The COVID-19 pandemic accelerated a shift to ecommerce by 5 years, making it an attractive channel for retail organizations who want to remain resilient and competitive. However, the growth of this channel has come with some challenges led by competition and new consumer trends. The report highlights key challenges organization are facing in ecommerce and provides some recommendations for senior leaders in the industry on how to address these challenges.
Key Challenges
- Increased competition from pure players and online marketplaces: online marketplaces are expected to account for 60% of global ecommerce by 2024 and the pandemic has given them a competitive advantage over smaller, less established online players.
- A shift in online consumer behavior: the number of first-time online shoppers has grown by 40% in 2020, but this came with a shift in consumer behavior towards different product categories such as grocery; essentials and healthcare.
- Supply chains and logistics have been disrupted by the pandemic and organizations need to actively identify opportunities to be less reliant on third-party distributions’ channels to avoid being de-prioritized over other brands and manufacturers.
Recommendations
- Differentiate from your competition through improved D2C online capabilities and stronger relationships with your customers.
- Assess the different digital channels available and design an encompassing omnichannel strategy. Understand the opportunities available for your product categories through D2C channels, marketplaces, contextual commerce and leverage them to reach your customers.
- Evaluate and introduce new logistics and fulfilment capabilities. Leverage opportunities around BOPIS by making the most of your physical space.
- Audit and re-evaluate your internal digital capabilities and workforce. Choose a digital-first approach and avoid treating ecommerce as an isolated unit within your business.
Analysis
2020 has been one of the most disruptive years in retail. Brick & mortar retail channels struggled to survive, but the opportunity for ecommerce organizations has flourished with the COVID-19 pandemic accelerating a shift to ecommerce by 5 years. Ecommerce is now predicted to be worth 30% of total retail globally by 2023 thanks to COVID versus an initial 22% predicted share:
Source: olyveryman.com
This makes it a channel that cannot be overlooked if organizations want to remain resilient and competitive. Organizations that managed to quickly adapt to the new retail trends had to re-evaluate their omnichannel strategy, shifting towards online channels and adapting their logistics capabilities. On the other hand, online marketplaces and direct-to-consumer online channels have flourished providing a new opportunity for brands and manufacturers to survive.
New consumers adopted online channels, maybe for the first time, to respond to essential needs in categories like grocery and health products. The number of unique global digital consumers increased by 40% year on year and global ecommerce has grown by 30.4% in 2020 (from an initial 22% forecast), exceeding all expectations:
Source: EDGE: Ecommerce & Digital Ecosystem Management - COVID Update
Below are some recommendations for organizations willing to win in ecommerce and continue to experience growth and remain relevant:
1. Strengthen your existing D2C capabilities or launch a D2C online channel
The unprecedented ecommerce growth experienced during 2020 generates opportunities for organizations to diversify their revenue streams and create additional value for their customers by delivering unique and targeted online experiences. New tools and platforms such as BigCommerce and Shopify, that offer flexible systems’ integrations, are winning partners for organizations to quickly roll-out their D2C online offerings at moderate costs and with relatively short timelines. The key benefits of D2C digital models versus traditional brick & mortar retail models are centered around agility, flexibility and customer relationship:
Source: EDGE: Deloitte, Going digital, going direct, 2020
Consumers, specifically, indicate how important it is for them to develop genuine, authentic relationships with the brands they love and there is no better way to do this other than via D2C models.
2. Differentiate from the competition through exclusive D2C loyalty and subscriptions’ programs
Use your existing D2C channels to strengthen your relationship with your customers by leveraging CRM capabilities and designing new engagement and retention programs.
Online marketplaces and digital giants have emerged as winners during the pandemic; however, organizations that solely relied on these channels faced fulfilment restrictions dictated by certain products categories’ prioritizations. Essential goods such as groceries and health products monopolized the scene on large marketplaces for the first half of 2020, thus creating challenges for organizations selling products in more niche / fashion / entertainment-related categories.
D2C capabilities allow organizations to regain control over their product supply, by directly engaging with their customer base in a more flexible fashion. Loyalty programs and subscription models should be used to retain existing customers and newly acquired ones. The subscription economy focuses on addressing customers’ needs with the objective to create value and increase loyalty. To this point they are the perfect differentiating factor to make your product offering more attractive. Specifically, customers cite 3 key reasons that make these models sought after:
- Access: to unique products and discounts.
- Curation: inspiring product selections targeted to one’s taste.
- Replenishment: convenience and automated re-ordering.Brands like Glossier, Casper, Beauty Pie, Bloom & Wild are all great examples of D2C companies that nailed CRM and loyalty programs focusing on the 3 points above.
3. Design and implement your ecommerce strategy as part of a wider omnichannel strategy
Retailers must envision ecommerce as part of a holistic and all-rounded commercial offering. The goal is to design a shopping process that increases touchpoints, and complements the in-store experience. Building with strategic vision allows organizations to better target ideal customers, and often simplifies the resulting operations.
To succeed in ecommerce, organizations need to understand the ecosystem of digital channels available to them: from D2C websites to marketplaces to pure players to digital concessions models to contextual commerce.
Understanding who the target customer is on each of these channels and what the competition looks like will help design an overall strategy to address all or a sub-selection of these channels, thus maximizing customers’ reach and incremental revenues.
