Online Influence on Traditional Retail Channels

Internet retailer reports this week that 25% of UK advertising budgets go to the web. That percentage may not seem like a lot until you consider it is fairly disproportional to the total eCommerce spend in the UK, which comes in at around 5.5% of total retail. In the US market, eCommerce spending is a mere 4.4% of the total retail spend. So why the apparent skew in spending?

Try this. Log your browsing for just one hour. Pay attention to the brands you recognize and the number of times you see ads for products. In the days of declining ad viewing on TV due to great innovations like DVRs, where can brands go to get coveted impressions?
It’s true that many of us on the web are irritated by ads, but if they are created and presented tastefully and tactfully, they are unobtrusive and obviously effective. Of course, this depends on the sites one frequents, but think about it — this medium gets through to such targeted audiences with great effectiveness.

As Brian K. Walker wrote in a recent Forrester report,

“Agile commerce requires organizations to reconfigure their resources and capabilities to stay ahead of the rate of change as consumer technology adoption and behaviors change. We define agile commerce as An approach to commerce that enables businesses to optimize their people, processes, and technology to serve customers across all touchpoints.”

Part of that adaptation is figuring out what works best for an individual business.  But again, why would retailers spend 25% of their advertising budget on the internet when eCommerce is a fraction of the overall spend?  Because it so happens that more eyeballs on the web equals more traffic in the store — which enables revenue growth across multiple customer touchpoints.

Some large brick and mortar retailers know that growing the online business will result in increased in-store sales. Walmart, with their world-class distribution network, is able to quickly fulfill online orders. Getting customers into the store is the best (and only) way to increase in-store sales so they began shipping online orders to local stores free of charge. Now, Walmart is taking steps in the US to further break down barriers and make it easier for folks to take advantage of Walmart’s online presence through the Pick Up Today service. Walmart is expanding this service that allows consumers to shop online and pick up the product from a local store the same day. Knowing that a product is in-stock and awaiting pickup at the store can save folks from an unnecessary drive. The convenience of shopping online coupled with local and same day pickup is something companies have tried for years, with most not faring so well, something most likely due to the overwhelming expense of setting up an efficient fulfillment and distribution system. WalMart however, is extremely well positioned to take advantage of their vast distribution network and inventory to make this a reality for anyone within a few miles of a Walmart.

Kohl’s, with online revenues approaching $1 billion, will be opening  a new distribution center in July to better serve customers in the Eastern US. This could be a precursor to new Kohl’s services such as free ship-to-store or other services that bring channels together. Companies bringing channels together, that are well prepared to deal with the convergence issues, will benefit greatly from such strategies.

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