Project $50M: Unlocking Revenue With Omnichannel Sales

In short:

• Fast-growing retailers need proven ways to track inventory, expenses and margins, plus the capacity to support more sales, before ramping up omnichannel efforts.
• Retailers can use a number of technologies to bring this strategy to life. Most critical is that all systems are connected and share a common source of data.
• Financial leaders should project omnichannel’s boosts to both revenue and profitability as they make the business case for it.

When most retailers launch, they start by selling through just one channel. Increasingly, that one channel is ecommerce, but it could be a boutique in a popular shopping district or on a town’s main street. Once that store surpasses perhaps $500,000 in annual revenue, the owner might decide to open a second location, then a third, and so on. The online retailer may offer its products only through its direct-to-consumer (D2C) site for some time, but most will branch into other online or brick-and-mortar channels at some point.

By the time sellers reach $10 million in sales, their operations have become complex. They could have between five and 15 stores, in addition to a website that drives a healthy volume of sales and a wholesale operation with dozens of third-party retail partners. Managing inventory, orders, product catalogs and more across various channels has become too much for rudimentary processes that rely on spreadsheets and standalone applications to handle.

“I think in today’s marketplace, it is so much easier to jump into multiple channels than it was in the past,” said Reid Jackson, VP of business development at GS1 US. “Because it’s easier, when you get bigger, it sometimes creates more problems.”

If this situation sounds familiar, we’re here to help. We know that if you’re a retailer, you don’t need another reminder of “the importance of nailing omnichannel,” so we’ll avoid that broken record. But we will explain an aspect of omnichannel that doesn’t get as much attention: which steps a retailer in the $10 million range needs to take to pull off this juggling act with an eye toward growing to $50 million in annual revenue. Successfully executing omnichannel will always be a challenge, but if you can make it happen, you put yourself in an enviable position for future growth.

Business Basics to Conquer Before Starting Omnichannel Sales

Before your business can truly capitalize on the potential of these other channels, it needs a solid foundation of operational and financial practices. If you don’t have that, you’re setting yourself up for failure. Imperfect practices and ad-hoc solutions may have worked up to this point, but they won’t be effective as the company manages larger sales volumes and increasingly complex operations.

Core competencies and potential issues to address from the start include:

Track and trace:

You need to know where all your inventory is at any given time. This includes not only the products already in your stores and warehouses, but also any orders in transit or still being assembled. Rough estimates or manual tracking methods that don’t reflect real-time numbers will lead to problems when you’re trying to allocate inventory across any combination of physical retail, direct-to-consumer, online marketplaces and third-party retail.

Those who lack this traceability will find themselves unnecessarily losing money due to obsolete inventory or stockouts, Jackson noted. Using lot numbers to track products post-delivery is also critical for recalls because you can identify which customers need to be notified.

Supplier scalability:

Whether your company makes products itself or purchases them from distributors and manufacturers, consider whether your team or suppliers will be able to meet your increased needs as you grow to $50 million. Can they provide twice the volume on the same timeline, for instance? Identify issues before committing to new channels, or else you risk disappointing critical partners and customers. 

“There are a lot of amazing products out there that just because of their limited fulfillment capacity and limited supply chain, couldn’t ensure the consistent guarantee that they could provide product,” said Cornell Brown, NetSuite administrator at sports nutrition brand Honey Stinger.

Also beware setting up these agreements with suppliers, only to learn they can’t uphold their end of the deal. To identify and mitigate supplier risks like this, ask smart questions of potential partners, call their references, and gradually ramp up the engagement as the supplier proves its aptitude.

Insight into margins:

Most retailers that have reached the $10 million revenue mark have a solid grasp on how much money they make per item sold. However, those margins often vary across sales channels, Brown said. Not only are wholesale prices different from consumer prices, but the cost of goods sold and other expenses can also vary. For example, your marketing expenses are likely higher for D2C than wholesale.

Businesses need a low-effort way to track all of these expenses and margins and must be aware of these differences as they build out an omnichannel strategy. 

Operational capacity:

Fulfilling and delivering orders to a shopper’s doorstep is much different than sending pallets to a retailer’s warehouse or stores. Certain picking and packing strategies make more sense for various order types, and last-mile delivery is a bigger concern for consumer orders. Consider these intricacies as you think about omnichannel, and make any necessary adjustments to ensure your organization can still meet customer expectations.

If you use a third-party logistics provider (3PL), this is still a matter of concern. Make sure fulfillment partners are capable of handling your new and increasing needs, which will likely entail revising service-level agreements. Going omnichannel could require finding additional 3PL partners to keep up with your company’s demands. 

How to Get Started With an Omnichannel Strategy

While no two sales channels are the same, treating each as a separate business is not the right approach. Your goal is to make back-end complexity invisible to customers so they can easily find and purchase the products they want, regardless of where they shop for it. Connecting all of your sales channels is the only way to accomplish this.