Marketplaces and pure play wholesale models are often better suited to large manufacturers with a relatively simple product proposition and a competitive pricing strategy. The competition on these platforms is fierce and substantial marketing investment is required to gain visibility. However, these are often quick routes to market as they allow organizations to leverage well-established tech platforms with cross-border fulfilment capabilities and integrated tools to promote the brand.
D2C channels are the recommended channels to strengthen customer engagement by offering personalized, dedicated experiences with unique value propositions. These are the platforms for organizations to have meaningful interactions with their customers and build long term value through loyalty and retention programs. These are also the channels where organizations can have direct conversations with their customers and learn about their successes and shortcomings.
Social commerce (Instagram and Facebook Shops) is to this point an interesting new D2C capability that organizations can leverage to directly communicate with the customers. Through creative advertising and influencer marketing, brands can build interactive, unique and engaging experiences to tell stories about the products and the brand. Ultimately, organizations need to focus on 3 key factors when developing their ecommerce proposition:
- Customer Engagement: create meaningful connections with your customers.
- Product / Service Offering: target the right product portfolio to the right customer through the appropriate channel.
- Channel Structuring: maintain consistency throughout distribution networks and look for opportunities to feature exclusive products to differentiate the offering.
4. Design and adapt your supply chain capabilities
Supply chain is particularly complex in ecommerce and subject to substantial challenges, as we’ve witnessed last year during the disruptions caused by the pandemic. Volatile demand, order returns, remote customer service, over-reliance on 3rd-party logistics’ solutions are all critical factors that organizations need to address to succeed in ecommerce. Specifically, organizations need to be flexible and agile when estimating demand forecasting and be ready to quickly adjust to unforeseen consumers’ demands. Organizations need to have a view on the overall supply chain and product inventory; from first-party suppliers to secondary producers and manufacturers to account for risks and changes in consumers’ demands. New communication processes and operational flows need to be implemented to always guarantee full visibility on the supply chain and inventory allocated to the different retail channels.
Network and transport logistics are another key factor that needs to be accounted for: warehousing, transportation and last mile considerations should be evaluated to optimize total costs and decide on whether owning distribution networks fully or utilizing 3rd-party logistics providers and shared warehousing.
Whenever possible organizations should choose dedicated ecommerce fulfilment operations with specifically assigned areas in their warehouse to manage their ecommerce orders and simplify the pick and pack operations. A dedicated area will provide valuable information on orders’ analytics, seasonal demand flows and order returns’ patterns.
Finally, organizations need to look at their last-mile fulfilment options. Meeting high customers’ expectations can be costly, but there are creative ways that organizations can adopt to counteract that: click and collect solutions.
Source: olyveryman.com
5. Evaluate your internal ecommerce capabilities and identify new enablers and opportunities for upskilling your workforce
Organizations need to audit and understand their internal ecommerce and digital capabilities to fully succeed in the industry. Specifically, evaluating any supporting technologies that should be outsourced such as tech companies to manage online channels or advanced analytics’ solutions versus any available internal competencies. Often times leveraging external capabilities over a fixed period of time can be an effective way to upskill your internal workforce quickly and to highlight any gaps there may be in your internal capabilities.
Ecommerce, however, should be fully integrated within the wider organization’s retail strategy and included in any wider omnichannel trading strategy. This is why your ecommerce team needs to engage with product development, commercial, marketing, finance, legal teams across your organization as these are all functions that will ultimately require involvement to design your ecommerce strategy. It is important to evaluate outsourcing versus internal hiring investments against your long-term plans, budgets, expected growth of the business. Upskilling and building your own internal ecommerce capabilities bring long term benefits and stability, but due to the ever-evolving nature of the industry it is equally important to guarantee regular training and development. Agency support can be a good way to bring expert knowledge inside your company over a period of time and upskill your internal resources.
Investments in technology workforce and building every operational system internally can be very expensive and likely a good option for organizations that are technology-based by nature such as Google, Amazon.
There are, however, very affordable and efficient solutions available on the marketplace that can quickly integrate with your existing systems to help you manage your ecommerce channels and provide support with data insights at affordable prices which will likely be better options.
Concluding Thoughts
Throughout this research we looked at some key considerations that organisations should pay attention to in order to succeed in a high-growth ecommerce industry while staying relevant and competitive. Some challenges are evident: increased competition; the growth of digital giants; keeping up with new emerging channels and incorporating them in wider omnichannel models, and finally supply chains’ vulnerability. An ever-existing uncertainty surrounding the wider retail industry also remains due to changes in consumers’ behaviour and demand. However, there are important recommendations that organizations can follow to capture a share of the ecommerce industry pie and to improve their digital channel management strategy:
- Strengthen existing D2C capabilities or launch new ones
- Differentiate from the competition through exclusive D2C loyalty and subscriptions’ programs
- Design and implement an ecommerce strategy as part of a wider omnichannel strategy
- Design and adapt supply chain capabilities
- Evaluate internal ecommerce capabilities and identify new enablers and opportunities for upskilling the workforce.
Although not exhaustive, and subject to wider changes in the industry, mastering the above will give any organisation a solid foundation to operate in ecommerce, while remaining flexible, resilient and relevant. Focusing on the customer, understanding the different channels and offering unique and engaging experiences are the foundations required to design a successful and lasting ecommerce strategy.