As Internet Sales Grow, Retailers Go Omni-Channel

As e-commerce grows, traditional retailers are facing increasing pressure to adopt marketing plans that integrate the bricks-and-mortar and online shopping experiences. Using this approach, companies are designing physical stores, online websites and mobile applications that complement each other, and trying to give the shopper reasons to interact with the retailer on all channels.

According to third quarter sales figures released last week by the U.S. Commerce Department, retail e-commerce sales grew an estimated 1.9% to $48.2 billion between the second and third quarters of this year. E-commerce accounted for 4.6% of all retail sales in the third quarter, up from 4.4% at this time last year.

To compete with the steady advance of online retailers, traditional firms must adopt an “omni-channel” approach that leverages the Internet, mobile phones, television and catalogs along with physical stores, says Wharton marketing professor Barbara E. Kahn. “Consumers will decide which channel to use as a function of which is more convenient to them at the time,” she notes. Marshall Fisher, a Wharton professor of operations and information management, agrees. “Multi-channel [marketing] is the hot topic for physical store retailers these days,” he says. “Many worry that their stores will become showrooms for Amazon.”

In one recent example of an attempt to integrate the virtual and in-person shopping experience, Toys“R”Us last week announced expanded mobile offerings timed to the  holiday shopping season. Customers who download the retailer’s mobile app will be able to look up their children’s wish lists via smartphone and access a mobile version of the “gift finder”  suggestion feature on the chain’s website. Toys”R”Us has also worked with partners to develop apps that allow customers to search the inventory of their local store for a specific product and even pay for it via smartphone. Retailers including Best Buy and Staples are working with “one stop” e-retailers like Amazon to get their products on multiple screens, according to CoStar Group, a real estate information services firm.

Kahn suggests that retailers could also use less display space within their bricks-and-mortar locations. The extra square-footage could then be dedicated to developing “stores within stores,” that sell products that complement the retailer’s existing merchandise.

But Wharton professor emeritus of real estate Peter Linneman says the real losers in the growth of e-commerce are catalogs. “Stores have long served the return and-test-drive role for catalogs, as they do now for Internet sales,” he points out. Internet retailers have inherent limitations — shoppers can’t try on or try out most products the way they can at a physical store. Linneman describes Internet retailing as the latest of an ever-changing set of retail concepts. “A study of retail history is the study of constant change and innovation, with today’s winner being tomorrow’s loser,” he says.

For more on this topic, check out this Knowledge@Wharton story from earlier this year: More Than Virtual: Marketing the Total Brand ‘Experience’

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