Cross-Channel Trends
Retailers continue to aggressively integrate e-commerce into their cross-channel operations, because it represents a tremendous opportunity for growth. According to the recently released RIS News/ AMR Research Cross-Channel Tech Trends Study (which can be downloaded at www.risnews.com), the online channel represents a projected 34 percent of overall revenue in 2008 -- a growth rate of more than 42 percent since 2006.
The 2007 Cross-Channel Tech Trends Study was conducted to assist the vast number of retailers embarking on next-generation, e-commerce strategies, and to assess the industry's operational and technology priorities. It is based on a survey of more than 130 North American retail respondents across a wide range of segments, company sizes and business models.
Here are 10 key takeaways from that study. For more on these highlights, refer to the full report.
1. Fast growth continues for online channel: The online channel for survey respondents represents a projected compound annual growth rate of more than 19 percent over the three-year period of 2006 to 2008. When taking pure-play e-commerce retailers out of the equation, the online revenue represents 19 percent in 2006 and an anticipated 25 percent in 2008.
2. Focus shifts to online advertising: Spending for traditional advertising such as print and television is shrinking dramatically from 70 percent in 2006 to 57 percent in 2007. Meanwhile, a focus on direct and measurable marketing strategies such as search engine optimization, shopping portals and comparison sites, and e-mail and affiliate marketing are taking center stage.
3. Consumer shopping hits critical mass: Online performance across segments appears to have no ceiling, with respondents reporting the average market basket for Web transactions between $200 and $299, and the average quantity of items per transaction between three and four. Specialty hardline retailers report the highest performance as compared to other peer segments with online orders ranging from $300 to $399 and average quantity per transaction between five and six items.
4. Fast growth brings growing pains: With increased sales, the number of merchandise returned grows. In fact, according to the survey, the average return rate for online orders is between 3 percent and 4 percent. Retailers are also experiencing fraudulent online transactions as part of their growing pains. While 38 percent of participants in the survey classify less than 1 percent of their online transactions as fraudulent, 41 percent state that between 1 percent and 4 percent of orders are fraudulent. A resounding 15 percent claim that more than 7 percent of transactions are known loss.
5. Dedicated cross-channel teams are emerging: The burgeoning online channel is finally getting the attention it warrants with 47 percent of respondents elevating a dedicated business leader to the role of vice president of e-commerce or cross-channel to run the operation. Also, the resources that the vice presidents of e-commerce or cross-channel have at their disposal are growing. The average number of full-time employees dedicated to online operations in 2007 is between 50 and 99, and it is projected to grow to between 100 and 249 in 2008.
6. Outsourcing a strategic weapon in cross-channel arsenal: While internal teams are expanding, retailers still outsource some of their core online business processes. Contact centers, an area that often doesn't exist prior to running a direct-to-consumer business, are outsourced initially -- to the tune of 36 percent for survey participants -- and then many times it is eventually brought in house. But only 19 percent of respondents contract with a third-party to manage fulfillment indicating that many organizations want to control this process.
7. Web to store customer convenience drives sales: An increasing number of retailers indicate that they provide capabilities for consumers to order merchandise online and pick up in store. Ability to execute within each location for store pick up of online orders will be the defining factor of success. Also, the process for consumers to actually pick up products must be convenient and easy: 47 percent of respondents have a dedicated pick up center; 28 percent have products picked up at front-end register; and 23 percent pick up at customer service.
8. Store to web customer convenience drives sales: Retailers never want to walk a sale, and increasing competition is driving them to expand product and service assortments. To accomplish this, retailers are providing access to virtual inventory for products not physically available within the four walls of the store. Kiosks will be the most prevalent device used for this purpose. By the end of 2008, 78 percent of retailers anticipate using kiosks to connect customers to the Web site for sales; 69 percent will enable inventory and ordering capabilities via the Web site at the point of sale by the end of 2008; and 52 percent will offer Web site access through store-provided handhelds.
9. Massive e-commerce refresh underway: In the late 1990s through mid-2002, retailers invested in first-generation e-commerce applications to meet growing consumer demand. Because these rudimentary, stand-alone, and often times highly customized systems thwart retailers' efforts to meet evolving cross-channel consumer expectations, a majority of retailers are in the process of a technology do-over. This refresh has lead to significant investment growth in next-generation e-commerce platforms. This survey shows that 69 percent of retailers will replace their current e-commerce platform -- for order capture, catalog and content management, pricing and promotion management, and order inquiry -- by the end of 2008. An additional 14 percent of respondents are already using a next-generation system, representing early adopters in this replacement cycle.
10. Pace of technology change is fast and furious: What was classified as progressive technology several years ago is now becoming the norm. For example, 96 percent of survey participants will have site search and 91 percent will have search engine optimization by the end of 2007. While interactive and 360-degree imaging is deployed in only 56 percent of respondents today, an additional 22 percent plan to invest in this technology by the end of 2007.
Rob Garf is vice president and general manager of retail strategies. Fenella Sirkisoon is research director. Both are with AMR Research.They are the chief analysts for the 2007 RIS News/AMR Research Cross Channel Tech Trends Study.