Omni-Channel 2012: Cross-Channel Comes of Age1 Research Overview Why This Study Was Conducted By now, you have probably heard a dozen different terms related to cross-channel - from

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Omni-Channel 2012:

Cross-Channel Comes of Age

2012 Benchmark Report Nikki Baird and Brian Kilcourse, Managing Partners

June 2012

Sponsors:

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Executive Summary

Since our first cross-channel benchmark in 2007, we’ve observed how retailers have moved from accepting the notion that establishing a selling channel in the “digital” domain is important, to realizing that the new selling channels need to have some level of integration to the legacy store channel, and now to an understanding that consumers routinely use more than one channel to execute a single transaction, and therefore all the selling channels need to work seamlessly together to support the company’s Brand. While it hasn’t been an easy journey for retailers to recognize the need for a brand-oriented strategy defined by customer insights, that day has come for most in the industry.

Retailers now know that increasingly, their cross-channel shoppers are just “shoppers”, and that their biggest challenge is in how to merge the digital and physical selling worlds into one compelling, seamless customer experience. Some key findings in the study that support this conclusion include:

• For the first time in our six studies, more retailers report that they operate online/e-Commerce channels than they do traditional stores (92% vs. 89%)

• 100% of retailers believe that maintaining a single brand identity across all channels is important

• While 100% of responding retailers believe that the customer shopping experience should be consolidated across all channels for a consistent experience, only 32% have achieved that goal

• Retail Winners demonstrate a relentless focus on the customer: 100% of those retailers plan to consolidate the shopping experience, loyalty programs, and social and digital marketing across all channels

• 37% more Retail Winners believe that the Marketing function should drive the cross-channel strategy forward, than do other retailers

• Not having a single view of customers across all channels has risen as the top inhibitor for 55% of retailers. Winners feel more strongly than other retailers that consolidating customer data across all channels is a prerequisite to prioritizing integrated cross-channel capabilities

• A majority of Retail Winners show a greater willingness to work with outside integration partners than in the past (56% compared to 25% in 2011), a reflection of their belief that the internal IT organization is too constrained to take on more projects

• Enterprise-wide customer visibility and customer insights are the top technology enablers for Winners. For non-winners its customer and inventory visibility. These finding translate almost directly into each performance group’s technology investment priorities.

RSR recommends that retailers stay focused on the customer to succeed in navigating their cross-channel challenges. To help stay focused, retailers should designate an owner of the customer experience. Retailers should also think strategically about their customer interaction platforms and prioritize their investments according to their customers' primary paths to purchase. Finally, it's clear that integrating channels is hard. Retailers shouldn't be afraid to ask for help.

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Table of Contents Executive Summary ........................................................................................................................ ii Table of Contents ........................................................................................................................... iii Figures ........................................................................................................................................... iv Research Overview ......................................................................................................................... 1

Why This Study Was Conducted ................................................................................................. 1 The Game's New Rules ........................................................................................................... 1

Defining Winners and Why They Win, and Why Laggards Fail ................................................... 2 The Customer Focus Differentiator .......................................................................................... 3

RSR’s BOOT Methodology .......................................................................................................... 4 Survey Respondent Characteristics ............................................................................................ 4

Business Challenges ....................................................................................................................... 6 Is There A Dominant Channel? ................................................................................................... 6 What’s the Right Objective? ........................................................................................................ 7 It's Hard To Change ..................................................................................................................... 8

Opportunities ................................................................................................................................... 9 Brand Promise Gives Way to Execution ...................................................................................... 9 Even in Execution, Winners Stick With the Customer ................................................................. 9 Cross-Channel Progress: A Mixed Bag ..................................................................................... 10 Foregone Conclusions ............................................................................................................... 12 Fulfillment Is Hard ...................................................................................................................... 13 Rolling Up the Sleeves .............................................................................................................. 14

Organizational Inhibitors ................................................................................................................ 15 Who Owns the Cross-Channel Agenda? ................................................................................... 15 What Stands In The Way Of Progress? ..................................................................................... 16 The Need To Prioritize ............................................................................................................... 17 Lead, Follow, Or Get Out Of The Way ....................................................................................... 18

Technology Enablers ..................................................................................................................... 20 A Long Road to Travel ............................................................................................................... 20 Valuing Customers .................................................................................................................... 21 Budgeting for What's Next ......................................................................................................... 22 The Single Customer Interaction Platform: Myth or Reality? ..................................................... 23 Foundations and Empires .......................................................................................................... 24

BOOTstrap Recommendations ..................................................................................................... 25 Focus on Customer. The Rest Will Follow. ................................................................................ 25 Designate an Internal Owner of the Customer Experience. ...................................................... 25 Think Strategically About Your Platforms. ................................................................................. 25 Prioritize The Paths To Purchase .............................................................................................. 26 Don’t Be Too Proud To Ask For Help ........................................................................................ 26

Appendix A: RSR’s Research Methodology .................................................................................... a Appendix B: About Our Sponsors ................................................................................................... b Appendix C: About RSR Research ................................................................................................. d

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Figures Figure 1: The Law of Cross-Channel Averages .............................................................................. 1

Figure 2: The Five C’s ..................................................................................................................... 2

Figure 3: Cross-Channel Shoppers Are Winning Shoppers ............................................................ 3

Figure 4: No Going Back ................................................................................................................. 6

Figure 5: Transactional Thinking ..................................................................................................... 7

Figure 6: Defining the Brand Promise as Execution ....................................................................... 9

Figure 7: The Opportunity Defined - Customer vs. Product ......................................................... 10

Figure 8: Focus, Yes. Progress, Not So Much ............................................................................. 11

Figure 9: Winners Have Many Plans ............................................................................................. 12

Figure 10: Fulfilling the Promise? .................................................................................................. 13

Figure 11: Winners Try Harder to Sell More Stuff ......................................................................... 14

Figure 12: Marketing Pushes The Agenda .................................................................................... 15

Figure 13: Enterprise-Wide Capabilities Needed .......................................................................... 16

Figure 14: Getting A Handle On It ................................................................................................. 17

Figure 15: Executive Support Needed, Plus… .............................................................................. 18

Figure 16: Crossing the Consumer Chasm ................................................................................... 20

Figure 17: The Technology Priority List ......................................................................................... 21

Figure 18: The Budget and the Wish List ...................................................................................... 22

Figure 19: How Much Convergence is Really Needed? ................................................................ 23

Figure 20: Winners Believe in Channel Platform Convergence .................................................... 24

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Research Overview

Why This Study Was Conducted By now, you have probably heard a dozen different terms related to cross-channel - from omni-channel to channel-less. No matter the term, the intent is the same: to denote some future where retailers' various channels are well integrated into a seamless shopping experience.

