift in the market.

Built on in-depth interviews with Lyko, Intersport and Granngården – three Swedish retail companies which are, or aim to be, omnichannel operators – this report explores and examines the challenges and benefits of omnichannel retail.

OMNICHANNEL AS REVENUEFor Intersport, Lyko and Granngården, omnichannel investments have resulted in reaching more customers and increased total sales. They identify a growing trend of customers who come to stores and ask about products they have seen online, revealing that many customers in fact make use of and benefit from omnichannel. But it’s difficult to determine which customers can actually be classified as omnichannel customers.

CUSTOMER CLUBS AND LOYALTY“We can only measure the shopping behav-ior of those that have actively chosen to join our customer club, and therefore identify themselves in both channels. Loyalty pro-grams make it easy for us to follow customer behavior regardless of where they shop. They’re the key to tie the channels together,” says Granngården E-commerce Manager Monika Dagberg. And it is this data from customer clubs that most clearly indicates the profitability of omnichannel customers, whom tend to shop more frequently and for a higher average amount.

No matter where customers shop, it’s obvi-

ous that being available and interacting with them in multiple channels is hugely benefi-cial. Increased competition, transparency and technology make it possible for customers to be able to find another option just a few clicks away, making it particularly important to represent the most comfortable choice.

What’s more, omnichannel solutions in-crease brand exposure and lead to geograph-ic and demographic spread, as well as loyalty and top of mind. Without the convenience of multiple channels, our respondents be-lieve that they would lose a portion of their customers – with estimates varying between 10% and 50%.

THE MODERN CUSTOMER JOURNEYIt is difficult to determine exactly how many customers begin their purchasing journey in one channel to then complete it in another.

The surveyed companies estimate that ap-proximately 50% of customers do this.

One of the most common ways to measure this kind of omnichannel behavior is to look at how many customers use the online ser-vice to check in-store stock availability. Not least as convenience makes it increasingly common for the purchase journey to begin online to obtain information such as stock availability, prices and opening hours.

From there, it’s a matter of getting the customer to make a commitment to purchase early on. “It’s easy to browse the assortment online with the intention to go to the store, to then not find the time or forget afterwards,” says Monika Dagberg. “A special discount deal for a swift pur-chase is one of the ways to aid the customer in their purchase and gain their loyalty early on.”

“Customer clubs are the key to tying the channels together”

- Monika Dagberg

INCREASING MARGINSOmnichannel provides companies with great-er opportunities to present their entire range.

In theory, greater exposure in more chan-nels should generate greater sales and, in turn, reduce the need of discounted sales. But neither of the respondents really believe that the effects are so far-reaching, or that margins would increase.

On the other hand, all are in agreement that by offering products that are not avail-able in all stores, the companies are able to reduce the total capital that is tied up without needing to reduce the breadth of the range.

Another factor that is cited as being important is the state of negotiations with suppliers – the more exposure for their brands, the easier it will be to negotiate advantageous prices.

THE FUTURE IS OMNICHANNELIt is difficult to support the entire cus-tomer journey without omnichannel func-tionality. In the future, all customers will be omnichannel customers, according to our respondents. The main drivers for the development are increased digitalization of consumer behavior and the related growing demand for availability and convenience.

Rickard Lyko, founder of Lyko, thinks this will eventually lead to there being “less talk about omnichannel and more about cus-tomers and sales,” adding that where these sales take place will be of less importance once friction between channels has been dealt with. Meaning that constantly favored channels will be a thing of the past.

“Where the customer journey begins and ends will depend entirely on what needs they have at that very moment,” says Daniel Anvell, COO at Intersport, further conclud-ing that “the future won’t have much room for a simple one-channel solution.”

MARKETINGFrom a marketing perspective, omnichannel has made a great impact on the respondents’ companies. It’s helped them overcome previous obstacles, such as gaps in geographical coverage and sales channels only appealing to a particular demographic, for their brands to now receive greater exposure and reach formerly inaccessible customer segments.

Traditional marketing and advertising campaigns are still very relevant according to our respondents. But overall, their compa-nies talk more about branding via traditional channels and conversion via digital channels. This is because it’s not possible to see exactly how many people have been affected by a specific campaign in traditional formats, whereas in the digital world, every click can be tracked.

Lyko founder, Rickard Lyko, thinks this fact has an influence on the perception on profitability of the different formats. “Gen-erally speaking, I believe it’s easy to underes-timate traditional advertising purely because it is possible to measure digital advertising.”

Nevertheless, digital marketing is expe-riencing a couple of declining trends, such as the drop of mail dispatch effectiveness. Customers decide whether or not something is of interest to them within a fraction of a second. Which is why our respondents all

agree on there a very real need to personalize campaigns so that the customer is presented with a message that is relevant to them. “If the offer is too general it runs the risk of becoming noise. As a customer you have to cherry-pick. Personalization is needed to get through the noise,” Granngården’s Monika Dagberg explains.

