The phrase “Customer is King” has never been more true than in today’s environment of social media and connectivity to wireless devices. Thanks to the explosion of e-commerce, consumers have expanded their purchasing power well beyond traditional brick-and-mortar stores.
To keep up with consumer demands and identify additional avenues of revenue growth, many retailers have begun changing their fundamental approach to how they bring products to consumers, turning to an omni-channel business strategy. This approach engages consumers, captures sales and provides consumers with a seamless, consistent brand experience across all purchasing channels.
Elements of an omni-channel strategy may include:
- Creating or enhancing an online presence, especially for those companies in the early stages of e-commerce.
- Employing digital marketing and promotions, such as loyalty programs and in-store mobile interactions specific to a consumer’s shopping habits and tastes.
- Using social media to engage consumers and build brand awareness.
- Shifting the focus at physical locations from point-of-sale displays to creating a brand “experience,” such as in-store concierge services.
- Reinventing logistics to meet consumer expectations, such as ship-from-store services and in-store pickup of online orders.
In addition to changing how the consumer-facing portion of the business operates, there are also strategic financial aspects to consider:
- How will inventory and margins be affected?
- How will the design of compensation and incentive programs be impacted?
- How will rent expense and future lease negotiations be affected?
- Will there be any impact on state and local taxes?
- How will the approach to analyzing asset impairment be impacted?
- Will revenue recognition policies that affect tax and financial reporting change?
As retailers take a more integrated approach to product sales, there are other important business and financial ramifications to consider as well:
- Excess or obsolete inventory can be managed by shipping slow-moving inventory from one location to fulfill an online order. While this may help reduce the inventory write-offs, companies may incur increased shipping costs, as well as additional state and local sales taxes.
- As more consumers purchase products online and pick up the item in the store, companies may have to rethink their approach to compensation and sales incentives. For example, does an employee get credit for an online sale that is picked up at his store?
- Store lease agreements often have clauses that calculate rent based on store sales. These types of clauses should be analyzed closely to ensure ship-from-store, in-store pickup and e-commerce returns are not considered sales revenue.
- With a longer delay for returns being shipped back to the store, how do companies assess the appropriate revenue recognition on these sales?
All of these topics, and more, are areas retailers will likely need to address as they continue to respond to consumer demands in this increasingly digital environment. Having the foresight to consider risks in a changing retail landscape can be challenging. Consulting with a team of advisors, including lawyers, data privacy experts and accountants, will help identify risks and position retailers to grow while still delivering a valuable customer experience.
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