The elusive omni-channel retail balance in digital transformation - two exemplars of what happens when it goes wrong

Profile picture for user slauchlan By Stuart Lauchlan January 8, 2020
Summary:
Getting the right balance between online and offline has proved tricky for lots of retailers, as this week's developments at Pier 1 and Forever 21 remind us.

scales

In tracking omni-channel retail transformation over the past few years, a number of trends have become apparent as brands have become more savvy about what’s involved in such programs. One of the most welcome has been the shift away from a prevailing view that ‘everything needs to be online’ - aka Amazon-envy - towards a realisation that not only is it OK to love the offline store, browsing the shop floor is something that customers, even the fabled digital natives, actually enjoy.

But while it’s one thing to appreciate the real estate portfolio as an asset, the trick - and it’s an elusive one - is how to strike the right mix between offline and online.  Many retailers have grown out real world store networks that have become bloated and held them back. This has resulted in some spectacular offloading of property - see Macy’s as the prime exemplar here - in order to try to find the right balance.

For some firms, it might be too late. US retailer Pier 1 Imports has provided a hefty reminder of that this week as the beleagured firm marked its ninth consecutive quarter of tumbling numbers with the announcement that it plans to shutter 450 stores - nearly half of its entire network - in a last attempt at a turnaround. CEO Robert Kiesbeck pitched it as the only course of action:

Although decisions that impact our associates are never easy, reducing the number of our brick-and-mortar locations is a necessary business decision.

Maybe so, but Wall Street wasn’t impressed. The company’s share price crashed through the floor on the news and trading had to be suspended for a time as the prospects of an imminent filing for bankruptcy protection become more likely. Third quarter losses came in at $59 million, up from $50.4 million this time last year, while sales fell 13.3% year-on-year to $358.4 million.

Long time

This has been some time coming - and a large part of the problems that the firm has created for itself is not buying into the importance of digital transformation early enough or with enough conviction. Back in 2015, the then-CEO Alisdair James acknowledged the rise of digital, but added:

As strong as growth in e-com continues to be, it will never displace stores and the experience they give our shopper. Our task at hand is to drive incremental customers to the brand and, most importantly, to our stores.

Frustratingly he was sort of correct, but the mistake was an assumption that it was one or the other - digital or offline - rather than an awareness that the two platforms could and should be complementary. By 2017, that realisation was sort of dawning with James now admitting:

When I actually think about our customer, what we’re seeing is that she likes to shop in-store and online. So the conversation that I’m having with my finance team is, how do we measure the profitability of our business by ZIP code, rather than focusing it clearly on an in-store or an online purchase? Our customers that shop online and in-store actually spend three times those that which our customers that either have one channel or the other.

So the biggest challenge for me is not store base secure, but actually how do I get more on my current customers to shop in both channels…The number of customers that shop what we describe as purely online, so at home, purely online but delivered to home, is actually quite far and away the smallest proportion of the way our customers engage. The majority either visit the store and execute through the store, having it delivered to home or in-store or doing it at home [and] having delivered to store.

This was unfortunately followed up by the cliched default to ‘hunting the Millennial’ as a strategic priority:

The core Pier 1 Imports customer is 45 years to 60 years old. We believe there is an opportunity for the brand to appeal to Millennials between 30 and 40 years of age.

All of this led in turn to the inevitable three year turnaround plan in which there was to be a new emphasis placed on digital channels as well as a rethink of product lines and store layouts. But by late 2019, James was gone and interim CEO Cheryl Bacheider was promising “a revitalized Pier 1” by the second half of 2020, with the caveat that:

We all know turnarounds take time.

Indeed - but eventually time runs out and it’s impossible for Pier 1 to dispel the impression that things are getting worse. Some commentators might even presume to suggest that events have moved out of management’s control. Back in September last year, Bacheider said the intention was to close 70 stores in 2020; this week that number hit 450.

Inspiration 

It’s difficult to see where this goes now other than reaching for Chapter 11 bankruptcy protection. If that occurs, Pier 1’s management might do worse than casting an eye over fashion firm Forever 21 for some inspiration. While in different markets, that firm’s circumstances bear some similarities to Pier 1’s plight.

Forever 21 also had an over-large real estate network stores that held it back and not enough online balance as counterweight. It entered Chapter 11 last year and shuttered 350 of its 816 stores around the world. It’s now refocusing its international strategy around e-commerce with the premise that it can customise the online experience to local market needs more easily, including having systems that can support 95 currencies, 150 local payment methods and localised online checkout in 21 languages.

The lesson of the need for the omni-channel balance has been learned, according to Forever 21 President Alex Ok:

E-commerce forms a large chunk of the profitable core of our operations and as part of our new global strategy, Forever 21 will leverage Global-e’s technology to offer international customers an outstanding online experience. To engage digitally-savvy consumers today, retailers need to invest in creating a unique online experience that speaks directly to the shopper.

With the continued increase in demand from international shoppers for our brand, we recognised that an advanced global online shopping experience is a fundamental part of our future growth. The seamless localised shopping experience our consumers around the world can now enjoy is a vital milestone in our mission to use the latest retail technology to bridge the online gap between the convenience of ecommerce and the local experience of in-store.

My take

Better late than never for Forever 21? Well, that obviously remains to be seen. But the retailer is now preaching a more theoretically coherent omni-channel message. It’s still far from out of danger and has to rank alongside the still-critically unwell Sears as one of the most at risk brands in 2020. As for Pier 1, it’s unlikely to be very long before the next dramatic development there and it's not going to be good news. 

On a wider note, it's the National Retail Federation show in New York next week - Jon Reed will be reporting back from there - and I'll be particularly interested to see how much focus is placed on striking the right omni-channel balance between offline and online and how to find that level.