Verizon executed the omnichannel playbook as prescribed. Why hasn't it translated into revenue?
Migrating to omnichannel sales is one thing — winning there is another.
Verizon's wireless retail business faced a grim set of circumstances in March 2020. Nearly 70% of retail stores had to close due to the pandemic. Consumer sentiment plummeted as the first wave of pandemic layoffs began. Making matters worse, Verizon was supposed to finally reap the rewards of heavy investment in 5G investment over the last few years. Wireless customers in the U.S. were only upgrading their phones roughly every three years, up from an average of 23 months in 2016, and carriers had hoped 5G could entice customers to upgrade early. The pandemic now threatened to derail this anticipated windfall.
Verizon responded to the pandemic predicament by embracing omnichannel, which is essentially corporate-speak for allowing customers to go through a continuous purchase process across different sales channels, such as brick-and-mortar stores, in-store pickup and online. "We're going to see much more digital sort of omnichannel from our customers, and we are ready for it," Verizon CEO Hans Vestberg said in an earnings call at the start of 2020.
Vestberg was right. Verizon sprang into action, redesigning retail stores, refining in-store pickup and expanding ecommerce operations. While this might seem like a clear-cut digital transformation success story, the reality is a bit more complicated. Before the pandemic, Verizon benefited from consumers' preference for brick-and-mortar smartphone shopping: Generally speaking, once customers enter a store, they're less concerned with price and more susceptible to being up-sold on high-margin accessories or premium wireless plans.
Even before the pandemic, consumer buying habits have been shifting, and since Verizon embraced omnichannel, it faces more direct competition in the digital sphere from the likes of Amazon, Best Buy, Samsung and Apple for consumer smartphone sales. These troubles are reflected in the data — IDC reported that smartphone shipments in the U.S. grew 4.3% year-over-year in Q4 2020, but Verizon hasn't posted a net increase in year-over-year wireless equipment revenue since the start of the pandemic. But the hope is the shift to meet customers where they are, whether that's online, in-person or some mix of both, will pay off over the course of 2021 and beyond.
"When a customer engages with us, our mindset is, 'How do we provide and give her the complete choice of when she wants to interact with us and where she wants to interact with us?'" Sean Lee, SVP of consumer sales at Verizon, told Protocol. "It doesn't matter if she starts in the digital space, it doesn't matter if she starts in the physical space; our job is to make that experience as seamless as possible."
Last March, Verizon ramped up its in-store pickups as a way of compensating for widespread store closures. Store pickups went from accounting for around 10% of store sales in February 2020 to closer to 25% over the last six months, the company told Protocol. Verizon also prioritized minimizing customer wait times for pickup. "If we don't have roles and responsibilities clearly dedicated, [if] we don't understand the traffic flow of the consumer — those things are just going to be adding unnecessary time," Lee said.
Going into the third quarter of 2020, Verizon was able to reopen around two-thirds of its retail stores. By the end of the quarter, just about every store was back with normal operating hours.
This is when the concept of "touchless retail" played a central role in Verizon's transformation efforts. The concept included basic coronavirus mitigation protocols, such as social distance markers and face mask requirements. Verizon redesigned the store layouts to make more room for social distancing. It set up sanitation stations in high-traffic areas of the store. There were also a number of initiatives where Verizon flexed its digital prowess — for instance, Verizon added a self-checkout option within its app so that customers could scan an item in-store and pay without having to interact with a sales rep.
Part of the touchless retail concept involved shifting to telesales so that customers could get a more personalized and attentive sales experience, even if they weren't comfortable interacting with a representative in person. Verizon had been working with TechSee, a computer vision startup, on a system that could send a text message to consumers which would link them directly to a video call with a company representative. This system turned out to be hugely beneficial for technicians during the pandemic. Erik Sheehan, Verizon's executive director of technology, systems and strategy, told Protocol that the tech support team now uses the video chat option 65% of the time, and that it has a technician dispatch rate of 6% compared to the typical rate of 20%. "A lot of the work we're doing now is to double down on our efforts around self-help," Sheehan said.
For the fourth quarter of 2020, Verizon CFO Matt Ellis reported "high consumer engagement in commerce as offline-to-online shopping behaviors continued through the holiday season." This included a sevenfold increase in mail ecommerce revenue that quarter, compared to the previous year.
The spike in ecommerce capped off a year of dizzying shifts in sales channel volume. Lee told Protocol that, according to Verizon's most recent estimates, approximately 65% of consumers begin their purchase journey in digital channels.
"Before we had a handful of channels, and coming out of this we'll have eight to 10 channels," Mike Felien, a managing director at Accenture who leads retail strategies for wireless carriers, told Protocol when asked about the overall industry's shift away from brick-and-mortar during the pandemic. "Layering in all those channels on top of a process that is tested, true and valued from a customer perspective is what's going to help the providers win."
Trouble in paradise
Verizon pulled off an impressive feat in 2020, especially considering the circumstances. The carrier ended the year with more wireless customers than it had in the first quarter of the year. Revenue for its consumer wireless service division reached $13.6 billion in the fourth quarter of 2020, a jump of 1.2% over the same period in 2019.
And yet, despite the overall strong performance and the swift embrace of an omnichannel sales strategy, Verizon's wireless equipment revenue shrank every quarter in 2020 on a year-over-year basis. For instance, in the fourth quarter of 2020, Verizon reported $6.4 billion in wireless equipment revenue, a 5% year-over-year drop — despite the arrival of 5G iPhones coinciding with the holiday season.
One reason for the shift is that, in digital sales channels, competitors have a better chance of stealing market share away from Verizon.
Prior to the pandemic, most U.S. wireless customers defaulted to purchasing new devices in carrier retail stores — they liked being able to touch the smartphones, ask sales representatives questions and receive their device immediately, according to an Accenture survey of U.S. wireless customers conducted between August and September 2020.
The pandemic forced the entire wireless retail industry to lean on digital sales channels, so customers were forced out of their behavior grooves. Competitors saw an opportunity. Samsung, for instance, managed to ship 50% more smartphones in the third quarter than the second quarter of 2020, thanks in part to its aggressive ecommerce sales strategy. This included steep discounts on smartphones sold through the Samsung online storefront, as well the introduction of a chat tool designed to guide customers through the purchase process, according to Nikkei Asia.
Another downside of the shift to digital sales channels is that it's harder to up-sell customers on additional products or accessories. It's a familiar story — maybe you wouldn't pay $35 for a phone case under normal circumstances, but you just purchased a $1,200 phone and why risk destroying it while waiting for a $13 phone case to arrive by mail? Felien said that the in-store attach rate, for adding additional products to an order, is often two to three times higher than it is in digital sales channels.
Verizon certainly didn't misstep by embracing omnichannel — there were far greater forces at play that made it the default decision for the company. But the decline in wireless equipment revenue instead suggests a need to revise corporate truisms: Omnichannel may be the future, but that doesn't mean your company will necessarily benefit in the near term from an industry shift in that direction.
According to Lee, one missing consideration in all of this is the human element. "That personalization, that caring for the customer, that human touch — how do we continue to elevate that part?" Lee said. "Because the people in our stores [are] one of our greatest assets that we have." As COVID-19 cases continue to decline, Verizon could start to see greater returns from this omnichannel strategy that still puts a premium on in-person (or at least person-to-person) interaction.