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Comment: The E-commerce Revolution: How Retailers Can Gain New Ground

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According to a new report published by U.K. retail trade organisation Interactive Media in Retail Group (IMRG), global e-commerce sales are set to top 1 trillion euros by 2013, as the total number of Internet users grow to approximately 3.5 billion from 2.2 billion in 2011. The U.S. still remains the world’s single biggest e-commerce market, followed closely by the U.K, then Japan. The IMRG estimates that growth rates in these countries will be approximately 10-15 per cent a year. China’s e-commerce market, to no surprise, is growing an astonishing 130 per cent a year.

This e-commerce revolution has created a newly empowered “always-on” consumer whose expectations for a seamless retail experience are higher than ever before.
The retail industry is currently undergoing a massive revolution. The question is: How ready are retailers to support an omni-channel retail experience to the consumers of today?

Earlier this year, we partnered with Kevin O’Marah, senior fellow of the Stanford Global Supply Chain Management Forum, to take a deeper look at this adapting retail environment. We conducted survey of more than 100 retailers to examine the effects that e-commerce were having on the retail value chain. The following information shows some interesting points that the study highlighted.

The E-Commerce Explosion

We asked retailers how they planned on adjusting their store operations to support the increased adoption of e-commerce. More than half of the respondents suggested that being able to buy online and pick-up items in-store should be an essential feature. Conversely, 34 per cent also thought that this feature will become gradually more common within stores. A further 12 per cent said that they would need to support this capability at least sometimes. While retailers view the capability to purchase online and ship from-the-store as less essential, more than two-thirds believed that option to buy online and ship from store will become part of the normal retail landscape moving forward.

Shifting Brand Loyalties

When we asked retailers if their e-commerce strategy enabled brand loyalty towards their manufacturers, the retailers or neither, consensus was split. Seventy per cent of the study respondents believe that shoppers will expect brick-and-mortar retailers to be able to trade off product availability, convenience, price and assortment to get to the right deal for them. IKEA and Costco are well-known examples. Both brands have demonstrated that customers will absorb some of the traditional supply chain functions such as assembly and inventory holding in return for lower prices. In contrast, other brands such as Nike and Apple have proven that customers will pay a premium for convenience and value-added service. Essentially, balancing supply and demand in the omnipresent future of retail will call for more than just a good assortment that is reliably in stock.

Supporting New Levels of Complexity

Retailers must consider the structure and functions that are involved when exploring how to accommodate this new level of supply chain complexity. The results from the research were divided in terms of who will own the demand surge resulting from e-commerce. Forty-two per cent of retailers think these roles – supply chain, merchandising, store operations – will need to converge to some degree. More than a third of respondents envision that these roles will remain separate, but might be required to integrate more intensively. Therefore, better integration between the store and the supply chain will be crucial.

The New Value Chain

It is clear to see a trend forming whereby retailers are heading toward building a single organisation that can respond to demand across multiple channels. Constructing this will require integrating processes from source to sale as well as a greater collaboration between retailers and suppliers- from the manufacturer right the way through to the shelf or point of sale. Retailers need to rethink their business in terms of how consumer demand will now be led by the value chain and putting in place the right strategy – store layout, merchandise assortment, pricing and bundling, change management and innovative technology investments. The ones who thrive will be those that strike a balance between both sales and supply. And by creating the ideal in-store experience and building an agile supply chain that supports bottom-line savings, retailers will be positioned to remain competitive and ahead of the curve.

Published on Friday 24 August by Editorial Assistant

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