A WBR Digital Whitepaper Presented in Conjunction with OSF Global Services, Magento, and Canada Post

Summer 2015

Canadian Brands Take the Next Step into

Omni-Channel Retail

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This paper explores the latest trends in Canadian retail, including how Canadian brands are building out their omni-channel offerings, exploring new store formats and technologies, managing inventory, and confronting the challenges posed by omni-channel order fulfillment.

Executive Summary ...........................................................................................................................................................................3

Key Findings .........................................................................................................................................................................................3

Research Findings

The Road to Omni-Channel Retail .............................................................................................................................................4

Inventory Management and Fulfillment: The Keys to Omni-Channel Retail Success ..................................................6

Innovating the In-Store Experience ..........................................................................................................................................9

Tailoring the Digital Experience ...............................................................................................................................................11

Leveraging Customer Service Networks ...............................................................................................................................13

Key Recommendations .................................................................................................................................................................. 14

Appendices ....................................................................................................................................................................................... 14

Research Partners ...........................................................................................................................................................................15

Introduction

Table of Contents

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Executive Summary

Key Findings

Canadian retail brands are constantly evolving, shifting their budgets and investments to build better strategies to connect with consumers across their increasingly non-linear paths to purchase. In 2015, these brands are taking the next step into building out their omni-channel experiences. By using data to better understand their consumers, retailers can deliver tailored messages and offerings that bolster the bottom line while also improving the customer experience. Meanwhile, stores remain a critical asset, accounting for the great majority of retail revenue. However, there are new opportunities to improve cross-channel experiences by developing fresh new store formats and using new technologies to delight and convert.

As the path to purchase becomes more diffuse and consumers spend more time shopping on a variety of channels, best-in-class omni-channel capabilities are the key to robust growth.Canadian retailers are in agreement about the importance of omni-channel capabilities to their bottom lines. However, some brands are a step ahead of others: 28% of Canadian retailers have implemented the omni-channel programs they need, while 22% are in the process of implementing those programs and another 28% are in the planning phase of implementation. Despite the recognition that omni-channel capabilities present huge opportunities, many Canadian retailers may not be moving quickly enough to address the strong demand for those services.

Omni-channel retail is a boon to Canadian brands, but it comes with its own set of operational challenges.Omni-channel retail is shaking up consumers’ expectations, making them accustomed to seamless shopping and ordering across channels and, just as importantly, expedited delivery at low costs. This poses a unique problem for Canadian retail brands, many of which are not keeping up with critical operational competencies like channel integration, inventory visibility, and omni-fulfillment.

What follows is eTail Canada’s annual report on trends in omni-channel retail. This paper will assess how Canadian brands are responding to the omni-channel paradigm and what that means for their inventory management practices. The paper will also explore the ways in which retail brands are innovating the shopping experience and leveraging digital marketing tools to develop a fuller picture of their customers and boost revenue.

New technologies are pushing retailers to reimagine the in-store experience.E-commerce and m-commerce capabilities are rubbing off on the in-store experience as retailers look to use technology to surprise and delight customers. Some brands are even taking this approach a step further, completely reimagining what a store really is.

Digital marketing enables Canadian retail brands the opportunity to learn more about their customers and deliver more personalized, 1-to-1 experiences.Digital marketing tools do not just give marketers the ability to influence the bottom line; they give them the opportunity to develop a deeper understanding of who their customers are and what they want.

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Research Findings

The proliferation of commercial channels – both online and offline – has made the path to purchase more diffuse than ever. Today, consumers are increasingly engaging with brands across a variety of diverse media. The customer journey has become expansive, dynamic, and multilayered; it permeates desktop websites, mobile-optimized sites and apps, social networks, and retail stores themselves. For retailers, this means a multiplication of consumer touch points and an unprecedented demand for innovative digital shopping tools. With consumers moving so rapidly between channels, it is crucial that retailers meet them in all of these spaces, delivering relevant messages and enabling consumers to seamlessly browse and buy. Canadian retailers recognize this opportunity, with a resounding 91% of respondents in the current study indicating that they believe omni-channel is a strategic imperative.

While the importance of omni-channel is not lost on many retail brands, the implementation of strategies and technologies that enable true omni-channel shopping has been less consistent. In fact, only 28% of respondents in the present study noted that they already have omni-channel capabilities implemented, with half of all respondents either planning or in the process of implementing those capabilities. Omni-channel fulfillment initiatives, such as shipping online purchases from stores or enabling customers to buy products in-store from online inventory, are among the most common programs Canadian retailers are implementing, perhaps because they have major implications for customer experiences as well as inventory management. In fact, many retailers now consider the availability of these purchasing and fulfillment options to be the cornerstones of omni-channel, because these capabilities can have a direct impact on conversions and customer satisfaction. These brands are also tackling customer retention by extending loyalty and rewards programs across channels.