Following customer behavior is particu-larly important to produce personalized and specific messages in marketing. At this time, customer clubs are the most solid source of information for the responding companies to create a more general picture of their customers.

The responding companies are all working to increase their ability to capture customer behavior in stores to provide a personalized experience. For example, one of the compa-nies is piloting digital kiosks and Beacons equipped with guides for finding things in store, which are used frequently by both

staff and customers. The same company also provides a Wi-Fi network at one of their locations in order to measure how cus-tomers use their mobile phones inside the store. This has allowed them to observe that customers often check prices and search for products online while in store.

Though mobile phones will be increasingly important for identification of customers and their behaviors as well as providing information to them, there are some chal-lenges pertaining to this work. For one, it’s the time and investment required, but not least, it is consumers’ increased concern with privacy. “I think integrity will increase and create greater awareness about what the consumer allows to access their phone,” says Intersport’s Daniel Anvell. The solution? “In the future, retailers will need to be even more focused and provide the consumer with help.”

CHALLENGES AHEADThe major challenge for the future is to collect information for the physical sales-person to observe, as well as systematically obtaining data from the customer in the physical store to enter into the system. There could, for example, be a customer in need of a particular product, but they have never managed to complete a purchase in store. One potential use of this information could be to customize the website for the customer to be met by an offer for that product, or receive an email about it.

Just as the physical stores depend on per-sonal contact and empathetic understanding, e commerce depends on fast information, re-views and comments from other customers.

By joining forces in the collection of data from different channels, a much more complete picture of the customer can be produced, making it possible to provide an extraordinary customer experience.

THE COST SIDEOmnichannel solutions require investments. But as processes and flows get streamlined, these investments are in many cases seen as means of cutting costs in the long run.

“Customers want free shipping and free returns. They are getting more and more demanding, and their demands are getting increasingly expensive,” shares Monika Dag-berg, Granngården. “You know the saying ‘the customer is always right’? Well, it’s not entirely true anymore.”

Many of the omnichannel requirements voiced by customers involve availability and logistics. They want to know whether prod-ucts available online can be bought in store, and vice versa, or if deliveries can be made to different stores and locations. But in some of these cases, costs are extremely high for companies – sometimes to the point of the requests rendering sales completely unprofitable.

Respondents differed in their view on how total sales and profitability should be divided between channels. Some consider the whole and the synergies between channels, while others observe each part on their own.

“We see online and offline as two differ-ent parts of a whole which must both be profitable in their own might. The two must be kept separate so we don’t start incurring costs in one to justify revenue in the other,” says Lyko’s Rickard Lyko.

Physical store costs mainly consist of fixed expenses such as staff and rent, and the var-iable cost of a purchase is significantly lower than in e-commerce. But if we take the total cost of operating stores and divide it by the number of purchases to compare with the cost of an e-commerce order, we get a completely different result. In addition, in calculations it is fair to consider that e-com-merce sometimes makes part of a company’s marketing expenses.

Nevertheless, for the cost to serve om-nichannel customers to be just as low and profitable as it is to serve physical store cus-tomers, high volumes and excellent processes are required.

SYSTEMThe absence of a central system to hold everything together and difficulties in creating good integrations between systems are some of the biggest technical challenges omnichannel retailers face today. In addition, systems on the market are often not designed to handle contemporary needs for real-time functionality and volumes.

Getting a hold of top-notch integrations between the systems for Point of Sale (POS), e-commerce and Enterprise Re-source Planning (ERP) is a tough nut to crack. Customer information, prices and campaign logic are all currently stored across multiple systems, slowing down the process of moving from idea to action and limiting data utility.

“A system usually works very well on its own, but any one system doesn’t cover all needs,” says Intersport’s Daniel Anvell. “More systems need to be put in place, causing overlap and integration problems. Which takes money, energy and time.”

All our respondents agree that better sys-tem integrations could add immense value in the form of everything from better offers for customers to better insights, cost savings and process improvements.

THE OPTIMUM SOLUTIONKeeping omnichannel in mind from the outset would make it possible to hone in on customer perspective and cater to them in all channels. The best way to address this problem is with an ERP system that can communicate with surrounding systems seamlessly – in real time.

As the technical hub for the entire or-ganization, the ERP system’s ability to accommodate other systems is crucial for an omnichannel solution to work. Now, only certain parts of company systems run in real time, mainly the in-stock balance and publication. “Data is old by the time it is received,” explains Daniel Anvell. “Therefore, we need to be able use it right away.”

For example, if a customer places an order online while close to one of the retailer’s warehouses, the customer should not have to

go home and wait for their items to be deliv-ered. With systems running in real time, the customer should be able to have their items dropped off at their current position.

