At the height of the COVID pandemic, retail profitability took a back seat to meeting customer demand by whatever means necessary. Retailers had to quickly expand omnichannel operations, often without concern for efficiency, to meet the simple goal of getting goods to customers. While some were able to keep up with demand and increase revenue across channels, even successful retailers struggled to simultaneously increase profitability, finding that their net was reduced despite a higher gross.
Due to changes in consumer behavior that appear to be permanent, omnichannel demand is likely to continue to beat pre-pandemic levels going forward. To remain competitive, retailers must make all channels not just viable but profitable while continuing to offer the high-quality services and features that have become a critical part of driving customer behavior.
It’s true that online orders for home delivery are less profitable than in-store sales, and BOPIS and click-and-collect orders are only slightly better for margins than home delivery. These options, however, have become an integral part of shopping. Retailers who downplay them to protect margins are going to disappoint their customers, lose business and possibly meet the fate that they tried to escape during 2020.
Retailers must review all delivery channels — online and off — and make adjustments using modern technology to improve operational efficiency and inventory productivity instead of prioritizing margins above all else. A unified supply chain strategy, which brings traditionally siloed processes and data into a one system, allows retailers to efficiently manage in-store operations and the supply chain while also streamlining online operations.
The pandemic did not make forecasts useless, it just made it more complex to get them right. Margins and customer service will improve with access to highly granular, accurate forecasts from a single data source. The same is true for improving inventory levels for all channels while also managing staff and planograms in physical stores. Retailers can improve profitability and margins throughout the business as a whole, rather than in specific and separate divisions or locations, while continuing to support customer demand with this approach.
Retailers shouldn’t have to choose between profitability and customer satisfaction. While they should, whenever possible, adjust their operations and processes to improve margins, they must also review top-performing delivery channels and prioritize a high level of service, regardless of any under-the-hood changes.