That future is getting closer by the minute.

It means, however, that the bloom is off the rose. The opportunities for early differentiation - the days of "I have buy online / pickup in store and you don't" - are over. No data point shows this shift more clearly than retailers' perceptions of their cross-channel shoppers. From 2007 through 2011, more and more retailers believed that cross-channel shoppers are significantly more profitable than single-channel shoppers. But for the first time, that number has declined - from its peak of 50% in 2011 to 38% of respondents in this year's survey (Figure 1).

Figure 1: The Law of Cross-Channel Averages

Source: RSR Research, June 2012

What would cause this decline? There are several possibilities. One, retailers may have the perception that showrooming behaviors undercut the profitability of more savvy cross-channel shoppers. Or perhaps more and more shoppers are simply becoming cross-channel, and therefore less-engaged shoppers are bringing down the overall averages. Or it could be some combination of the two.

Either way, the days of the cross-channel Wild West, the days of unexplored territories and frontiers, are over. Cross-channel shoppers are rapidly becoming just "shoppers" and the early advantage of higher engagement across channels is already on the decline.

The Game's New Rules That's not to say that the opportunities have all been explored. Far from true. In fact, the opportunities are so many and so diverse that RSR defined five C's for successful cross-channel retailing to help frame different types of opportunities.

18%

31% 28%

39%

50%

38%

2007 2008 2009 2010 2011 2012

Cross-Channel Shoppers Are "Significantly More Profitable than Single Channel

Shoppers"

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Figure 2: The Five C’s

Source: RSR Research

Content is all of the information about products and lifestyle that retailers can use to help educate customers. Community is all of the people that a shopper might rely on to make a purchase decision. Commerce is all of the shopping power that a retailer has available to them to turn an interaction into a transaction - everything from price and offer to the digital shopping cart in whatever form it is presented to the customer. These three C's can only be effectively applied in Context - by understanding where the shopper is on her path to purchase and conforming to the specific needs and wants that she has at that point in time. Context can only be derived through Customer Insights, the 5th C.

As one example of the depth of opportunity still out there for cross-channel, let's touch on Content for a moment. Theoretically, Content is one of the easiest things to integrate across channels. It's product data - whether generated by the brand or manufacturer, the retailer, or even customers themselves. If a retailer is to successfully present itself as a cross-channel, integrated retailer, Content is one of the first things that should be consistent across channels. Can a shopper access ratings and reviews while in the store? Can online recommendations and cross-sells tap into store employee expertise? Are the product descriptions and details consistent between online, mobile, and the store? Is the information about inventory availability accurate and timely? And that's just the first C.

Overall, the answers, as you will see, show that retailers have defined the problem. They may still struggle with educating certain executives, and they definitely still experience the pain of trying to integrate a legacy portfolio of supporting technologies together into a common "customer interaction platform". But they understand what needs to be done.

As shoppers, we look forward to seeing that vision made real. Hopefully soon.

Defining Winners and Why They Win, and Why Laggards Fail Throughout this report, you will see reference to Retail Winners and their peers. Our definition of Retail Winners is straightforward. We classify retailers based on their year-over-year comparable store/channel sales improvements. Assuming industry average comparable store/

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channel sales growth of three percent in 2011, we define those with sales above this hurdle as “Winners,” those at this sales growth rate as “average,” and those below this sales growth rate as “laggards.”

Why do these comparisons matter? It turns out that over-performance is more than an accident of selling more stuff. RSR’s research findings consistently show that Winners don’t merely do the same things better, they tend to do different things. They think differently. They plan differently. They respond differently.

Laggards also tend to think differently. They may have spectacular vision, but often fail on execution. They may forget the power and breadth of choices today’s customer has. They fail to re-invent themselves when it becomes obvious their existing business model is no longer working. They don’t change their business processes in an effective manner, and so they either eschew technology enablers, or don’t gain expected Return on Investment on those they DO buy. In good times, they skate by. In tough times, these weaknesses come back to haunt them.

The Customer Focus Differentiator One of the most important things to understand about the current level of cross-channel maturity is that this is where Winners excel. As RSR has benchmarked other areas of the business, we have found that Winning retailers tend to wait - they're not the first to rush in to a new technology. They think through the processes that will be impacted. They try to envision a future where new technologies and new processes work hand-in-hand to create lasting differentiation.

So while the cross-channel game is far from over, there are a few places where Retail Winners have a distinct advantage. First, they know that their cross-channel shoppers are their best shoppers (Figure 3) - a critical focus point for their cross-channel strategies. Secondly, they average newer platforms and processes than their peers - on the order of a couple of years younger. When it comes to eCommerce platforms, two years makes for a tremendous difference in capability.

Figure 3: Cross-Channel Shoppers Are Winning Shoppers


27%

10%

7%

27%

30%

10%

14%

10%

19%

48%

Don't know/Can't tell

Less profitable than single channel customers

Equally profitable

Slightly more profitable than single channel customers

Significantly more profitable than single channel customers

Cross-Channel Shoppers Are...

Winners Others

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Focus on the customer is a distinct Winners' theme that you will find throughout this report. Combine that with a more modern platform capable of executing on customer-centric strategies, and Winners have a powerful combination - one that will help them capitalize on an increasingly tougher cross-channel environment, as customer expectations grow and the competitive bar continues to rise.

RSR’s BOOT Methodology RSR uses its own model, called the “BOOT,” to analyze Retail Industry issues. We build this model with our survey instruments. Appendix A contains a full explanation of the methodology.

