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The Future of Retail Is Now

Saturday - 3/16/2013, 5:45pm  ET

What's better than a one-word summary? Nothing. See? This week, the Bank of America Consumer and Retail Conference has had some of the biggest names in retail present their plans for growth over the next few years. If you had to boil it down to one word, I'd pick "ominchannel." It's kind of a cheat, because it's a compound word and it's kind of made-up, but that's the word nonetheless. From Macy's to Under Armour , everyone seemed to be talking about omnichannel and how it was going to drive sales over the next five years.

Here are a few of the highlights from the conference, as well as a look at what companies are doing right now to make omnichannel an income driver.

Hold up -- what is omnichannel?
If you ask five different CEOs what omnichannel is, I imagine you'd get eight different answers. The common theme, though, is letting customers interact with a brand in any channel and having the experience be roughly the same. Nordstrom offers customers a 360-degree view of some items online. Saks is shipping items to online customers from its stores. PetSmart is looking at potentially having online ordering available for pickup in-store, cutting shipping costs and times. The only common thread that runs through those ideas is the term "omnichannel."

For some people, that's going to be a problem. This is going to be the buzzword for 2013 in retail, and everyone and his lemonade-stand-running-sister are going to be touting the advances that they're making in omnichannel. A lot of the time, that's just going to mean they're finally sinking $10 into the company website so that it's no longer embarrassing. Investors need to be on alert for omnichannel charlatans, who say one thing but clearly mean another.

Setting those deceivers aside, the reasons for investors to be excited about omnichannel capabilities are many and meaningful. First of all, omnichannel allows retailers to interact with more customers. Under Armour can't just up and build 500 stores overnight to get its branding into new regions. But at the same time, it has a very different opinion of how sportswear should be sold than most third-party retailers do -- for instance, it wants to dedicate more space to women's apparel. To re-create the store feeling without building a store, it can put an omnichannel plan in place. That gives customers the right branding, but it keeps costs low.

Omnichannel also generates higher margins. While it's not cheap to set up -- Nordstrom is going to drop $240 million on digital improvements -- the resulting sales can have much lower per-unit costs. That combines with the sort of inventory management that Saks is talking about and results in lower overall operational costs. That's a winner for everyone.

Who's doing it right?
Omnichannel is still in its early days, and like the early days of online sales, things are looking like a mix of good, bad, and weird. On the good side of things, Macy's is leading the way in making every channel a winner. The company was referenced by Saks CEO Steven Sadove as being the leader in omnichannel. As an example of how Macy's is managing the whole process, take a look at its inventory management in dresses.

The company saw that online shoppers were ordering five dresses in different sizes and returning the non-fitting ones to the store. Normally, that would trigger a fall in the sell-through rate and mean that the dresses got marked for discount. But Macy's has figured out how to track the dresses better and work with a central location to redistribute the returns to regional locations. As a result, the returns end up better spread out, and that results in fewer markdowns.

The bottom line
Omnichannel could be the savior of the bricks-and-mortar store. Some early adopters have already seen success, and some companies have made it such a part of the business that no one even thinks to call it omnichannel. Barnes & Noble makes it easy to come into the store and use your tablet to buy books. Taking things one step further than most, it allows Nook owners to read through books for an hour a day if they're in-store. That's not going to save the company from obscurity, but it's a really neat idea.

As the technology gets better, and as consumers become increasingly mobile-shopping savvy, there's no telling where omnichannel is going to end up. For now, it's enough to say that early adopters are going to learn some hard lessons along with the profitable ones. Investors should be on the lookout for both.

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