Retailers’ multichannel system were run to capacity over the Christmas period, resulting in online chaos and customer service failures.

The online meltdowns and customer service failures experienced by so many retailers and their parcel carriers during December show that multichannel systems are being run at maximum capacity. Unless these problems are fixed in 2015, we can surely expect more meltdowns next Christmas.

More than 30% of online customers complained about Christmas orders and deliveries, according to a YouGov report. Delivery companies stopped taking orders. Transactional stock systems failed. Back office support systems gave up.

There are five clear problems that must be resolved during 2015 if we are to avoid the nightmare next Christmas.

1. Order management

Customers need to be able to track their online delivery and know if it is going to show up on time. This is critical, but far too often it fails. Retailers use low-cost carriers and this often means low-cost service. Far too regularly, customers call the retailer to find out where their order is and get told “we don’t know, you will have to call our carrier”. That is not acceptable.

Some retailers reported dramatic growth in click-and-collect. Verdict Research has predicted click-and-collect sales will rise by 82% in the next five years. Some retailers believe this shows customers’ preference for picking up their shopping at stores. Others suspect that it really shows how unreliable home delivery is.

2. Stock management

Online retailing requires accurate and real-time stock visibility – customers must be able to see if an item is in stock when trying to buy it. When volumes spike as they did at Christmas, sub-standard stock systems simply stop working. Too many retailers are still relying on stock systems that cannot handle the volume of peak online transactions, and so a critical part of the model fails.

3. Product and pricing

Retailers can use real-time pricing systems which ensure that they are always competitive. However, as we saw at Christmas, these can occasionally go haywire and end up selling everything for a penny. Retailers must carefully blend technology with common sense and human experience. If retailers rely too much on technology alone, then when it goes wrong it can go monumentally wrong.

Those retailers who find the right way to use tools for pricing and margin optimisation will pull ahead of the competition. Those who don’t do their homework properly may live to regret it.

4. Financials

Margins used to be easy – the difference between cost and selling price. With multichannel retail, the product costs differ between store sales, online sales and click-and-collect, because the handling costs vary so much across channels. The smart retailers are working on ‘unit supply chain costings by channel’ to measure true product margins by channel. As online sales continue to grow and peak in the lead-up to Christmas, this cost and margin visibility will become ever more important if retailers are to stay on top of their business.

5. KPIs and reporting

Fifteen years ago, the majority of all retail KPIs were about sales, margins and stock. Today, multichannel retail must be measured in different ways – order fulfilment failures, response times, return on digital marketing investment, customer online attribution modelling, abandonment rates and so on. As retailers become more multichannel, they must respond to these changes and start measuring performance around the customer experience and not just product transactions. Those that do will find new ways of improving performance. Those that do not will simply lose their way.

All of the above imply a new ‘operating model’ for multichannel retailers. A technology platform that integrates all of the above in a fully aligned model is critical. Capacity and efficiency will be the watchwords. Retailers simply cannot afford to repeat the horror stories of Christmas 2014.

  • Dan Murphy, managing director, Alvarez & Marsal