In our surveys, we continue to find differences in the thought processes, actions, and decisions made by retailers who outperform their competitors and the industry at large – Retail Winners. The BOOT model helps us better understand the behavioral and technological differences that drive sustainable sales improvements and successful execution of brand vision.

Survey Respondent Characteristics RSR conducted an online survey from March – May 2012 and received answers from 66 qualified retail respondents. Respondent demographics are as follows:

• Job Title:

Senior Management (e.g., CEO, CFO, COO, CIO) 24% Vice President 13% Director/Manager 47% Internal Consultant 8% Staff/Other 8%

• 2011 Revenue ($ Equivalent):

Less than $50 million 15% $51 million - $999 million 25% $1 billion - $5 billion 33% More than $5 billion 27%

• Year-Over-Year Comparable Overall Sales Growth Rates (assume average growth of 6%):

Worse than average (laggards) 23% Average 35% Better than average (Winners) 42%

• Headquarters/ Retail Presence:

USA 60% / 64%

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Canada 8% / 38% Latin America 2% / 15% UK 4% / 17% Europe 6% / 17% Middle East 2% / 13% Africa 4% / 9% Asia/Pacific 15% / 32%

• Functional Responsibility:

Executive Team 26% Merchandise Management 11% Marketing 8% Store Operations 8% E-Commerce/Direct 13% Finance Supply Chain IR

3% 5%

26%

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Business Challenges

Is There A Dominant Channel? In RSR’s 2011 benchmark report entitled Enabling Buy Anywhere/Get Anywhere: The Future of Cross-Channel, we noted that a majority of retailers reported some kind of presence across five channels, including mobile and social. In this year’s study, we can see a leveling of activity in the “emerging” channels (mobile and social), and a marked diminishment of those reporting that they run “traditional” catalog operations. But it is significant to note that for the first time in our studies, more retailers report that they operate Online/eCommerce channels than they do traditional stores (Figure 4).

Figure 4: No Going Back


RSR has often noted that consumers don’t see “channels”, they see “solutions” for their particular lifestyle needs. A retailer’s Brand either satisfies the consumer’s lifestyle need, or not. Consumers are dictating the nature of the value proposition that retailers and their partners must deliver on, and retailers have responded by building bridges between channels.

But customer expectations continue to outpace many retailers' ability to deliver on a seamless experience, and consumers’ new shopping behaviors have exposed retailers' vulnerabilities in brand and process. The rapid adoption of consumer-facing technologies such as smart mobile devices and social media has fundamentally changed the shopping dynamic. Today’s consumer carries the store in her purse, and is armed with rich content about a retailer’s products and services that often is better than the corporate-provided information made available in the store to either the consumer or employees. And with instant access to friends via social media, consumers are part of a global community of people who offer opinions about every retailer’s offerings that are far more influential on buying decisions than retailer-provided content. Within

49%

24%

45%

89%

76%

51%

51%

57%

94%

88%

38%

51%

62%

89%

92%

Catalog

Mobile/mCommerce

Social Site

Stores

Online/eCommerce

In Which Channels Do You Operate?

2012 2011 2010

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the context of the lifestyle problem that they are trying to solve, consumers’ paths to purchase often begin outside the “four walls” of the store, even if the transaction is completed there. In short, consumers routinely use several channels just to make one purchasing decision. Even the commerce part of the shopping experience – the exchange of money for goods & services – can be easier in the digital realm, usually just a few “clicks” away.

New information-enabled consumer behaviors have given rise to a fear of showrooming – that consumers will look at products in the store but buy them online, often from a lower cost provider. However, the immediate casualty of new consumer paths to purchase seems to be the traditional catalog as a separate and distinct channel, more so than the store. To a great extent, catalog, online, mobile, and social media channels can simply be thought of as “the digital channel”, while the store remains “the physical channel”. Retailers’ biggest challenge is in how to merge the digital and physical worlds into one seamless experience that is more compelling than a digital pure-play.

What’s the Right Objective? RSR believes that the compelling opportunity for retailers is in blending the best of what the digital realm has to offer with the best that the physical realm delivers. But this year’s survey respondents show that the ultimate objective of the digital channels isn’t clear, and the integration of the digital and physical realms still lags the desire to simply “sell more stuff” (Figure 5).

Figure 5: Transact ional Thinking


About 60% more Retail Winners than other retailers who responded to our survey are clear about the role of the digital channels; they are clearly focused on transacting more business. But Winners and other retailers alike are unsure about the role of digital channels to deliver content and community input to guide the consumers’ paths to purchase. And surprisingly few retailers (even Winners) indicate that the ultimate role of digital channels is to drive consumers to the store as the place where it all comes together.

10%

13%

13%

17%

20%

27%

5%

10%

14%

14%

14%

43%

To help the consumer “build your personalized solution”

To educate consumers about our company and brand

To provide the consumer “everything you need to know to buy” products and services

To encourage the consumer to “buy the lifestyle”

To drive traffic to stores

Commerce- “to sell stuff”

Digital Channels' Primary Role in Cross-Channel Strategy

Winners Others

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It's Hard To Change Bricks’n’mortar retailers have traditionally added value to the selling process by making it easy for consumers to find the right products and services to fit their lifestyle needs once they are in the store. But retailers face the threat of new “pure play” competition that can disintermediate the ”middlemen” who have traditionally been part of a value chain, especially for goods and services that can be easily digitized, most notably books, music, and photos. The demise of brands such as Kodak and Borders are the direct result of those companies’ failure to embrace the digitization of their core products and the new distribution channels that digitization created. And while not every product can be digitized, other categories of products are also good targets for disintermediation if the information about the product can be separated from the product itself (for example, electronics).

Retailers’ ability to create an enjoyable and relevant social shopping experience, coupled with the instant gratification that comes from instant fulfillment, remains their greatest potential differentiator. Enabling true cross-channel capabilities, exposing product and inventory information across the entire enterprise, empowering in-store sales associates to meet customer needs, and proactively managing the relationship with consumers will enable retailers to build brand loyalty that is more valuable than merely delivering a low price.

