A hundred years ago, you could buy things in one of two ways – in store or through the mail. There was very little overlap between these early channels. By the beginning of the new century, consumers were already getting used to a new multi-channel buying experience. Items could be found online and in-store, and some stores would accept online orders to be sent to a local store. But those simple times are about to be behind us. The new retail order revolves around an omni-channel experience, where there is no clear line drawn between traditional channels. Over the next year, investors and consumers are going to become very familiar with omni-channel sales.
Leading the omni-channel sales pack
To get a better understanding of what omni-channel means, and how it's going to change things, let's look at an example. You need to buy a new dining room table. You visit the local furniture store and find a table that looks perfect – but they don't have it in the walnut finish that all of your other pieces come in. Normally you'd head home, look online, call other stores, and hopefully sort something out.
But with omni-channel, you might simply scan the in-store barcode with your phone, which brings up the item's page online. Then you'd select the finish you want, and choose your delivery option, which would display a new barcode on your phone. The in-store cashier would scan that code for you and you'd walk out of the store knowing that the table was on its way to your house. The whole shopping experience revolves around the consumer, with prices matching online, in-store, and in-catalog.
Apple (AAPL 0.01%) is the standard example of omni-channel retailing at work. Apple products are available at fixed price points online and in-store. If you go into an Apple store and they don't have the accessory you need, you can buy it in-store to be shipped to your home. Conversely, you can make a purchase online and pick it up at your nearest Apple store. The whole purchasing experience revolves around the customer.
The secret to omni-channel success
The reason Apple can do all this is simple -- margins. Apple's operating margin is 36%, which gives it a lot of pricing leeway. The problem that companies like Best Buy (BBY 2.55%) have run into is that they operate on such slim margins that they can't afford to unify pricing structures. But any meaningful omni-channel strategy requires companies to sell at one price across the board. By definition, omni-channel sales present the same information to a consumer regardless of channel.
Speculation has been rampant since the beginning of 2012 that Amazon (AMZN 0.78%) would make a move into brick and mortar, joining Apple as an omni-channel leader. So far, Amazon has expanded its physical footprint, but has yet to take the plunge and open an actual storefront. The New York Times recently speculated that retail locations might be a side effect of Amazon paying taxes. If a retail location or same-day delivery became the new normal for Amazon, it could signal a huge change in the way consumers think about omni-channel. Namely, it could make the system the expectation instead of the exception.
The bottom line
Over the next year, expect to see more companies try to manage an omni-channel offering. I think one of the biggest things to watch will be the losers in retail. Best Buy is already floundering under the pressure of basic multi-channel competition, and the added weight of an omni offering might be more than it can handle. Amazon might wow everyone with an incredible offering, or it might find that the omni-channel promise can't be delivered if it's committed to being a low-price leader.
Regardless of how it all turns out, channel management is going to be focus of retail in 2013, whether that means changing the whole program, or simply providing a level of service customers have come to expect across the board. Right now, the biggest developing story is Amazon's distribution system. Luckily, The Motley Fool has a premium report that focuses on Amazon and gives investors the full picture. When you sign up, you'll get access to a year of updates to keep on top of the situation as new developments appear. Click here to get your premium report today.
