In the coming 10 years, I predict this will evolve into the defacto 'playbook' for many retailers & ecom players

Omnichannel, while being a popular goal for many retailers for some years now, is still in its absolute infancy (in my view) and very few have come close to truly realizing its potential. Having spent a number of years in pure ecommerce players before Pomelo i had always thought of offline retail as the kind of 'dinosaur' way of doing business. Then starting in 2017 or so i started opening my eyes to what was happening in China with 'New Retail' and the massive investments Alibaba was making and it kind of opened my eyes.. but I had not truly felt it till I joined Pomelo and saw with my own eyes a bit more how it works.

So what is the Omni-channel success formula?

Well for me it can be quite simply boiled down to this formula.

So there are basically 4 components, 2 of which are offline elements...

1) Cheap customer acquisition - meaning offline retail is a great and cheap way to acquire online customers. Why? Because most stores will pay for themselves simply with their offline walk-in traffic. Meaning a store that is able to fully cover its costs with its offline sales can be considered to have zero cost for any online customers it creates. So if you get 10 of your walk-in new customers to create an online account and in the future purchase something, than you are essentially creating 300 customers a month with a CAC (cost of customer acquisition) of ZERO. Compare that to paid online channels (like Google ads or Facebook) where it it is not uncommon to pay $40+ per purchasing customer in cities like Bangkok.

What does this mean? Well, it means you dont even need to break even on your stores and it is ok to lose money. Let's take a scenario where you lose $6000 per month in operating costs on a store (which is actually quite difficult to do in a city like Bangkok). If that store creates 300 online customers, than the CAC of those customers can be considered to be $20 each. Still less than half of what the digital marketing team will pay on Google for a customer.

On top of that these customers will have a much higher Lifetime value (LTV) and lower churn. More on that in this next point.

2) Great pickup experience - meaning that your offline store makes a great channel for customers to pickup their orders. But more importantly it allows customers to have a risk-free way of touching, feeling, and potentially rejecting the items they ordered. All without having to go thru a painful returns process. The Pomelo 'Tap, Try, Buy' process is a perfect example of this.. Customers are encouraged to order as much as they want online (eg. 10+ styles) with no upfront payment and then they go to their nearest store or pickup partner to try it all on. They will often reject up to 60-70% of the items they ordered because they're not happy with the fabric or the fit, etc. and then only pay for what they keep.

Compare this to the traditional ecommerce experience where to reject items you ordered to your home you need to create an online return, print out a form, take it to your nearest 3PL office to drop it off, and then wait 1-2 weeks for it to be received by a warehouse that then processes the return. And then 'hopefully' you get your money back, which if paid by credit card will take even more time. In industries like fashion... this is simply too painful and the pickup model is a far superior customer experience. And what does superior customer experience translate into? Well, it clearly translates into higher lifetime values (LTV) and longer retention rates for customers. Many customers will simply get 'hooked' on this way of purchasing and make it a habit.

...And there are 2 online components:

3) Massive selection- meaning you offer much more online than you do in any given store. A clothing store for example, depending on its size, may hold up to 500 different styles due to space limitations. Whereas online you can offer easily 10-100x that in assortment (in particular if you are not a mono-brand player). And this is part of where this omnichannel way of doing business supercedes the traditional offline retail purchase model. The customer gets access to much larger, frequently changing selection.

4) Personalization - meaning you use all of the data that you collect about the customer (both online and offline) to get better at serving up a highly personalized experience. By data i mean utilizing all the data about things like what you have viewed, clicked on, purchased, returned, etc. And overtime you keep adding more and more data to the model to get better at serving up a highly tailored online shopping experience. With the end goal being that a customer sees very tailored products to their likes/size/etc when on the homepage, catalog pages, pdp, etc.

Also, you do not need to be a technological wizard to do the actual personalization. Meaning you dont need 100+ data scientists like what Stitchfix boasts.. and rather you can use some pretty good off the shelf technology. Pomelo, for example, uses Amazon Personalize (an AWS service) and it has served the purpose quite well.

The long-term goal with this 4th component is simple.. you want the customer to conclude that you are the most EFFICIENT SHOPPING EXPERIENCE out there, bar none. Meaning a woman searching for clothing to buy knows that in 30 minutes of shopping on your site she can find 20 great things she likes (due to the personalization). Whereas at some other ecommerce site she perhaps finds 5 items and when she walks into some offline retailer she perhaps finds 2 items in that same amount of time. Time is money.. and the customer will be trained to repeat purchase at the place where she feels her time is best spent.

