Disadvantages of Omnichannel Retailing

In the previous article, we have explained the concept of omnichannel retailing. We have also seen how it is different from multichannel retailing and what are some of the benefits of using omnichannel retailing.

However, there are many critics who believe that omnichannel retailing is only good in theory. When it comes to real life, there are some serious issues which are associated with the application of this concept.

In this article, we will have a closer look at some of the common issues which are generally raised when the concept of omnichannel retailing is discussed.

1. Complexity: The first and foremost challenge associated with omnichannel retailing is the complexity which is associated with this business model.

   Generally, retailers have a fixed business model. This means that they have pre-determined supply chain routes and predict demand based on consumer behaviour at each channel.

   However, omnichannel retail allows customers to use difference channels flexibly. Hence, customers could order something online and then return it at a store if they do not like it. In such cases, the supply chain of the retailer can get disrupted. It can become challenging to keep track of the stock across various channels. Supply chains are forced to operate on an ad-hoc basis instead of being able to operate in a predetermined manner.

2. Increased Costs: When retailers try to provide their customers with a unified experience, they have to overhaul their business model. This could mean increased expenditure on technology.

   For purely online retailers, it could also mean increased expenditure on setting up physical stores to provide an omnichannel experience to their users. It is true that the customer experience as well as conversion rates do increase in omnichannel retail. However, it needs to be noted that the cost increases are much higher than the profits generated by these increased sales which make omnichannel retail unviable in many cases.

3. Segmented Supply Chain Process: Many critics think that omnichannel retail is a promise which retailers may not be able to fulfil in the long run. This is because their supply chain will end up becoming fragmented. Transport costs tend to take away a significant portion of the retailer’s margin.

   In case of omnichannel retail, the supply chain cannot be fixed. It needs to be agile and there is a likelihood that the same product may have to shipped more than once which could significantly reduce the retailer’s margins.

4. Connecting Online and Offline Data: The availability of detailed consumer data is considered to be another big benefit of using omnichannel retail. However, retailers who have implemented omnichannel retailing have found integrating these various sources of data to be very difficult.

   There are significant challenges and investments involved in mining this data and extracting meaningful information from the same. Hence, unless retailers have a large scale of operations, it become financially unviable to make such big investments.

5. Inconsistent Order Fulfilment: Omnichannel retailing is a huge challenge to consistent order fulfilment. This is because the inventory is consistently moving across various locations. This makes it difficult to fulfil orders since there is an excess level of inventory at certain locations whereas simultaneously having stockouts at other locations. Also, this could mean longer lead times for some customers when they order products online to be delivered to their homes. Companies which have implemented omnichannel retail have reported significant challenges related to order fulfilment.

6. Reverse Logistics: Reverse logistics can also be very challenging when it comes to omnichannel marketing. Generally, when customers return products, the goods as well as the payment flows in the reverse direction. This means the goods follow the same route from where they were delivered only in the reverse order.

   However, when it comes to omnichannel retail, customers have the flexibility to use a different location for returning their goods. This creates chaos since the company has to design a reverse logistics system which can handle ad-hoc requests. Also, companies have to ensure that their stores have enough cash on hand so that they can cater to the refund requests which might come in apart from running their day-to-day operations.

From the above points, it is obvious that omnichannel retailing is riddled with many issues for now. This is the reason that most retailers have not started using it on a wide scale. However, these issues do not mean that this concept will not be widely used across the industry. It just means that there are still come challenges which are present.

Retailers will have to use their business acumen and technology to overcome some of the challenges posed by this model.