We’ll see in the next section of this report that while retailers may be ambiguous about the role of the digital channels in driving consumers to the store, they are clear in their thinking about the opportunities to create a consistent brand identity across all channels.

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Opportunities

Brand Promise Gives Way to Execution In last year's benchmark, 91% of respondents reported that creating a single brand identity across channels was "very important". This year, the number has fallen to 79%, placing it in a tie for first with allowing the customer to buy anywhere/get anywhere (Figure 6).

Figure 6: Def ining the Brand Promise as Execut ion


This fall-off in importance is not a reflection of shifting priorities, but an acknowledgement of progress made - as we'll see in the areas where processes have been consolidated. In some ways, retailers are moving on from brand by defining what a single brand identity really means. Unfortunately, these execution-oriented opportunities are the more difficult things to accomplish - like cross-channel fulfillment, or "buy anywhere/get anywhere".

Even in Execution, Winners Stick With the Customer One very clear difference in how retailers are defining their brand emerges when looking at the opportunities by performance. Retail Winners tend to place a higher priority on opportunities that are directly related to the customer experience, while their peers tend to focus more on inventory

52%

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2%

Use the digital channels to build a sense of “community” around our Brand

Use the digital channels to drive traffic to stores

Use the digital channels to provide rich content about our products and services

Leverage product knowledge and information assets across channels

Allow inventory allocated for one channel to be used for another channel's fulfillment

Leverage customer knowledge and information assets across channels

Improve operational execution across all channels

Create a single brand identity across channels

Allow the customer to purchase, take delivery, or return a product through the channels of their

choice

Cross-Channel Opportunities

Very Important Some Importance Little or No Importance

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and fulfillment (Figure 7). Winners are defining the brand as customer engagement. Other retailers are defining it as product availability.

Figure 7: The Opportunity Def ined - Customer vs. Product


This difference in philosophy may appear to be subtle in terms of the percentages. But as these opportunities translate into process change and priorities for technology investment, the difference becomes profound.

Cross-Channel Progress: A Mixed Bag One way that we chart retailers' progress is through an evaluation of their cross-channel processes. Theoretically, processes that are critically important to cross-channel success will receive greater attention and therefore be more consolidated than other, less important processes. In reality, we find this rarely to be the case. More often then not, the less important but easy to consolidate processes get done first, leaving the more important and harder ones for later.

Such is the state of cross-channel today. Easy, customer-facing things like advertising and marketing messages have been fairly well consolidated - at the very least, their perceived value is matched by the level of consolidation that survey respondents have achieved. The most important thing - the process that 100% of survey respondents reported as "very important" - is still relatively unconsolidated across channels. That would be the customer shopping experience (Figure 8).

50%

57%

69%

74%

56%

74%

79%

85%

Use the digital channels to build a sense of

“community” around our Brand

Use the digital channels to provide rich content

about our products and services

Leverage customer knowledge and

information assets across channels

Create a single brand identity across channels


"Very Important"

Winners Others

74%

79%

82%

58%

70%

74%

Allow inventory allocated for one

channel to be used for another channel's

fulfillment

Improve operational execution across all

channels

Allow the customer to purchase, take delivery,

or return a product through the channels of

their choice


"Very Important"

Winners Others

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Figure 8: Focus, Yes. Progress, Not So Much


In terms of overall importance, it appears that retailers have reached an important conclusion. However, what constitutes the priorities beyond customer experience is very interesting - particularly the hated loyalty program. In 2011, 41% of survey respondents rated loyalty management as "very important" vs. 70% this year. This appears to be a recognition that it's almost impossible to develop customer insights without some way of tracking their behavior.

In some ways, the top line of Figure 8 represents an assessment of the sum of all of the pieces below. Some things have been consolidated at least up to their perceived value in a relatively short amount of time - pricing and traditional advertising are great examples of this. Transparency is forcing retailers' hands when it comes to pricing, as they scramble to provide at least the perception of one price across all channels. And nearly every ad these days has a QR code or a Shazam logo or some kind of online call to action. It's the harder things that will take longer - inventory visibility, long a thorn in retailers' sides. And fulfillment, which requires a lot more than just committing to make product available wherever it might currently sit.

There is one outlier on Figure 8, however, and that is customer segmentation. It's fascinating that 50% of survey respondents believe that this process has been synchronized across channels, or at least nearly so. This number feels highly aspirational, based on our anecdotal conversations with retailers. Very few retailers feel confident in their customer segmentations even before adding in the complication of channel. We find it hard to believe that the same retailers who had challenges rolling out personalized promotions because their customer data was not nearly as clean as they thought it was have, in less than six months' time, magically solved the problems

32%

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70%

100%

Traditional advertising

Customer call center

Procurement/Assortment

Mobile marketing

Pricing strategies

Demand Forecasting

Social media marketing

Digital marketing

Store Operations

Customer segmentation

Fulfillment

Inventory visibility

Loyalty management

Customer shopping experience

Cross-Channel Process Consolidation Importance vs. Progress

Very Important Synchronization Done or In Progress

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well enough to create high-quality customer segments that take into account cross-channel behavior.1

Foregone Conclusions When it comes to which processes will ultimately be consolidated across channels, retailers have apparently found some easy answers to the question. Digital marketing, assortment, social media marketing, and the customer shopping experience all reflect high degrees of certainty around at least some consolidation taking place - particularly for Winners (Figure 9).

Figure 9: Winners Have Many Plans


Winners again demonstrate a focus on the customer - loyalty, shopping experience, social and digital marketing all reflect 100% of Winners who plan to consolidate these processes. Loyalty management is one of the biggest differences in priority, with 26% of peers reporting that they have no plans to consolidate loyalty management across channels.

Ironically, given average performers' and laggards' focus on product, 35% of these retailers report that they have no plans to consolidate inventory visibility across channels, but only 9% have no plans to consolidate fulfillment - an even more aggressive number than Winners' reported 12%. They may find it very difficult to achieve the one without the other. Call center, pricing, mobile marketing, and customer segmentation all also receive a lower priority for consolidation for average and lagging performers.

