Retail Trends in 2018: The Evolution of the Omnichannel

Retail had a transformative 2017, and that's going to continue this year. Investors should expect to see an ongoing focus on the customer and offers of maximum convenience to give consumers a reason to leave their homes.

On this episode of Industry Focus: Consumer Goods, Vincent Shen and Daniel Kline break down how this trend will take shape in the retail world. Here is a glimpse into the omnichannel in 2018.

A full transcript follows the video.

This video was recorded on Dec. 21, 2017.

Vincent Shen: In the past month, I've seen write-ups from Shopify, Forbes, the National Retail Federation, and a bunch of other retail-focused publications that essentially lay out their predictions for major retail trends that will take center stage in 2018. Fools, there were three in particular that Dan and I wanted to cover during the episode. First up, I'm dubbing this one "the ongoing evolution of consumer convenience", which is our fancy way of describing the omnichannel. Dan, what form is omnichannel going to take exactly this year?

Dan Kline: It's more than omnichannel. Omnichannel is the idea that a customer of a store could shop at home, can shop online, can combine the two, you can be in the aisle of a Best Buy and order a TV that gets delivered. Customer convenience is going to move beyond that. It's going to be everything from kiosk-based ordering in stores to predictive ordering to, maybe Best Buy will have a masseuse that gives you a massage while you're picking out TVs. And I'm kidding a little bit, but I think some of those things, when you look at a high-end clothing store, they might shine your shoes while you're trying on suits. It's really moving to the model that, as a customer, I don't have to leave my house. I've been shopping via Instacart, and in two Instacart deliveries, I can have groceries, I can have beer and wine, I can have whatever I want sent to my house.

So to get me to go to Whole Foods and walk out rather than do it through Instacart, they'd better have an improved, ready to eat lunch display, or have a better coffee bar, or be a place I can get a haircut, or whatever else it is. It's all going to be about consumer convenience. It's not just delivery. It's not just curbside pick up. It's really anything you can imagine that's going to take friction away.

Shen: So some of that stuff is obviously more experimental. But the key players here in terms of how a lot of companies are leveraging omnichannel, you think about the traditional initiatives like buy online pick up in store. You mentioned curbside pick up. That stuff still has a lot of momentum going behind it. I have some quotes and figures here from several companies that mention how initiatives like buy online, pick up in store or mobile ordering have helped to accelerate their direct-to-consumer business or online sales growth.

The first one is, how many times have we talked on the show about how buy online, pick up in store not only gives customers the option of getting their purchase how they want, but also, they end up in the store and they make another purchase and it adds to the ticket size? So from Lowe's, the home improvement retailer, in their latest quarterly earnings call, they say that flexible fulfillment, which also includes buy online, deliver from store -- that drove online comparable sales growth for them 33% during the period. Here's a direct quote from chief operating officer Rick Damron. He said, "From an execution standpoint, 60% of our dot com sales are currently pick up in store, with 40% of those customers buying incremental product when they arrive to pick up their item. Another 10% to 15% is delivered from store, with the remaining 25% to 30% being parcel."

Another example from Tractor Supply Company, which Motley Fool analyst Simon Erickson pitched to Industry Focus listeners back in October, 75% of the company's online orders were picked up in store during the third quarter. Greg Sandfort, the company's CEO, spoke at a retail conference in September, and his relevant quote from that presentation, he said, "Customers buy product online and designate to pick it up at the store. Now, what's also unique about that is, they add around another 15% to that ticket when they come to the store. So it's not just, they're buying what they found online. But when they get into the store to make the pick up, they find other things to purchase."

Kline: And there's a challenge there for retailers. I shop on Amazon a lot, and I think it's fair to say that Amazon has a shop in store feeling. When you check out, it shows you related items, it might dangle something in front of you that you purchased previously that you might need.

Shen: Yeah, an accessory or something, sure.

Kline: Yeah. And most retailers -- in fact, any retailer, I would say, at least any major one -- is behind Amazon in its ability. Wal-Mart does some of it, Target does some of it, but it's not as well honed. So yes, when I walk into a Home Depot to pick up my order, there's every possibility I'm going to buy a Milky Way on the way out or a bottle of water or a magazine. I'm probably not going to get tempted into buying a lighting fixture. It's going to be more of an incidental purchase. But that's absolutely something that could be delivered online. When you look at some of this convenience, something like an Instacart or other delivery services, it's not crazy to think that if you order $1,000 worth of stuff from Home Depot and they're going to deliver it to you, maybe that will come with, "Would you also like a pizza?" There's just so many ways you can spin this. We don't know what's going to work. I think it's fair to say somebody like Wal-Mart that's doing kiosks where you can pick up in store, which, in theory, you're doing all your check out, so you may not get back in line to buy something else, that may work, it may not work. Curbside pick up works in some markets, it doesn't in others. We're in a great period of experimentation, as well.

Shen: It's funny that you mention the Milky Way, for example. To me, this is the new age, e-commerce version of putting candy bars and magazines and small-tickets items in the checkout line at the supermarkets and convenience stores to encourage incremental spending. And it's a very effective way to boost sales with what amount to very highly qualified in-store customers, because they already made a purchase with you, they like what you have to offer. So when they show up to pick up their order or whatever it is, you really have a chance, this is someone who you can really push that additional item or accessory to, and it's working for a lot of companies.