The Road to Omni-Channel RetailThe Importance of Omni-Channel Strategies

Do you believe that having an omni-channel retail strategy is a strategic imperative?

Is omni-channel retailing on the radar for your business?

91% Yes 9% No

28% Yes, we already have capabilities implemented 28% Yes, we are planning for implementation 22% Yes, we are in the process of implementation 22% No, we have no plans in place

Canadian brands clearly understand the need for omni-channel strategies and are gradually building out the capabilities necessary to support those strategies.

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Nearly half of Canadian retailers already have cross-channel returns and exchanges, while a third show customers real-time store inventory online.

Are you planning to implement the following omni-channel capabilities?

Capability already implemented

Implementation in progress

Plan to implement within the next 2 years

Not applicable

Reserve online, pick up in store (customer pays in store)

Buy from one store, pick up from another

Cross- channel loyalty reward program

Buy online, pick up in store (order taken from in- store inventory)

Buy online, ship to store (item shipped from distribution centre [DC] to the store)

Buy in store from online inventory (item not available in store – endless aisle concept)

Buy online, ship from store

Buy in store, ship to home

Show real- time in- store inventory online

Cross- channel returns or exchanges (buy online, return to store)

12% 11% 32% 45%

12% 12% 22% 54%

17% 10% 35% 38%

21% 17% 28% 34%

23% 17% 25% 35%

24% 10% 25% 41%

24% 13% 23% 40%

26% 9% 22% 43%

34% 10% 22% 34%

47% 7% 17% 29%

Research Findings

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Research Findings

A successful omni-channel retail strategy means much more than having a strong presence in digital and physical marketplaces. In many ways, omni-channel retail success begins with effective inventory management and fulfillment – the means by which retailers deliver on the digital and in-store commercial experiences they provide to customers. For many retailers, however, omni-fulfillment is a major challenge that requires enhanced inventory visibility and more streamlined inventory management. These changes are profound and often transformative, because they push retail brands to not just invest in their inventory management systems, but to redefine their fulfillment networks as omni-channel.

Unfortunately, omni-channel fulfillment networks are not built overnight. The sheer volume and diversity of shipments can create logistical nightmares for even the most efficient businesses, especially as consumers come to expect express shipping at lower rates. This is a particularly thorny issue in Canada, where many merchants have not yet established the fulfillment infrastructures they need to deliver products as efficiently as possible. For example, many Canadian merchants currently access inventory from a primary distribution center only, lacking the ability to access and ship inventory from stores or warehouses closer to the final delivery destination.

Finally, the fulfillment challenges confronting Canadian brands are exacerbated by the growth in online purchases coming from outside of major urban centers. In 2014, for instance, half of all new online shopping households in Canada were located outside of major urban centers, posing additional challenges to smooth and swift fulfillment (Canada Post E-commerce Parcel Volume Insights 2014).

Despite these challenges, the benefits of better fulfillment are undeniable: in a time of rising customer expectations and increasing competition, fulfillment is a crucial differentiator and competitive advantage. The speed and ease with which customers receive their orders is a lynchpin of omni-channel experiences, and a great way of encouraging customer retention. Furthermore, omni-channel ordering information provides retail brands with a wealth of data that can be used to streamline inventory planning and reduce the risk of products going unsold. That visibility also helps retailers to improve the way they manage returns, because they can route the returned product directly to where it is needed.

Inventory Management and Fulfillment: The Keys to Omni-Channel Retail Success

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Research Findings

Just over one-third of retailers can leverage a global view of inventory to manage a return.

44% of Canadian retailers have global views of their inventory.

The top stated reason for implementing a ship-from-store program is to enable e-commerce channels to sell inventory only available in stores.

Do you have a returns system that can take advantage of a global view of customer transactions and inventory?

Do you have a global view of inventory across brick-and-mortar stores?

What are your top 3 reasons for investing in a ship-from-store program? (Based on average rating)

This data indicates that the primary driver of ship-from-store programs is the ability to eliminate out of stock products in e-commerce channels. Traditionally, retailers would maintain dedicated distribution centers for online commerce channels, meaning that online-specific distribution center ran out of a certain product, the retailers lost the sale. Ship-from-store capabilities help to solve this problem by making store inventory available for sale online, which has the result of lifting sales and reducing missed revenue opportunities.