1 "Retail Pricing in a Post-Channel World: Benchmark 2012," RSR Research, April 2012. http://www.rsrresearch.com/2012/04/10/retail-pricing-in-a-post-channel-world-benchmark-report-2012/

0%

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Digital marketing

Social media marketing

Customer shopping experience

Loyalty management

Procurement/Assortment

Customer segmentation

Fulfillment

Mobile marketing

Pricing strategies

Customer call center

Traditional advertising

Demand Forecasting

Store Operations

Inventory visibility

Cross-Channel Process Consolidation "No Plans"

Winners Others

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Fulfillment Is Hard In terms of the customer-facing processes that relate to commerce specifically, retailers report that very little progress has been made from 2011 to 2012. In fact, in some areas, like buy online, return in-store and buy online, fulfill direct, retailers actually report less progress this year than last year (Figure 10).

Figure 10: Fulf i l l ing the Promise?


This apparent lack of progress should definitely not be interpreted as lack of interest. Cross-channel commerce is extremely important to retailers. The hesitation comes in unwinding old legacy systems as well as answering fundamental questions about fulfillment strategy: should you promise in-store inventory to an online customer? At what point do you stop making those promises? How does that impact demand forecasting, if demand that you anticipated fulfilling from one channel ends up getting fulfilled through a different channel?

Retail Winners, ever focused on the customer, report a much greater amount of progress in integrating cross-channel commerce. They are almost twice as likely as their peers to say that they have buy in-store, fulfill through direct/online, and three times as likely - in an unusual twist - to say that they can sell through social channels (Figure 11). In some ways, given that Winners earlier said that digital channels were primarily for selling more product, this result isn't surprising. Where it does seem to be a twist is that Winners in the past have said that social channels were primarily for listening to their customers.

13%

35%

41%

52%

63%

69%

21%

32%

42%

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58%

65%

Buy via social commerce site

Buy online/direct, fulfill through any store

Buy via mobile device

Buy online/direct, pick-up in store

Buy in-store, fulfill through online/direct

Buy online, return in-store

Current Cross-Channel Activities

2012 2011

14

Figure 11: Winners Try Harder to Sel l More Stuff


Another odd outlier in Figure 10 is the difference in mobile selling, where Winners lag behind their peers in offering mobile commerce. A mobile commerce capability seems important whether you are a digital-only retailer, or a chain-based retailer - either to capture opportunities from showrooming, or to attempt to head them off.

Rolling Up the Sleeves As hard as it may have seemed, convincing an entire company that it needs to significantly alter its business model was actually the easy part. As we'll see below, retailers feel that they have made good progress in selling executives on the need to change. But now that means it's time to roll up the sleeves and do the really hard work - changing the processes, aligning the organization, integrating the technology. For as much progress as retailers have made, there is still a long road ahead in cross-channel - and a lot of opportunities still available along the way.

30%

11%

48%

52%

41%

59%

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30%

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70%

70%

Buy online/direct, fulfill through any store

Buy via social commerce site

Buy via mobile device

Buy online/direct, pick-up in store

Buy in-store, fulfill through online/direct

Buy online, return in-store

Current Cross-Channel Acticities by Performance

Winners Others

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Organizational Inhibitors

Who Owns the Cross-Channel Agenda? While earlier in this report we highlighted that every retailer who responded to our survey rated a consistent customer shopping experience across all the channels as “very important”, we also noted a difference by performance groups: Retail Winners tend to place a higher priority on opportunities that are directly related to the customer experience, while their peers tend to focus more on inventory and fulfillment. This is most clearly highlighted when Winners state which processes need to be consolidated across all channels. 100% of over-performing retailers plan to consolidate loyalty, shopping experience, social and digital marketing.

These findings underline the growing importance of customer insights in developing that consistent shopping experience, and thus the importance of the Marketing group in pushing the cross-channel initiative forward (Figure 12).

Figure 12: Market ing Pushes The Agenda


Marketing's importance is driven by Retail Winners - over 37% more Winners rate Marketing as “very important” than do average and under-performers. But Winners don’t stop there; in apparent recognition that loyalty and marketing campaigns need to be backed up with consistent execution across channels, Winners also place far more importance on Merchandising’s role than do other retailers.

Retailers generally agree that IT’s role in pushing the cross-channel agenda is important; only 9% of retailers who responded to the survey feel that there is “little or no opportunity” for IT to have influence. As we’ll see in a moment, this finding reflects the fact that the top organizational inhibitors to progress are largely systems-related.

57%

50%

43%

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64%

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61%

67%

88%

Supply Chain

Channel Operations

Merchandising

IT

Marketing

Which Organization Should Move Cross-Channel Strategy Forward Internally?

"Lots of Opportunity"

Winners Others

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What Stands In The Way Of Progress? In our 2011 Cross-channel report, legacy store systems were perceived as the top inhibitor to a consistent cross-channel experience. This finding was especially driven by Retail Winners (76% compared to 46% of all others), and it reflected a realization that the stores and the “digital” channels needed to be harmonized. Given that Winners in particular have forged ahead in the past year in enabling cross-channel integration for key processes (“buy online/return in-store”, and “buy in-store/fulfill online or direct”), “store systems” have dropped as a top inhibitor for over-performers (Figure 13).

However, the enterprise-wide ability to maintain a single view of the customer and enable enterprise-wide inventory and order management capabilities have risen in importance since 2011.

Figure 13: Enterpr ise-Wide Capabi l i t ies Needed


Average and under-performers continue to complain that store systems are too difficult to adapt to the new requirements of an omni-channel selling environment. Winners have moved on. But while Winners’ existing store systems may now be able to handle in-store returns of online purchases and generate a customer order to be fulfilled by the direct channel, that doesn’t necessarily mean that true harmonization of the selling channels is a reality. For that to be the case, all selling channels need visibility to all customer information (including for example, incomplete or partial orders, sales history, and receipts). Additionally, retailers need 360° visibility to inventory availability in something approaching real-time to enable true “endless aisle” or “save

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Mismatched metrics & incentives slow cultural acceptance

E-commerce systems are too difficult to change & adapt to an omni-channel strategy

Our IT systems were not designed to incorporate customer insights into processes

Budgetary constraints prevent us from moving forward with cross-channel strategies

Store systems are too difficult to change & adapt to an omni-channel strategy

Merchandising strategy is too store-oriented

IT personnel are too constrained to take on more projects

Inventory & Order management are not integrated across channels

We don't have a single view of the customer across channels

Organizational Inhibitors

2012 2011

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the sale” capabilities in the stores. Both of these requirements challenge legacy channel-specific systems, and put the onus on the IT organization to respond to the new requirements, Because of this dependency, the availability of IT personnel has dramatically risen as an issue especially for Winners since 2011 (from 14% in 2011 to 38% this year).

