Retail in transformation
In the last year, we have witnessed the acceleration of the e-commerce and digital commerce trends, with a 3-month evolution equivalent to what could be expected in 3 years. To stay relevant, retailers have adapted their business models to this new ecosystem, in which the fastest service, at the lowest cost and most convenient for the customer will determine the winner at decision-making point.
This transformation occurred across all segments of the retail sector. From food to Home & DIY, to digital marketplaces, all have seen a steep growth in their online traffic and felt the consequent impact on the supply chain.
Food retailer Tesco has doubled its online order processing capacity by hiring more staff for picking and shipping tasks, delivering 1,500 orders a week during peak demand. In the same segment, Walmart saw a 79% growth in e-commerce sales. To meet this demand, they adapted their network of shops, implemented new technologies and formed partnerships that boosted online expansion. For 2021, they have planned an investment of $14b to increase supply chain capacity and automation. In the UK, as e-commerce services with in-store pick-up or home delivery have increased, retailers such as B&Q and Ikea are now testing smaller store formats that allow them to reach more consumers with a smaller footprint.
Amazon and Alibaba, given their well-established market position, have benefited significantly from the online shopping trend. Amazon capitalised on its organisational agility and was able to adapt its business model quickly. In the future, Amazon will continue to plan for different scenarios in preparation for future supply chain disruptions.
Customers won’t downgrade their expectations
The acceleration of the e-commerce trend was admittedly forced by the pandemic and the restrictions implied. However, new consumer preferences are expected to last in the next post-pandemic years. These continued preferences are associated with the definitive adoption of new hybrid working formats by companies, which has an impact on routines and consequently on consumption patterns. On the other hand, after experiencing fast, convenient and omnichannel shopping journeys, consumers are not expected to downgrade by returning to time-consuming, expensive, and limited services.
If ensuring product availability in-store is something that most retailers have already mastered, pursuing this while simultaneously delivering a quality service for online orders brings new challenges. This should be a concern for retailers, as 42% of online channel consumers say that speed and service reliability are the most important factors when it comes to the shopping experience.
Re-sizing the supply chain
The raising demands for an experience of excellence, the new mix of services available, and the consequent change in the cost of doing business prompt the need to re-evaluate supply chains, using a customer-centric approach. Retailers are looking for supply solutions that meet customer expectations while offering low operational costs and high flexibility. It is now necessary to make informed decisions on stock location, manual or automated picking, delivery routes, services provided, or even vehicle fleets.
The temptation for retailers is to create a new dedicated supply chain optimised for the online channel. This will certainly lead to local optimum solutions. Nevertheless, to truly gain in profitability and speed, retailers must attempt to interconnect their current operation with new channels, by capitalising on synergies and building a hybrid supply chain.
If previously stocks and order processing were synonyms of large warehouses, the paradigm is now different. Microfulfillment emerges as an alternative for processing low-value orders with complex picking. This can be achieved through in-store or back store picking, small central hubs, or dark stores. All these solutions aim to deliver a fast service at a reduced cost.
ETo resize the network of operations to cater for various channels while ensuring profitability, retailers must re-evaluate the entire supply chain:
Despite the online channel becoming more prominent, 90% of purchases are still completed (collected or paid for) in a physical shop. Consumers who use multiple shopping channels are the ones who bring the most turnover to retailers, spending 10% more than the single-channel customer. If retailers are to benefit from the potential of these segments, they have to set up operating networks that deliver an excellent service level, regardless of the channel. The retailers' omnichannel profitability depends on the agility and robustness of the logistics network implemented.
Immediate and agile adaptation to consumer dynamism to maintain operability should be a priority for retailers. But these consumption changes must also be approached from a medium-to-long-term perspective, and business strategies must be realigned accordingly to ensure sustainable growth.