To reduce online cart abandonment by sourcing out of stock products from store

inventory

To optimize shipping costs by fulfilling online orders from locations closer to

customer’s delivery address

To enable online channels to sell products currently only available

in stores

38% Yes 26% No 36% N/A

44% Yes 28% No 28% N/A

2.50

2.53

2.56

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This method means measuring customers’ interest in products on the website before stocking them, thereby avoiding unnecessary inventory cycles and streamlining supply logistics.

Research Findings

Nearly three-quarters of Canadian retailers expect free two-day delivery to become a standard among Canadian customers.

Roughly half of respondents are not using e-commerce patterns to help make inventory decisions.

Do you foresee two-day delivery to be the new delivery standard expected by Canadian shoppers?

Are you using e-commerce patterns to preorder inventory?

74% Yes 26% No

34% Yes 48% No 18% N/A

While two-day delivery on online orders has become somewhat of a standard in the United States, Canada’s physical size and population spread have made it a difficult offering to adhere to for retailers. However, consumer expectations are shifting as more and more people expect to receive their shipments very quickly. Canadian retailers will have to adapt to this demand, while being extremely careful to deliver on their fulfillment promises.

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The mission of retail stores has evolved greatly in recent years, driven in large part by technological innovation and new consumer insights. Indeed, many of the technological innovations that have threatened to erode in-store sales (such as mobile commerce) have turned out to be great assets to retailers. The most successful retail stores not only leverage new technologies to drive in-store conversions, but they also enhance the shopping experience, collect actionable customer data, and serve as a physical extension of the brand. Stores are no longer simple commercial centers; rather, they are connected showrooms that fuse together multichannel experiences to convert and engage customers while also learning from them.

Retailers are meeting this challenge in a number of ways. First, they are enhancing the shopping experiences in their existing stores, and incorporating technology to make those experiences more immersive. For example, mobile devices can be used to streamline the in-store checkout process through point of sale (POS) systems. Similarly, touchscreens and interactive displays

Innovating the In-Store Experiencecan be used to better engage shoppers, even when the store itself is closed. Unfortunately, few Canadian retailers are prioritizing these capabilities, with the vast majority indicating that they are struggling to connect with consumers on mobile while in-store and only 13% reporting that they have mobile POS systems currently deployed.

The second way some retailers are innovating the in-store experience is by completely reimagining what a store is. By untethering themselves from the traditional definition of a brick-and-mortar retail store, some retailers have developed unique and creative ways to shop. This is how “pop-up retail” was born.

Pop-up retail stores allow shoppers to experience products without carrying inventory. Instead, all purchases made on-site are immediately shipped from a central distribution center, giving customers the dual experience of instant gratification with streamlined, hassle-free fulfillment. This format even allows for the stores to be packed up and moved around with ease.

Research Findings

The majority of respondents still struggle to connect with consumers on mobile while they are in the store.

of respondents report that they cannot connect with mobile users while they are visiting a brick-and-mortar store.54%

How easily can you connect with mobile users while they are visiting a brick-and-mortar store?

A best-in-class omni-channel retail strategy connects the digital shopping experience with the in-store experience. Technology is the lynchpin of that connection, and since mobile devices are by far the most powerful and prolific devices consumers are using in stores, mobile represents the best opportunity for in-store digital engagement. Unfortunately, most Canadian retailers report that they cannot easily connect with consumers on mobile during store visits, meaning they are not taking advantage of this opportunity.

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Research Findings

62% do not currently use location-based marketing capabilities.

Only 13% of retailers are using mobile POS capabilities in their stores.

Do you use location-based marketing solutions, such as geo-fencing or beacon technologies?

Do you have a mobile point-of-sale (POS) system deployed in your brick-and-mortar stores?

Are you interested in the concept of pop-up retail? Are you interested in the possibility of trying after-hours interactive windows?

27% Yes 62% No 11% N/A

13% Yes 59% No 28% N/A

39% Yes 32% No 29% N/A

42% Yes 34% No 24% N/A

To accommodate consumers’ evolving shopping behaviors, retailers are experimenting with new store formats and retail experiences, including pop-up stores and interactive touchscreen windows.

Pop-up retail entails creating an inventory-less store with items for presentation and trial purposes. If a customer makes a purchase, the item ships from a central fulfillment center.