The Need To Prioritize Winners and other retailers are in general agreement that consolidating customer information across all channels is very important. But beyond that, a wholesale replacement of the legacy IT portfolio is too big of a challenge: retailers need to prioritize. And there are interesting differences of opinion about what should happen next (Figure 14).

Figure 14: Gett ing A Handle On It


Winners and other retailers are in general agreement that consolidating customer information across all channels is very important, and as we’ve seen earlier in this report, the emergent Marketing group is driving that need. Consolidating customer data across channels will help retailers better understand consumers’ most frequently traveled paths-to-purchase. For example, do customers want to start transacting in the digital channels in order to fulfill those orders in the store? Or do customers mostly want to use the digital channels while in the store to make better on-the-spot purchases? How important is an “endless aisle” capability? How important are “expert advice” and community opinions to consumers before or during the selection process?

While a clear majority of all retailers see the integration of inventory and order management across all the channels to be inevitable, almost 22% more Winners than others believe that gaining better insights into customers’ cross-channel behavior is a prerequisite to prioritizing the development of new processes and systems. But Winners are sure of one thing: they need to

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Changing organizational structures to be brand-, rather than channel-specific

Replace store systems with modern technology

Improved integration tools

Gaining better insight into cross-channel influences on our business, in order to build a

Implementation partners to ease the IT personnel burden

Integrate inventory & order management across channels

Replace eCommerce systems with modern technology

Gaining better insight into cross-channel customer behavior, in order to prioritize opportunities

Consolidate our customer data across channels

Overcoming Inhibitors "Very Important"

Winners Others

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upgrade their eCommerce platforms with more modern technology. For some, this is important in order to establish one selling platform across all the channels (we’ve seen anecdotal evidence that this is particularly true for fashion and specialty apparel retailers).

It is also worth noting that over half of Winners indicate a willingness to work with implementation partners, a recognition that the IT department may have limited availability to respond to new requirements. For both Winners and others, the willingness to work with outsiders to implement new capabilities has risen fairly dramatically since our 2011 study; last year, only 25% of Winners and 39% of other retailers indicated that as a “very important” option. Clearly this underlines the growing urgency to implement changes in both processes and systems.

Lead, Follow, Or Get Out Of The Way Winners clearly see that the Marketing group - with strong top-of-company support - is a key to setting a successful cross-channel strategy (Figure 15).

Figure 15: Execut ive Support Needed, Plus…


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Executive team

Who Sets Strategy vs. Who Requires The Most Education About Cross-Channel?

Winners-Sets Winners-Requires Others-Sets Others-Requires

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Non-winning retailers tend to put a reliance on the top executives plus IT. This finding again reflects a key difference between Winners and other lesser-performing retailers: Winners see the omni-channel challenge and opportunity as a customer-focused agenda. Others tend to see it as a new set of operational requirements – merely an incremental change to their legacy product-oriented strategies.

Non-winners also tend to think that Marketing and Merchandising just need more education about how to make an omni-channel strategy work for them. Winners don’t feel that way: Marketing and Merchandising “get it” for most of our winning survey respondents. But they do believe that the Executive team, Store Operations, and (most significantly) the IT group need to have their eyes opened to the possibilities. Perhaps this finding reflects the old adage that “success breeds failure”. In the not-too-distant past, Winners were those that mastered the art of mass merchandising, which is driven largely by the buy-side of the business. Omni-channel retailing represents a big change in focus; it is driven by the sell (customer-facing) side. Winners know that they shouldn’t rest on their laurels, and that a key to moving forward is to educate those who will be charged with enabling and executing the new strategy, particularly in the stores.

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Technology Enablers

A Long Road to Travel Survey respondents still report significant gaps between the technologies they value and those they have fully implemented. The most significant progress has been made around distributed order management, enterprise-wide inventory visibility, and call center. However, the biggest gaps still exist for customer visibility, customer insights, a single interaction platform across channels, cross-channel analytics and cross-channel promotions (Figure 16).

Figure 16: Cross ing the Consumer Chasm


Progress or the lack thereof can be divided, ironically enough, along customer vs. product lines. In the areas of inventory management - like distributed order management and inventory visibility - retailers report they have made the most progress. In customer-oriented areas, like customer visibility and insights, retailers still report the biggest gaps.

In some ways, this reflects the power struggle that continues internally as retailers transform themselves from product companies to brands. Merchandising owns the product and marketing owns the customer. Marketing historically has played a lesser role internally to organizations -

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A Call Center solution

A more modern POS platform

Integration to social network tools and sites

A mobile commerce platform

Distributed order management

A more modern eCommerce platform

Enterprise content management

Enterprise-wide marketing/promotions platform

Enterprise cross-channel analytics

Enterprise-wide inventory visibility

A single customer interaction platform that

Enterprise-wide customer insights

Enterprise-wide customer visibility

Technology Enablers Value vs. Implemented

Very Valuable More than a Year

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especially when it comes to technology investments, where they either have historically asked for (or received) little in IT support or have adapted by striking out on their own. As customer becomes more important to the enterprise, the challenges of bringing marketing back into the technology fold are coming home to roost.

Valuing Customers Almost across the board, Winning retailers place more value on customer-focused technologies - everything from customer visibility and insights to marketing & promotions (Figure 17).

Figure 17: The Technology Pr ior i ty L ist


The only exception is where Winners get edged out by their peers around a more modern eCommerce platform. Given that so many Winners (67%) ranked a new e-Commerce platform as “very important” in overcoming organizational inhibitors, we’d expect this number to be higher.

