Is the omni-channel model an urgent need?
Before making the final purchase decision, consumers receive product information for 13 times on average, including 7 times online. 50% of the consumers who purchase offline try the products in a regular store. The traditional sales channels are torn out. Retailers are no longer facing the simple models of offline-to-online or online-to-offline, but will have to provide products and services at the right time, right place and with the right price in the channels’ cross-over. It would be the key of O2O to address core demands of different consumer groups utilizing different channels.
“ If you are optimistic, O2O can be spring to the garment industry. In the O2O era, brands are created and developed much faster. Core competitiveness of traditional retailers are built on terminals and channels, and e-commerce makes the construction of channels faster and cheaper. There are more than 5,000 garments brands with an annual turnover of over 100 million RMB. Inman, a Taobao-based and well-positioned brand developed itself in a few years, which is impossible in the past.”
“ It is inevitable that supermarkets have to transfer from online or offline models to the omni-channel model. For example, 5% of the middle-class families in Shanghai jog in the evening or walk their dogs. When they need water then, consumers would place an order on their cell phone, and pick up the goods in a nearby store. There is typical sales scenario in which online and offline sales are integrated. The key of competition in the future would be acquiring new consumers and realizing and increasing sales through various O2O scenarios. O2O is not just a trend, it’s the reality. O2O is not only a sales channel, but the sales itself.”
“ Everybody is talking about O2O, but not many are brave enough to practice it. The technologies needed are not difficult, but we have to rebuild the business model by replacing the old one with a new healthy model built around the O2O strategies. The bigger a company and its headcount are, the more difficult such a transformation would be.”
What does O2O mean to the Supply Chain?
Metersbonwe: As part of the fashion industry, the business model we are looking into is: transform the stores into exhibition and experience centers, and manage inventory at the DC level. Inventory is always a heavy burden in this industry. In the past, the stores are warehouses at the same time. On average, we store around RMB 200,000 of inventory at each store, and it is one billion in total for our over 5,000 stores. If the monthly sales rate is 60%, then there is an inventory cost of RMB 400 million each month. By the end of a quarter, every store keeps a huge amount of inventory, and goods are frequently transferred from store to store. If we keep the majority of inventory at the DC level and less in the stores, and send out goods only when orders are placed, the logistics costs will increase by tens of million per month, but it would be much more affordable than the inventory costs of hundreds of million. The Taobao-based brand Inman has only one warehouse in China, and its stores are only for experience. All orders placed both online and offline are sent from the warehouse. On one hand, it minimizes the inventory costs, and on the other hand, decision making is made much easier with real-time sales information available.
Bailian Group: The supermarket industry is on the contrary. We would like to keep inventory and delivery at the stores so as to control the logistics costs. In the past few years, many e-commerce companies dealing with fresh food are trapped. The per-customer transaction value and gross profit of sundry goods and fresh food are low, the super high logistics costs cannot be translated into value, and continuous investment is needed for traffic attraction. According to our statistics, the gross profit rate of sundry goods (normal temperature) is around 25%, and it is 18% for fresh food. Transportation is a huge proportion of the costs. The traditional delivery system of e-commerce is the “City Warehouse - Customer” two-layer model, and in such a model, logistics of normal temperature goods takes 12-15% of the total costs while that of fresh food takes 20-24%. The logistics costs are super high. In the omni-channel model, we would like to allocate the inventory to stores, and distribute in the two-phase model, e.g. “Warehouse - FT Store - Customer”. Delivery will be carried out by the stores. Through such arrangement, we can reduce the logistics costs by 10%, shorten the time period of delivery, and improve customer experience. What’s more, we need to select a better portfolio, and provide better experiences both in store and in delivery. Our supply chain, IT system, processes, devices, and etc. have to be rebuilt to suit with the new business model.
Beaumanoir: The challenge in front of us is how to adjust ourselves in the existing system to adapt with the omni-channel model, or how to move and improve. We wish to resolve this issue with supply chain design. However, the fact is that we cannot make a complete transformation within one or two years. As many other companies, we are facing this challenge: How to adjust ourselves in the existing system to adapt with the omni-channel model. We call it “Move and Improve” in Beaumanoir. As for inventory, offline inventory and online inventory support different channels in the past. We cannot even share inventory for different online channels, and this induces huge cost. The current strategy of our company is to manage inventory in the Omni-stock manner, and we have adopted technical measures to coordinate demand from different channels, define rules and manage prioritization. As for logistics, we will need to balance in-house and outsource, and determine where to build in-house capabilities.
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