After-hours interactive windows allow shoppers to interact with products via a touch screen, even when stores are closed. Customers can then purchase items on a smartphone by scanning a QR code.

New Shopping Patterns Mean New Store Formats

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Digital marketing continues to open new doors for retail brands, providing them with fresh opportunities to engage with consumers and the ability to learn more about them. As e-commerce has grown steadily over recent years, retail brands have invested heavily in digital marketing capabilities – everything from email and paid search to programmatic media buys and mobile apps. Due to the pace of technological innovation, that investment will never be complete, but the revenue lift brands are seeing easily justifies the money spent and man hours used.

Retailers acknowledge that digital marketing capabilities are not strictly revenue drivers. Rather, brands are collecting a wealth of consumer and market data through digital capabilities, data they are using to better understand who their customers are and how they are engaging with them. This insight enables marketers to create much more personal, targeted, and relevant programs and offers. By segmenting customers based on demographics, product preferences, and shopping habits, retailers are delivering individualized experiences that are more engaging and more likely to convert.

Unfortunately, some brands have been slow to leverage e-commerce tools to their full extent, as evidenced by the fact that more than half of the retailers surveyed

Tailoring the Digital Experiencein our study do not currently have an aggregated view of their customers’ purchasing history. That lack of visibility can be very detrimental, as it prevents marketers from more precisely segmenting and profiling their customers. By evaluating a customer’s past purchases and product browsing history, marketers can identify patterns that can help them tease out product offerings that are more likely to resonate with that particular customer.

Mobile now plays a central role in marketing, in many ways tying the omni-channel shopping experience together by enabling retailers to continuously engage with consumers as they move through an increasingly non-linear sales funnel. While mobile represents a promising revenue stream, it can also have a potentially important impact on the in-store experience. Many retailers are experimenting with store-focused mobile marketing capabilities, including delivering product information and discounts through Bluetooth Low Energy (BLE) beacons or sending messages to lure consumers into the store as they walk by. While intriguing, these innovative mobile campaigns are not yet standard practice among Canadian retailers, only 7% of whom have mobile apps capable of supporting these campaigns.

Research Findings

Most Canadian retailers consider their digital marketing to be well-prepared for the new challenges posed by an ever-evolving industry.

How would you rate your digital marketing preparedness?

Not at all 100% operational

5% 3%

10%5%

13%

8%

21% 22%

9%

4%

Most Canadian retail brands rate themselves high on the digital marketing preparedness curve, with only a small group of digital late adopters lagging behind. Clearly, most Canadian retailers are making the right digital marketing investments they have made and are confident in their ability to connect digitally with consumers.

56% rated their preparedness an 8 or above (on a scale of 1-10)

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Research Findings

Most retailers have customer-centric CRM initiatives.

More than half of the retailers surveyed do not segment or profile customers based on an aggregated view of their purchasing history. Do you have a CRM initiative centered on the

customer? Do you have an aggregated view of your customers’ cross-channel purchasing history and do you use this data to segment or profile your customers?

61% Yes 29% No 10% N/A

38% Yes 51% No 11% N/A

7% Yes 79% No 14% N/A

Nearly four-fifths of Canadian retailers lack mobile apps that dynamically recommend products or promotions based on geolocation or purchasing behavior.

Do you have a mobile app that recommends promotions based on store locations and online purchasing behavior?

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60% of the retailers surveyed empower their call center agents to make purchases on behalf of customers.

81% of respondents with call centers keep their call center agents informed of ongoing online and in-store promotions.

Do you have call center agents placing online orders on behalf of customers?

Are your call center agents informed of online and in-store promotions so as to better address each type of customer interaction?

60% Yes 40% No

81% Yes 19% No

Research Findings

Least prepared Most prepared

8%

3% 3%2%

11%12%

17%

19%

11%

14%

Most Canadian retailers consider their call centers to be well prepared and organized. How would you rate your call center operations preparedness?

Leveraging Customer Service Networks

E-commerce and m-commerce are undoubtedly expanding in Canada, but that does not mean that more traditional sales channels are completely dying out. For many retailers, call centers remain an important revenue stream and customer service channel. Call centers are still relevant enough that 81% of retail brands that have call centers find it necessary to keep call center agents informed of online and in-store promotions. Furthermore, 60% of those businesses enable call center agents to make orders on behalf of customers.

