Big Retail's Big Checkout Conversion Blind Spots

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Includes: AMZN, M, RH, TGT, WMT, WSM, XLK, XRT
by: Karen Webster

Summary

Underperforming merchants collectively lose $162 billion annually when they fail to convert a shopper to a buyer on their website.

Many retailers that reported earnings last quarter reported an increase in online sales, but not at the levels that the Street expected. Checkout abandonment is one of the underlying contributors to that result.

Investors, in turn, lose confidence in their abilities to cross the digital chasm - and punish their stock price as a result.

Size doesn't matter.

Larger multibillion-dollar retailers do no better at eliminating the friction associated with transacting online than their smaller million to $10 million merchant counterparts.

It's a head-scratcher, but an important conclusion reached after examining the performance of the 650 websites that account for 70 percent of e-commerce volume in the U.S. over the last nine months.

When examining those sites using the 45 variables that we've determined introduce friction in the pre- or post-checkout process, there's absolutely no appreciable difference in their ability to make the shopping experience better for the consumer who uses a mobile device to buy things online. Large retailers leave their customers abandoned at the virtual checkout aisle at the same rate that the smaller guys do.

We also think that's pretty big news - and a bellwether for how the future of these larger players may pan out in a world that's hurtling very quickly toward a digital-driven future.

We've estimated that underperforming merchants collectively lose $162 billion annually when they fail to convert a shopper to a buyer on their site, exclusive of the costs they've spent in getting them to their virtual front door.

Why any merchant of any size would leave that kind of money on the table is a puzzle. One, however, would logically expect that larger merchants would have the time, people, money and bandwidth to do something about it - namely, perfect an experience that's consistent with what consumers now expect when they let their mobile devices do the shopping.

But that's also why Ralph Dangelmaier, CEO of BlueSnap and PYMNTS.com - collaborators on the Q2 2016 Checkout Conversion Index- find this a troubling leading indicator.

Nine months of data and over 10,000 data points have surfaced four major blind spots that interfere with giving these larger retailers a leg up in the all-important checkout conversion game.

We think that the identification of these four checkout conversion blind spots comes not a moment too soon.

Physical foot traffic at these large retailers is declining and the small percentage loss of foot traffic on a massive base of in-store sales hits their bottom lines hard. Added to that, the failure to convert their online customers at a higher rate only makes the gap between on and offline sales that much larger given the rapid growth trajectory of online sales.

The impact of this "failure to convert," however, goes beyond a loss in sales.

Many of the retailers that reported earnings last quarter reported an increase in online sales, but not at the levels that the Street expected. Checkout abandonment is one of the underlying contributors to that result. Investors, in turn, lose confidence in their abilities to cross the digital chasm - and punish their stock price as a result.

Despite the facts that 90 percent of all retail sales still happen in stores today and Amazon's (NASDAQ:AMZN) 20 percent of all online sales account for less than 2 percent of all retail sales, retailers as diverse as Macy's (NYSE:M), Target (NYSE:TGT), Kohl's (NYSE:KSS), Williams-Sonoma (NYSE:WSM), Restoration Hardware (NYSE:RH), and Bed Bath & Beyond (NASDAQ:BBBY) are feeling the brunt of this lack of confidence.

The Conversion Data Blind Spot

It's hard to fix a problem that retailers don't know they have.

Now that's perhaps a bit of an oversimplification, but it's a fact that retailers don't really know how bad their checkout experience is for the mobile shopper. And they don't because they don't have the right data that would allow them to pinpoint where the real frictions occur in the process once a consumer shows up at their virtual front door.

Of course, it's not as though these larger retailers don't have data - they do. But disparate pieces of it are available from multiple sources since large retailers also maintain multiple processor relationships. Separate systems and processors handle a retailer's mobile apps, mobile browsers and the web - and each come with their own set of reports. For a large retailer, those reports are lengthy and often confusing. Getting a consolidated view of their customers across all of those acquiring relationships to really understand how they are performing is time-consuming, if it's done at all.

But if the checkout conversion process isn't monitored with the same diligence as many of the marketing components of their site are, merchants aren't well equipped to understand the root cause of abandonment at the moment of truth: checkout.

The result is an executive team that intuitively knows that they could do better at converting shoppers to buyers, but lacks the right data to make the right decisions that would improve it.

The Hardware Blind Spot

Physical retailers know physical retail and the systems that support it extraordinarily well. The sophisticated systems that they have developed and deployed over time to support their massive point of sale environments come with a huge set of advantages and disadvantages.

The advantages, of course, are that these larger retailers are able to efficiently and accurately manage and track inventory, manage and track customers, and manage and optimize store operations, among other things, throughout their physical channels. They've also integrated all of those systems into their in-store point of sale systems, which work very well.