The actual choice of system is irrelevant. What’s important is that it requires minimal interference, while providing great customer experience. That it is a system which covers all areas with ready-to-use integrations, allowing you to see everything in real time.

“A system usually works very well on its own, but any one

system doesn’t cover all needs. ” – Daniel Anvell

SYNERGIESOmnichannel solutions lead to a more holistic view of each channel and of how they interact to support the business. With online and offline often sharing main processes such as assortment, value chain and sales, developing retail strategies applicable in all channels has become more of a given.

Daniel Anvell explains Intersport’s strategic setup in simple terms: “We have a business strategy, a sales strategy and an assortment strategy. E-commerce is a channel to sell in, and does not require its own strategy.”

This omnichannel approach requires all staff to possess extensive knowledge of company processes and expertise in digital tools, regardless of whether they work in the physical stores or e-commerce.

A prime example of the importance of broader knowledge is working with cam-paigns, which have a notably greater impact with the use of more channels, but simul-taneously place higher demands on coordi-nation. “Many speak of a digital marketing department and a traditional one, but I don’t believe in that,” says Daniel Anvell. “You may have to develop competencies if you haven’t worked in this manner before, but marketing is marketing. Broader knowledge

is required to handle more complex cam-paigns and processes.”

Furthermore, omnichannel solutions make it possible to reach more customers with the same assortment. The total stock tied up is reduced thanks to it being possible to send products between stores and directly to customers from both online and the store. However, the stock management flexibility required to manage multiple flows makes for new demands on company organization and creates new challenges.

“Broader knowledge is required to handle more complex

campaigns and processes.” – Daniel Anvell

CONCLUSIONIt is clear that customers expect omnichannel, and offering sales in multiple channels is now seen as more of a basic requirement, rather than a competitive advantage.

To optimize the customer journey and pro-vide a seamless experience across channels, good data and information is required more than ever. As customers become more and more concerned about privacy, this need for data poses some great challenges to retailers.

The mobile phone, an e-commerce device and an identifier for customers in physi-cal stores, plays an important role in data collection to provide customers with more relevant offers. But a key tool to acquiring useful data is providing a stellar customer club that adds clear value for customers in exchange for being able to closely follow their consumer behavior.

In addition, a number of system com-ponents are required to provide an excel-lent omnichannel experience, with ERP systems, e-commerce platforms and POS systems serving as the foundation. What’s more, these should all be designed and

linked through standard integrations with omnichannel in mind, in order to enable a limitless capacity for companies to maintain, develop and improve their solution.

The omnichannel solution fit for this is unified commerce, and it will bring about the next major paradigm shift on the market. Meanwhile, offering customers a seamless experience via unified commerce will eventually make it less relevant to separately report the figures of each channel, as all channels ultimately work together to make sales.

As in all cases where technology is com-bined with business, there are many aspects which affect the quality of the results. A well-suited solution handled in the wrong way, without drive, commitment and strategy, will produce poorer results than a solution that is not as good but handled with knowledge and focus.

But the really superb solutions, when combined with having met the right condi-tions, give companies the potential to create something truly extraordinary.

CLOSING REMARKSWe would like to thank our respondents for the transparency and good will they showed by sharing their thoughts and views on om-nichannel solutions. All of them are doing an amazing job and possess knowledge that few others do about the problems related to meeting modern customers’ demands while simultaneously running a profitable business.

Are you interested in Avensia’s work on unified commerce, the solution to the omnichannel puzzle? Please contact johan hallgarde@avensia.com and read more at avensiastorefront.com

This study has been conducted by means of in-depth qualitative interviews. We have placed great importance on the inclusion of as many aspects of the omnichannel subject area as possible. Basing our work on hypoth-eses for omnichannel, both from a revenue and a cost perspective, our objective has been to create a fair and clear picture of the reasoning behind the responding companies’ investments.

By asking around 70 questions, we have examined the advantages and disadvan-tages that the companies are experiencing with their omnichannel investments. We have compiled the answers in the analysis contained within this report. In the light of this analysis, we have drawn best practice conclusions for how today’s retailers should work, from both an organizational and system-technical perspective.

ABOUT AVENSIA OMNICHANNEL RETAIL REPORT

E-COMMERCEAvensia is a leading company in the field of e-commerce. We supply complete om-nichannel solutions to companies with high ambitions and which place strict demands on their business activities. With experi-ence from hundreds of major e-commerce projects, we do not only help our customers with the implementation of systems, but also provide advice and business develop-ment for e-commerce.

Our work builds upon our innate curiosity and forwards-thinking energy – character-istics that are always pushing us forwards towards new solutions and ideas.

We thrive on facing challenges, and we appreciate the challenges and the expertise that our partners and customers bring to us from their respective industries. Our success in both individual e-commerce projects and in the industry as a whole is down to our ability to create synergy between our cus-tomers, our partners, and our own perfor-mance and endeavours.

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