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A single customer interaction platform that crosses channels



Technonlogy Enablers "Very Valuable"

Winners Others

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These values translate almost directly into technology investments. When it comes to implementing these capabilities, Winners have made more progress overall:

• Winners edge out their peers in implementing inventory visibility, distributed order management, enterprise-wide marketing and promotions, enterprise-wide customer visibility, and a mobile commerce platform.

• Winners significantly outpace their peers in implementing cross-channel analytics, a more modern eCommerce platform, enterprise-wide customer insights, enterprise content management, and a single customer interaction platform that cross channels.

Budgeting for What's Next Survey respondents report that their top investment priority for the next 12-18 months is a single customer interaction platform that crosses channels, followed by enterprise-wide customer insights (Figure 18).

Figure 18: The Budget and the Wish List


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A single customer interaction platform that crosses channels

Technology Enablers Planned Spend

Budgeted Project Planned, Not Budgeted

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It appears that the investment cycle for POS replacement is coming to a close. However, eCommerce platforms have a fairly strong percentage of respondents reporting it as something on their future wish list. From our research on the future of the store, it's not clear that a "modern POS platform" will ever pick up again, as retailers increasingly turn to digitally-connected mobile devices to deliver both employee- and customer-facing experiences.2

Even higher on the wish list are enterprise-wide marketing/promotions platforms, enterprise content management, and enterprise cross-channel analytics, followed by continued strong interest in enterprise-wide customer insights and a single interaction platform that crosses channels.

The Single Customer Interaction Platform: Myth or Reality? The idea of a single platform that governs all customer interactions is very enticing - it would certainly solve a lot of problems in terms of customer visibility and further engaging with customers. However, for as much as retailers say they are investing in such a thing or want to invest in one in the future, the question still remains: does a single customer interaction platform exist?

From what RSR has seen in the marketplace, vendors are getting close - some closer than others. And it is certainly on the roadmap radar. But when we asked retailers specifically about the opportunity for a single platform to govern all selling across channels, the majority agree that while there are some opportunities to converge platforms, there will always be some need for stand-alone capabilities in each channel (Figure 19). The eCommerce site will never need to pop open a cash drawer, for example.

Figure 19: How Much Convergence is Real ly Needed?


2 "The 2012 Retail Store: In Transition," RSR Research, May 2012. http://www.rsrresearch.com/2012/05/09/the-2012-retail-store-in-transition-2/

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There will always be stand-alone commerce platforms for each channel

Non-store (digital) channels will converge to a shared platform

All of our selling platforms will converge to a single platform

There are some opportunities for convergence to a shared platform, but there will always be a need for some

stand-alone capabilities in each channel

The Role of Cross-Channel Selling Platforms

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However, despite this seeming majority of retailers who believe that there will never be a complete, single interaction platform across channels, there are some distinct differences when viewing the results by performance.

Retail Winners are far more likely than their peers to value a single platform - double the percent of their peers who align with that statement (Figure 20). And non-winning retailers outnumber Winners by 24% to 6% in believing that some kind of stand-alone channel solution will be needed, whether across all channels, or at least for digital channels vs. store.

Figure 20: Winners Bel ieve in Channel Platform Convergence


Given Winners' focus on customer over product as the driving force behind their cross-channel strategies, it would appear that Winners have locked on to an important aspect of actually executing on their strategy. Silos breed complexity, and the more channels you have that stand alone, the more complexity you are going to have to manage. Clearly, a very large majority of our retail respondents believe that some piece of a single customer interaction platform is going to be critical to them - whether it's the whole thing, or at least major pieces of the puzzle.

Foundations and Empires Customer visibility has long been on retailers' wish lists when it comes to cross-channel - it is the most important foundational element for understanding consumers' cross-channel behaviors and how best to respond. But as this year's survey shows, visibility alone is not enough. While retailers still struggle with these basics, they also appear to be building towards both the analytics that visibility will feed to create insights, as well as the execution channels to act on those insights.

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There will always be stand-alone commerce platforms for each channel

Non-store (digital) channels will converge to a shared platform

All of our selling platforms will converge to a single platform

There are some opportunities for convergence to a shared platform, but there will always be a need for some

stand-alone capabilities in each channel

The Role of Cross-Channel Selling Platforms

Winners Others

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BOOTstrap Recommendations

Focus on Customer. The Rest Will Follow. Winners are focused on customers, their peers on products. But products are only the building blocks of customer experiences. By focusing tightly on products, non-Winning retailers are looking too narrowly at how to differentiate and how to win. Which is understandable. It's what retailers have done for time eternal, it's what they're comfortable with - thus the term "merchant prince". But it's not going to lead them to the lifestyle solutions that consumers want and need. It won't increase retailers' understanding of cross-channel behaviors and how those behaviors are impacting retail operations.

This is the seismic shift that is occurring in retail today. Customer data is critical not just to the marketing department but to the entire enterprise. Marketing, as the owner and primary interpreter of that data, naturally is becoming more important internally as well. But truly this is just a reflection of what is happening in the market. In order to sell products, retailers are increasingly expected to understand customers, and to provide solutions, not just the pieces (the products) that consumers have to assemble themselves into the solutions they're looking for. If there is one single differentiator between Winners and their peers in this report, it is this: follow the customer. If you understand her well, and understand how best to meet her needs, your entire channel strategy will unfold before you.

Designate an Internal Owner of the Customer Experience. If everyone owns the customer experience, no one really owns it. In most organizations today, the only person who has the organizational span of control to truly focus on the customer experience and not get hung up by internal silos is the CEO. Which is wonderful - at some level the CEO does need to take responsibility for the customer experience. But not at the granular level of negotiating truces between eCommerce and stores. Ask yourself: if the head of eCommerce and the head of Stores have a disagreement about some aspect of the customer experience at your company, who speaks for the customer in that conversation? If they both do, then you've got a big problem, because either they're both right - in which case, who gets to be the tiebreaker? Or somebody's wrong. But who decides? "Everybody" turns into "nobody" very quickly.