That linkage is critical to functions like inventory allocation. Before items are even in your hands, they’re typically divided up across channels. How many are promised to your retail partners, and how should you split up the rest between ecommerce and brick-and-mortar stores? Based on past sales trends, does the West Coast warehouse need more of a certain item than the East Coast location? When a certain item is bought in a store, is it immediately removed from available inventory so an online shopper checking stock levels at local stores knows it’s no longer available? Can online purchases be returned in store, and vice versa?

Disentangling this network requires technology, more specifically a platform that can unify all of these channels. Every system involved in omnichannel sales and fulfillment must be tightly integrated to support back-end processes and information flows. With inventory and orders moving in so many directions, it’s really the only way to keep everything straight and maintain accurate information. Piecemeal software that’s loosely linked will show its shortcomings when customers attempt to browse and shop across channels.

Cloud-based systems often make the most sense for a $10 million retailer just dipping its toes into omnichannel. In comparing cloud vs. on-premises business systems, the former usually requires less upfront investment. Plus, the vendor handles much of the work that would fall on IT, like infrastructure setup, maintenance and upgrades. Paying for those services via a subscription takes substantial work away from fast-growing retailers, allowing them to focus on what they know best.

The types of software you need will of course vary depending on the channels you’re selling into. Here are some solutions that can help — chances are you already have a few of them. Note that an ERP software system often includes all of these systems, unifying them on a single database to avoid the issues that piecemeal systems pose. If possible, use solutions from the same vendor that are built to work together. That should eliminate integration challenges and preclude the problem of disparate data sources.

Inventory management:

An inventory management system is beneficial even if you sell through a single channel, and it’s critical when you go multichannel. It will track all items in your stores and warehouse and should also monitor incoming inventory. Other must-have inventory management system features include the ability to monitor products across multiple locations — this becomes critical as you surpass $10 million in sales.

Order management:

This software centralizes all orders from across channels in one place to help with organization and prioritization. A strong order management system (OMS) can also identify the best fulfillment option based on customer location, fulfillment cost and delivery speed. The OMS will track orders from placement through delivery.

Shipping:

Shipping isa big expense for retailers, especially those that lean on online sales, so software that can search all available options to compare prices and expected delivery dates is extremely valuable. This will also provide tracking numbers so customers can check their order status. 

Demand planning:

Determining how much inventory you need as you make products available in new channels is one of omnichannel’s biggest challenges. A demand planning application that projects necessary inventory based on historical sales, forecasts and seasonality can majorly help solve this puzzle.

Ecommerce:

As you likely know, an ecommerce system makes it possible to list and receive payment for your products online. Many of these solutions are user-friendly, making it easy to update and add new product pages and change your online store’s look and feel.

EDI:

When you partner with large retailers, electronic data interchange (EDI) capabilities are a must. Most of the big players will require you to use this technology, which employs standardized formats to automate purchase orders and invoices. It can get complicated — formats and required fields can vary, and Brown described it as the “wild, wild West of computer connections” — but it’s a necessity for moving into wholesale. Tools that plug into your supply chain management solutions can reduce the work associated with EDI.

Point of sale:

Sellers with brick-and-mortar storefronts use point-of-sale systems to process transactions. Look for one that can also display store inventory by location and allows associates to order products for shoppers online.

CRM:

A staple for retailers, a CRM system stores detailed information on all of your customers. It shows purchase history, recent activity like support calls or returns and other relevant data to give employees context when interacting with customers. Many CRMs can also help with marketing, including email automation and campaign management.

Accounting:

Classifying and settling payments between various channels with various payment terms is no easy feat. An accounting solution automates many aspects of accounts receivable and accounts payable and reflects all transactions in a general ledger, helping you stay on top of the more complicated financials that come with omnichannel.

Business intelligence:

Most experts we spoke with stressed the importance of a business intelligence solution to omnichannel operations. A system that can pull custom reports and metrics from across the company and visualize that data will be especially helpful.

When looking for software, remember the bigger picture and ultimate goal. Sure, your OMS may be the biggest pain point right now, but if you replace that piece, will the new OMS still work well with the other back-end systems listed above? If you’re a local retail chain focused on growing online sales, will your POS enable buy online, pick up in-store (BOPIS)?

“[Many companies] find an interim solution that probably isn’t the right solution, but they want to save their money in the short term,” Liam McGuinness, partner at CIL Management Consultants, said. “And if you buy cheap, you probably buy twice.”

5 Best Practices for Omnichannel Sales

While these systems are necessary for executing omnichannel, they aren’t a cure-all. Technology cannot fix faulty processes nor expedite purchase orders from suppliers when you sell through existing stock faster than expected. As you transition into an omnichannel retailer, here are five best practices:

1. Practice good data hygiene.

Standardize and check any data put into or captured by your systems. Keeping product, customer and partner information in consistent formats from the start will pay dividends down the road as the business expands.Accurate numbers and reports help you make the smartest decisions and understand when you’re ready to expand a partnership or launch a new channel.