As digital emerged as an important, growing and viable channel, retailers accustomed to managing systems that handled payments and operations in a physical world presumed that operating in a digital world would be roughly similar to their existing physical environments, only digital.

That has caused many large retailers to then simply try and extend their existing POS payments provider to serve their online needs - often in the name of getting a good fee that leveraged in-store transaction volumes and tapping into a known relationship that had served them well in a physical channel.

That's become a strategic and fatal assumption.

Large POS acquirers that support the physical world have left the user interface to the hardware/POS vendors. That was OK when all a consumer did was swipe her card at a terminal on a counter. In the online world, the payment technology plays a more direct role in delivering an optimal user experience at checkout. There is no swipe. There is, instead, a lot of keystrokes needed to "checkout." The growing volume of online sales, particularly with the recent explosion of mobile, has left many of these POS-centric payment providers hard-pressed to meet these critical user requirements.

Although the pre-transaction fees leverage of large scale POS pricing has its advantages, unfortunately, for the retailers and their shoppers, many of these legacy POS acquirers lack the technology to create the kind of checkout experience that shoppers on a mobile device will tolerate. And more keystrokes mean more potential for abandonment.

The Strategic Blind Spot

Merchants have a product strategy. They have a website and home page strategy. They have a marketing and social media strategy. They also have a pricing and promotional strategy. They have a strategy for every step associated with getting consumers to their virtual front doors.

But they lack a checkout strategy that gets the consumer from the front door through the back door with a purchase.

Merchants desperately need that plan - and that plan needs to focus on improving the checkout experience where the friction - and the source of checkout abandonment - occurs. Is it time to checkout? Number of clicks? Lack of alternative payment methods? Lack of transparent coupons and promo codes? Or is it all of the above?

There are ten things that all "best in class" merchants do to minimize checkout friction. That must be the starting point for the development of a checkout strategy that's as robust in its thinking for how consumers leave the site with a purchase as it is in getting them there in the first place to buy.

The Omnichannel Blind Spot

Omnichannel is retail's Holy Grail, but that shouldn't be the primary focus now for the larger retailers. Instead, retailers should today be focused on enabling a best in class experience in every channel that the consumer uses to interact with them - and then bring them together - omnichannel-style on the back end. It is simply impossible for physical retailers with their legacy systems to deliver an omnichannel payments system that also delivers the best customer experience across every channel they intend to serve.

Creating an omnichannel experience sets up the expectation that the consumer must have the same identical experience online as they have in the store. Delivering on that promise means that the retailer would have to integrate to all of the systems across their physical and retail channels: integrate their online systems to their in-store inventory system, to their loyalty program, to their display tech, to offers, coupons and promotions - not to mention the various alternative payments options that many already support.

The larger the merchant, the greater the number of systems - and complexity. Complexity means more time needed to plan and manage the integrations. And time, in a digital world, isn't a luxury that retailers have in a world where the advantage goes to the players who can deliver a better experience first.

There are, however, some mega-retailers who have taken this approach and are starting to see results. The world's largest retailer, for all of its recent shellacking in the news, seems to have taken a page out of the checkout conversion handbook with its use of Wal-Mart Pay (NYSE:WMT) online and now for in-store mobile purchases.

Wal-Mart perfected its in-store channel, and separately, its online channel. That included giving its customers the ability to buy online and pay in cash in the store and have all of their offers, coupons and promotions available online.

Wal-Mart Pay and the 20 million consumers who access it each month while in the store are leveraging the Walmart.com experience to produce an omnichannel experience for its consumers - one that is designed to optimize checkout conversions across all channels, while maintaining a single view of the customer. And the customer maintaining a single view of them.

Achieving Checkout Conversion Nirvana

Now, it's not all bad news this quarter either.

When digging deeper into the third quarterly Checkout Conversion Index, we can see improvement. Checkout is about 22 seconds faster on average for all merchants, and for the top 30 sites, is nearly 30 seconds faster. The overall Index has improved too - at 56.4 (out of 100), it's up 3 points. But even on a heavily weighted scale, there are still only 10 "A" scores (where A is a 75+) and 162 Bs (where a B is 65 to 75). Nearly 40 percent of the list scored a D or an F.

The reality, however, is that larger retailers are clearly feeling the pain of crossing the digital chasm and need a roadmap for how to get there successfully.

What started out as a way to simply benchmark the overall progress of the online merchant community in optimizing mobile checkout, we hope, has evolved to become a useful diagnostic tool - one that helps merchants refocus their checkout conversion efforts in order to boost their digital sales, delight their customers and lay their claim to the $162 billion that they may be missing when too much friction gets in the way of making a sale.