In ten years I predict this formula will be the way EVERYONE does business

That is to say... I predict that it will be the way that everyone does business in some specific industries that are either:

1- Very touch & feel oriented - like fashion and furniture

2- Complex or very expensive - like cars or some non-standard electronic gadgets

It simply makes sense from an economics perspective... lower CAC's & higher LTV's by a longgggg shot. And it is far superior to the existing pure retail or pure ecommerce models. So in my view it is like natural selection of models... and this one will clearly win.

What does this mean for offline retailers?

If you think about the traditional clothing retailers like Gap, Uniqlo, and Zara they are quite good at the offline retail model and not too bad at the general ecommerce model. So in terms of the equation:

1. [Offline] Cheap customer acquisition: they have extensive retail networks that are generally profitable. But they need to improve the offline to online conversion (ie. get an offline customer to become an online one)... something a good loyalty program can do.
2. [Offline] Great pickup experience: many of the retailers have some initial efforts here but they are often quite clunky. Having a seamless pickup experience where you don't need to go to the register at all but rather can accept/reject items in a fitting room on your app and pay via your phone is key in my view.
3. [Online] Massive selection: players like Zara get quite good marks here... but i also think a lot of the mono-brand fashion retailers can make more effort at offering their channel to other synergistic brands, thus blowing out their assortment more quickly without the massive investment in inventory.
4. [Online] Personalization: here is where most of the offline retailers get an F. They do very little personalization online and rather offer all customers the same inefficient experience.

What does this mean for pureplay ecommerce players?

Let's note that by pureplay ecommerce there are generally the broader platforms (like Lazada, Shopee, Tokopedia, etc.) and the category-specific ones (eg. Shein for fashion). As the two types are a bit different, i am generalizing a bit in rating them on the equation:

1. [Offline] Cheap customer acquisition: the 'platforms' generally get an F here. Lazada and Shopee have made some offline retail inroads but quite small, insignificant so far. There are some fashion-specific players like Pomelo and Love Bonito that have done much better and are probably around a B- right now in terms of realizing the potential.
2. [Offline] Great pickup experience: many ecoms have pickup networks but relatively few have things like fitting rooms where you can test and reject items before purchasing.
3. [Online] Massive selection: this is generally the strength of the online players... in particular the platforms like Shopee who can offer hundreds of brands.
4. [Online] Personalization: this is also generally a strength of the online players, in particular the platforms who have massive tech teams and made major investments into personalization. The category-specific players have made much smaller inroads here but many are working on it.

Some concluding thoughts?

1. I predict this omnichannel formula equation with 4 components will win over time and become the 'defacto playbook' for pretty much all surviving players in some industries like fashion and furniture.
2. I would go as far to say that there is no profitable ecommerce business model in certain industries like fashion without omnichannel. The economics of sending a parcel to a customer's home when they often want to reject some items due to style, fit or fabric just doesnt work. The act of returning the items is painful and expensive... and if they just keep the things they don't like then they are much more apt to churn and disappear.

The analogy i often make is to when I was running Groupon in Ukraine back in 2011-12... the model seemed great. You could acquire customers thru paid channels and they'd pay back your marketing investment with their first purchase. Looked like it would scale endlessly. The problem.. they also churned like crazy because the merchants often served a bad customer experience. And so I used to liken the experience of shopping on Groupon to running through a minefield... the more a Groupon customer purchased, the more apt they were to step on a mine (ie. have a bad experience at a merchant) and churn (often vowing to never purchase again). Shopping for things like fashion via pure ecommerce with no pickup channel is very similar in my view. The more you shop, the more apt you are to get burned with a poor customer experience.

3. Almost nobody in many geographies, like SE Asia, is playing this equation correctly today. And therefore the opportunity is massive. This model in this region alone will, in my view, create at least 3-4 new unicorns in the coming years.

4. The early adopters will have a head start but the bandwagon will catch up fast once they see how it works. Meaning early movers like Pomelo that look at this COVID situation as prime time to eat up cheap offline mall locations and demonstrate to others how the model works. But its not long before fashion retailers tune their equations and the ecom platforms like Lazada/Shopee put more focus on their offline strategies.

5. Many ecommerce management teams will think to themselves when reading an article like this and think... hmm good idea but its too early. I'd disagree with this view in categories like fashion and furniture. Even now, its simply a better model in its unit economics. And if you wait... others will prove this to you.