Think Strategically About Your Platforms. Now is the time to get your platform vendors in to paint their vision for the future of customer interaction. Push them on convergence. Line up all of the other pieces that you currently bring together as part of the experience in each channel - the personalization vendors online, the analytics vendors, the digital signage vendors in store. Show your main platform providers how much integration you have to deal with, and how every slice creates even more fragmentation in how you view your customers.

The flip side of this, though, is that retailers need to do some navel-gazing too. Are you really taking the best advantage of what you have? There are so many IT shops out there that have all the latest integration tools and yet persist in building point-to-point solutions. It's understandable.

26

It's what retailers have been doing for time eternal. But it locks retailers out of the glorious, flexible technology future that makes a focus on experience - and not products - possible. Because the needs driving consumer interest in experiences change a lot faster than the basic information and transactions that go with products.

So whether you believe whole-heartedly in a single platform for everything customer interaction, or whether you think there are only some opportunities for convergence, it is far better to get ahead of that convergence, rather than let individual channels define opportunities through the single-channel choices that they continue to make over time.

Prioritize The Paths To Purchase “All roads lead to Rome”, but not all roads are as frequently traveled as other ones. The same is true in a harmonized cross-channel selling environment. “Harmonization” of the digital and physical selling environments means different things to different retailers, depending on each retailer’s Brand Promise. Consumers investigate, select, pay for, and fulfill their purchases differently depending on the lifestyle need being addressed. To prioritize the organizational and system changes needed to fulfill your Brand Promise, first consolidate all your customer information into a single instance that can be analyzed, and shopping patterns can be identified.

Some things are clear: in addition to having an enterprise-wide view of the customer, retailers generally agree that a unified view of product and inventory data is critical. But beyond that, where and how in the selling process each retailer has an opportunity to “touch” the consumer to build a bias for the brand will vary greatly. And there is no other way to discover this than to “ask” the consumer – and that is accomplished by examining the most frequently traveled paths to purchase.

Don’t Be Too Proud To Ask For Help Retail Winners in particular know that the changes to both processes and systems that an integrated cross-channel operating model entails will be difficult. This particularly impacts the IT department, since it is responsible for all things “digital”. An increasing number of Winners have overcome their unwillingness to talk to integration partners about how to approach the challenges and opportunities of the new operating model – others should follow suit.

But it doesn’t stop there. Winners, as much as their lagging peers, need to be open to new ways that may run counter to their past successes. The executive team in particular needs to be better educated about the strategic possibilities. But Store Operations and IT, who have been key contributors to past successes, also need to learn.

a

Appendix A: RSR’s Research Methodology The “BOOT” methodology is designed to reveal and prioritize the following:

• Business Challenges – Retailers of all shapes and sizes face significant external challenges. These issues provide a business context for the subject being discussed and drive decision-making across the enterprise.

• Opportunities – Every challenge brings with it a set of opportunities, or ways to change and overcome that challenge. The ways retailers turn business challenges into opportunities often define the difference between Winners and “also-rans.” Within the BOOT, we can also identify opportunities missed – and describe leading edge models we believe drive success.

• Organizational Inhibitors – Even as enterprises find opportunities to overcome their external challenges, they may find internal organizational inhibitors that keep them from executing on their vision. Opportunities can be found to overcome these inhibitors as well. Winning retailers understand their organizational inhibitors and find creative, effective ways to overcome them.

• Technology Enablers – If a company can overcome its organizational inhibitors it can use technology as an enabler to take advantage of the opportunities it identifies. Retail Winners are most adept at judiciously and effectively using these enablers, often far earlier than their peers.

A graphical depiction of the BOOT follows:

b

Appendix B: About Our Sponsors

CrossView is a premier provider of cross-channel commerce solutions and services that enable a smarter, more personalized shopping experience. Our multi-platform software unifies the Web, stores, call centers, mobile devices, and other channels on a single, flexible platform. Advanced analytics integrated across the platform deliver intelligence and visibility into buying behaviors across all sales channels. To learn more about CrossView, visit www.crossview.com

Today’s retailers must provide a consistent brand experience with a wide array of selection, convenience and return options. One glitch and the customer is gone. Manhattan Associates’ “Zero Disappointment Retail” approach to retail supply-chain management preserves current systems and investments by providing technology that seamlessly aggregates inventory, order, pricing, promotion, merchandising and execution information across all channels. As a set of software solutions within Manhattan SCOPE: Supply Chain Optimization-Planning through Execution, Zero Disappointment Retail offers cross-channel planning, forecasting and order management so retailers can proactively anticipate and respond to demand to ensure the right amount of inventory goes where it’s needed. For more information go to www.manh.com.

NCR is leading the way in a new world of retail interactions - with industry focus, innovation and expertise along with one hundred and twenty eight years of experience and insights. NCR is your partner in business transformation. We offer converged retailing—c-tailing™— solutions, which enables a personalized experience based on consumer preference through multichannel solutions, whether in-store, online or mobile.

NCR can help retailers increase customer loyalty and create a true competitive advantage.

For more information email [email protected] or visit www.ncr.com.

c

With SAS’s 35 years of advanced analytics and industry expertise, retailers choose SAS to improve business results with solutions for merchandise planning, size optimization, localized assortment optimization, space planning and optimization, price optimization, cross-channel campaign management, customer insight, social media analytics, and advanced forecasting across the enterprise. Retailers turn to SAS because SAS drives better results.

Used at more than 55,000 sites in 131 countries, including 90 of the top 100 companies on the 2011 Fortune Global 500® list, SAS is proud to give our customers THE POWER TO KNOW®.

For further information, visit http://www.sas.com/retail/

d

Appendix C: About RSR Research

Retail Systems Research (“RSR”) is the only research company run by retailers for the retail industry. RSR provides insight into business and technology challenges facing the extended retail industry, providing thought leadership and advice on navigating these challenges for specific companies and the industry at large. We do this by:

• Identifying information that helps retailers and their trading partners to build more efficient and profitable businesses;

• Identifying industry issues that solutions providers must address to be relevant in the extended retail industry;

• Providing insight and analysis about a broad spectrum of issues and trends in the Extended Retail Industry.

Copyright© 2012 by Retail Systems Research LLC • All rights reserved.

No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher. Contact [email protected] for more information.

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