Investors seem to believe the advantages of growth, and ability to convert that growth into profit, lie with monochannel retailers.
Amid the frenzy of fast-moving statistics on omnichannel retailing, consider this one: the five most highly valued retailers in the UK as measured by price/earnings ratio are Ao World, Ocado, Asos, Primark and B&M Retail.
All are monochannel retailers, being either pure-play online or, shall we say, pure-play stores. You would probably add Amazon, Aldi and Lidl if their UK valuations were visible. Most of these eight have avowedly declared that they will not diversify beyond their channel of origin.
Investors seem to believe the advantages of growth, and ability to convert that growth into profit, lie with monochannel retailers.
Even the more successful multichannel retailers, such as Next, Dixons Carphone and Argos, are not rewarded with the same valuations. Do the markets have it wrong? Or should we beware false omnichannel prophets?
Of course, these eight highly valued monochannel retailers are all, to some degree, insurgents. Not for them the worry of defending large incumbent market shares from capacity addition or price disruption, nor the cost of overhauling legacy infrastructures to match new levels of range, service and value. They’re enjoying the positive side of operational gearing, rather than worrying about how cannibalisation is eroding it.
“Whether new or old, multi or monochannel – most customer experience is formed by performance within a single channel”
Michael Jary, OC&C Strategy Consultants
A more important point lies here for all retailers, whether new or old, multi or monochannel – most customer experience is formed by performance within a single channel. In nearly all categories, still the majority of customer journeys are either exclusively offline or exclusively online.
Even for customers shopping across channels, such as checking in-store availability online or ordering click-and-collect, the quality of the journey is no better than its weakest link.
Customer loyalty
The loyalty of an omnichannel customer has to be won in a single channel first – why would they go online if the store experience is unenticing?
This presents a challenge for multichannel retailers. Each channel has to beat the focused monochannel specialists. And the attributes sought by consumers differ: engineering reliable online fulfilment demands different skills to motivating engaged store staff.
The prize for joining up the channels is certainly huge – no retailer has yet realised this ambition – but has to be won by getting each channel right first.
We find our multichannel clients struggling across multiple fronts: keeping the legacy business moving forward, often in the face of declining volumes, is essential to satisfy traditional customers and to generate cash; building effective new channels demands unfamiliar capabilities and heavy investment; and joining them up is the path to realising the omnichannel vision. All three need to be done but the hype should not distract retailers from focusing on the basics first.
The future will likely be one in which monochannel and multichannel retailers co-exist. Valuations will converge as multichannel winners emerge and prove they can take on channel specialists at their own game as well as serving customer journeys uniquely available to them.
It is not too late, as few do this well, but for the moment investors remain unconvinced.
- Michael Jary, partner, OC&C Strategy Consultants
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