“It’s like your garage — after years and years and years, it just collects things that you forget you have,” said Brown, who previously spent a dozen years at Backcountry.com, an outdoor gear and clothing retailer. “But … if you start early on and are really careful and really consistent with your data, I think you can a) trust it more fully and b) it just is much, much easier to make sense of.”

2. Adopt universal identifiers.

Selling the same products in multiple channels is much easier if you use a widely recognized identification system like UPC and EAN barcodes in the U.S. and Europe, respectively. International standards organizations like GS1 manage these barcodes, which include unique identifiers for the manufacturer, product and location. Resellers can then look up this number in databases to confirm authenticity. Using your own identifiers or repurchasing old barcodes from third parties can create issues when pursuing opportunities with major marketplaces or retailers.

“The places you sell it are going to be different, but if you really understand your product, you have the same ID for your product, you have the same content that you’re going to be sharing about it, then you can start to easily move that in and out of different areas,” Jackson said.

3. Leverage data from new touchpoints.

Omnichannel allows many retailers to capture more data than ever before, to better understand customer behavior and broader trends. You can use those insights to fine-tune inventory planning and marketing. McGuinness shared the example of a well-known U.K. shoe retailer which found that a single type of shoe in sizes 7-11 generated three-quarters of its sales. The company transitioned into primarily stocking that product, even though it offers a wide selection of footwear.

Companies that employ similar practices “can have a really refined and optimized inventory at the same time as offering what appears to be a more flexible and personal solution,” McGuinness said. Similarly, you can build a detailed picture of customer preferences based on purchase history, email engagement and the like, then target them with the most relevant items and offers.

4. Don’t say ‘yes’ to every retail opportunity.

As retailers make a name for themselves, they tend to garner interest from prominent retailers. Those big names may want to sell your goods online, in select stores or both. This can feel like a seminal moment, and leadership is often inclined to say yes to the opportunity and figure everything else out later.But that can set you up for problems.

Exciting as these opportunities might be, Brown advised being cautious and avoiding any overpromises. Make sure you understand all the implications of selling through a new channel.

5. Keep all departments involved.

An omnichannel strategy will impact every aspect of your business, from operations to sales to finance. Get everyone on board by explaining why the organization is adopting this strategy and how it affects various departments and roles. Welcome feedback from everyone, whether store managers, warehouse workers or the director of finance. Executives can lead these conversations and help solicit feedback.

The structure of your organization will likely need to change, as well. You’ll need more connectivity between each of the individuals that make your network go. Stores, warehouses and an ecommerce site can no longer operate autonomously and must use centralized resources. That could mean instating a director of warehouse operations and director of purchasing positions who manage all aspects of fulfillment and purchasing across channels. Although physical and online stores may still have their own purchasing managers, they must report to someone who is making decisions with the entire network in mind. A common source of data visible to everyone — and clear rules around how it will be used — are also critical.

It’s impossible to know exactly how everything will play out when you go from single- to multichannel, so you’ll have to figure out some issues on the fly — which only reinforces the importance of earning buy-in early and across teams.

How to Justify Investing in Omnichannel

Launching an omnichannel operation is a significant investment. The price tag could scare off the owner or CEO who thinks the company is doing just fine as-is. CFOs and other members of the finance team play a central role in showing fellow decision-makers that giving customers options in where and how they purchase needs to be a priority.

As part of making the business case, finance teams may be responsible for projecting the potential return on investment for an omnichannel initiative. A few ways omnichannel can boost the top and bottom line:

Save the sale:

Imagine a customer is looking for a particular item in a store, but it’s not in stock. Instead of losing the sale, your store associate could see that the item is available at a warehouse or another store and ship it straight to the customer’s home.

Less inventory waste:

For a long time, selling slow-moving products at a loss or disposing of them were simply costs of doing business for retailers. Omnichannel reduces those losses because companies have a chance to sell products elsewhere at a better margin.

Higher transaction value:

Picking up online orders in-store adds convenience for the customer and has real financial benefits for the retailer. Not only does the business avoid paying for shipping, but 85% of BOPIS shoppers have made additional purchases in-store.

Reduced return costs:

Similarly, letting customers return online orders in-store saves on return shipping. Plus, a customer walking into the store represents an opportunity to recapture some of that lost revenue, which is increasingly important as buyers return online orders at a higher rate.

The exact cost of the physical infrastructure, headcount, technology and other pieces you need to execute omnichannel obviously varies depending on company size, number of channels, product type, existing operations and other factors. So while we don’t have any specific numbers to provide, talking to business leaders who have been through this transition and vendors that provide the systems you need should give you a better idea of the cost and potential ROI of going omnichannel. 

The bottom line

Today’s customers are demanding because they can be — they have plenty of options, and many will turn to another retailer at the first sign of inconvenience. While calculating the ROI of going omnichannel is a worthwhile exercise, it’s also worth asking this question: What does the future look like if we don’t change?

“You’re going to have to invest in this at some point; otherwise you’re just going to be losing to competitors,” McGuinness said. “Overanalysis of this type of function is probably to the detriment of the business.”