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Key RecommendationsThe stakes are high, and Canadian retailers need to enter the next phase of omni-channel maturity to protect their market share and drive future growth.To drive growth in the Canadian retail market, brands must prioritize omni-channel capabilities. After all, competition is fiercer than ever, and Canadian consumers are beginning to demand great omni-channel retail experiences. In order to meet consumer expectations and remain competitive in an increasingly crowded marketplace, there is still opportunity for brands to invest in omni-channel strategies as their core differentiator. That means investing in the technologies and programs that will make the most difference for the customer.

Canadian brands need to transform their inventory management and fulfillment processes in order to keep pace with omni-channel retail. Inventory management and fulfillment are at the core of a successful omni-channel retail strategy, but unfortunately many Canadian retail brands have yet to build the infrastructures necessary to support omni-channel greatness. As more consumers come to expect expedited shipping on their orders and the number of online shopping households outside of major urban centers increases, retailers will need to aggressively invest in their operations to make sure they are up to the challenge.

Retail is evolving, and so should the store.Physical stores still bring in the majority of retail revenue, but they do not exist in a vacuum. Consumers expect consistent shopping experiences in-store and online, and there is now a huge opportunity for retailers who do more to marry those experiences. By incorporating new technologies and inventive experiences, retailers can turn stores into even bigger assets that impact conversions and customer retention throughout the omni-channel funnel.

Canadian brands should continue to invest in digital marketing tools.Most Canadian retail brands are confident in their ability to reach consumers digitally, but there is still more to do. Many brands are still unable to develop a more holistic, 360-degree view of their customers based on behavioral and purchasing data. Omni-channel retail data can provide incredible visibility into customer patterns and burgeoning revenue opportunities, but without this visibility, retailers are missing new ways to engage and convert.

“Technology Trends in Retail Report“, WBR Digital, July 2014

Appendix C: Related Research

Appendices

For this report, the eTail team conducted in-person and online surveys of 119 Canadian retail professionals from a variety of industries, including apparel, beauty, consumer electronics, hard and soft goods, home furnishings, books, music, and department stores. Survey participants included decision-makers and executives with responsibility for their firms’ marketing, e-commerce, sales, and operations capabilities and strategies. In-person surveys and interviews were conducted on-site at the 2015 eTail Canada conference. Responses were collected in May and June of 2015.

Appendix A: Methodology

Appendix B: Demographic InformationWhat is your function within your organization?

40% E-commerce 31% Marketing 22% Other 4% IT 3% Merchandising

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Since 2003, OSF has established itself as a trusted cloud technology consultant and technology integrator, with expertise in cloud application development, integrated content management solutions, leading e-commerce platforms and enterprise CRM solutions.OSF Global Services has helped global retailers achieve their international, omni-channel and commerce optimization goals for more than a decade. With extended experience in cloud technology and technology integrations, OSF takes care of the whole e-commerce ecosystem, helping retailers choose, implement and customize the right solutions in different e-commerce related areas—CRM, CMS, mobile solutions and private clouds. With offices around the world, OSF capably supports retailers in different geographies, providing innovative development solutions and follow-the-sun business support. For more information about the company’s services and expertise, or to speak with a solutions specialist, please visit www.osf-ecommerce.com.

Magento offers a flexible, scalable e-commerce platform that empowers businesses to grow and succeed online. Magento technology powers more than 240,000 websites, including the sites of leading global brands and retailers. As a part of eBay Enterprise, Magento is a gateway to eBay Inc.’s portfolio of commerce solutions—from eBay Marketplaces and PayPal to eBay Enterprise order management, retail operations, and marketing services.

More information can be found at www.magento.com and www.ebayenterprise.com.

Canada Post is focused on fostering growth in Canada’s e-commerce sector. We deliver nearly two of every three parcels that Canadian consumers order online and we’re the only company that delivers to all 15.7 million addresses in the country. Our delivery network is Canada’s largest – and with nearly 6,300 post offices, so is our retail network. Our trusted brand has become the preferred partner of Canada’s e-commerce merchants and the preferred shipper of online shoppers.

In the highly competitive space of B2C delivery, we have earned our market-share leadership by providing an exceptional end-to-end shopping and delivery experience to Canadian shoppers. On-time, reliable, affordable delivery, convenient delivery options and real-time tracking anchor our parcel services. We’ve also built innovative solutions for the e-commerce market that offer speed, efficiency, flexibility and consumer convenience. We can tailor our shipping, pickup, returns, logistics and technology solutions to meet a customer’s unique needs.

WBR Digital produces quality content and digital campaigns for high-performing businesses across a wide range of industries. See how you can put our team of content specialists and marketers to work for your business.

A special thank you to our research partners, whose vision and expertise helped make this report possible.

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