IADS Press Release: Department stores boost profitability with omnichannel strategy combining online and in-store shopping experience

300% more profitable: the most lucrative customers shop online and offline at the same time. To attract them, department stores are intertwining their most cost-efficient store features and e-commerce capabilities to become customer-centric omnichannel shopping and experience platforms.

While e-commerce is seen as the main driver for growth in the future, department stores continue to invest in their stores and are not ready to let them go, in the hope of combining experience with convenience. For that reason, becoming truly omnichannel is a crucial part of the transformation they must go through. After having tested many services in a constant work-in-progress mode, adjusting them and possibly concentrating them in a “super-app” is planned, provided it improves the financial bottom line. 

Customers have been at the core of any department store strategy since the inception of this format. The rise of e-commerce and digitalization of the world have created a new breed of clients who indifferently purchase both online and offline: omnichannel customers. On average, such customers are spending 3 times more than strictly offline or online ones and, for that reason, are enthusiastically regarded by retailers. 

On their side, department stores, which viewed themselves as multichannel retailers until not so long ago, have engaged in the journey to becoming truly omnichannel. This transformation, which involves moving from a traditional delivery model to a customer-centric model with multiple purchasing options, is still an ongoing process, with many new services and innovative sales channels being tested.

But now that the pandemic is over, and has been replaced with new challenges, such as the increased cost of operations, retailers need to ensure that their approach is relevant, efficient and measurable in terms of intertwined online and offline customer experience. After all, the very notion of channels is not a reality for consumers. As a result, the target is now to offer a seamless buying experience, not necessarily based on new services, but rather on fine-tuned existing ones, possibly merged into a “super app”, as long as ROI is ensured. 
 

The pandemic led to the multiplication of sales channels and services. Now is the time to rationalize. Department stores are individually reviewing the added value of their innovations both from the customer point-of-view and the financial aspects, to focus on efficiency:

-    Click & collect, the most widespread omnichannel service, is here to stay and represents up to 41% of all omnichannel transactions at Manor. While at the beginning some department stores located this service on upper floors to push customers to wander the store, the consensus now is that the best location for this service is on the ground floor, especially near the entrance, in the customer service area or close to the parking lot.
-    Click & express, a speedier version of Click & Collect, builds on the fact that some companies use their stores as fulfilment centres for their e-commerce operations, and as a consequence do have speedy logistics capabilities (Breuninger ships 15% of their online orders from its stores). For instance, at El Corte Inglés, customers can come in and pick up their order in 120mn, and even in 60mn at Manor.
-    Click & reserve, where the product is booked online without any guarantee for the retailer that it will be purchased, is more controversial, due to the high risk of cancellation or customer’s no-show. For companies continuing to offer this option, the key to success is their ability to provide a quick answer to customers (at Breuninger, customers receive the confirmation that the product is reserved in the store of their choice in less than 2 hours).
-    In-store ordering is a new approach where customers have access to more products than displayed, through specific devices (iPads…) linked to other stocks. Manor and Breuninger are developing this strategy, with a 40% higher turnover compared to pre-Covid levels for the latter.
-    Marketplace services are developing. While purchases on marketplaces used to follow a specific logistics flow (brand to customer and customer to brand), Breuninger now accepts returns for merchandise ordered from third-party brands on their marketplace to their own warehouse, which considerably simplifies the life of their customers. On their side, Galeries Lafayette is running a test with 3 different marketplaces which offer customers in-store pickup services.
-    Personal shopping, now a staple service for all department stores, is expected to be available online for some of them. For instance, El Corte Inglés’ website offers customers an ‘ask an expert’ button, leading to immediate advice via chat, phone and video call. Overall, it is worth the effort: the average basket of a customer being advised by a personal shopper is 4 times higher than a regular offline or online sale. 

In reality, department stores are pursuing two rationalization strategies at the same time. On the one hand, they are reducing services and options that either did not prove to be economically viable or recognized as useful by customers and on the other hand, they are further developing the ones that proved right and connecting them with each other (for instance Personal shopping with Click & reserve). 

At Manor, 70% of omnichannel traffic goes through mobile phones, showing the importance of a unified platform, or “super app”, to provide all services and options to customers directly in customers’ pockets. These super apps can be seen as shopping dashboards or interfaces combining all online and offline channels as well as services: at El Corte Inglés the app is both an e-commerce and in-store service platform, and at El Palacio de Hierro the app merges e-commerce with all services, such as Click & Collect, Car Pick-up, Scan & Go… The goal is to optimize the shopping experience and ensure a seamless transition between online and store modes for customers to shop anywhere, anyhow, anytime, and even possibly while talking with a staff member.

Department stores are currently working on how to enrich their apps with new features. For instance, AR and VR features are already in the works to guide customers through floors, for instance, enriching store maps, and even allowing each user to receive personalised offers in real-time, on the go. 

With delivery and return costs taking a heavy toll on margins, should department stores incentivize customers into prioritizing cost-efficient order processes? For instance, Click & collect is cheaper for retailers than home delivery as they do not bear the cost of transportation. Taking the example of other categories (Amazon, Fnac) the key question they are currently pondering is to know if it is worth it, in terms of finances but also brand image, to offer a small discount or loyalty benefits to nudge customers in the right ‘cost-efficient’ direction. Such initiatives are, so far, purposedly made invisible to customers. For instance, Breuninger’s customers living close to a store see the Click & collect option emphasized and more visible online to nudge them to use it rather than home delivery.

Another important topic for the future of the business is the possibility of asking customers to pay for their returns. While this initiative is not yet a common practice, the fact that Zara and others started to implement it influences retailers’ decisions. Among IADS members, Manor already took a step towards cost efficiency, as returns in-store are free but returns to the warehouse are not. As a result, 66% of product returns are made in-store.

Department stores’ digital transformation has not been fully achieved yet, as they still consider themselves as good multichannel retailers. Covid-19 accelerated the launch, development, experimentation, and adoption of existing or new sales channels and services. In their strategies, retailers now focus on fine-tuning the most relevant ones while maximizing their ROI, be it to enhance the customer experience or to maximize the business. 

This doesn’t mean that new services and sales channels won’t develop in the future, but that the current strategy is really to intertwine the relevant ones to provide a truly seamless omnichannel experience, possibly through a super app, in order to capture the complete customer journey, anywhere, anyhow, anytime, with cost optimization as a Damocles sword upon them.

Read the full press release below:

Read the full press release, in French, below: