Erik Morton, vice president, strategy & corporate development, CommerceHub
No matter how many times the proverbial bell rang in 2017, retail avoided its death knell. The U.S. Department of Commerce recently reported that e-commerce grew 15% in the third quarter of 2017, and many brick-and-mortar retailers proved their resilience by focusing on e-commerce and omnichannel growth initiatives. Building on success in 2017 and a strong underlying economy, those initiatives should pay dividends that lead to continued growth in 2018 and opportunity for further innovation and disruption as well.
When consumers hear the phrase e-commerce, they tend to focus on Amazon, but the data show that, although Amazon does take the lion’s share of e-commerce, there is enough to go around. According to Internet Retailer, Amazon took 46% of U.S. e-commerce growth in 2016 and held a commanding 31% share of the U.S. e-commerce market. The numbers are still being tallied for 2017, but the smart money says the trend continued. With the total market growth of 15% in 2016, after backing out Amazon’s share, other online retailers grew their businesses by 12% collectively. That might seem like breadcrumbs, but the non-Amazon segment of e-commerce includes many brick and mortar retailers who are growing faster than the overall market, and in some cases faster than Amazon.
The retail ecosystem is ripe for innovation, and it is only a matter of time before the true innovators in delivering compelling consumer experiences rise to the top. Here at CommerceHub we spend our days poring over data from over 11,000 retailers, marketplaces, brands and distributors to discover and better understand the future of retail. Here are five predictions that we believe will impact the retail ecosystem in 2018.
1. Rapid Delivery Systems
Amazon has invested billions of dollars of capital into building a network of hundreds of state-of-the-art fulfillment centers across the globe. To compete with Amazon, retailers must provide competitive shipping offers with rapid delivery choices. But how can those retailers compete when they are not capable of making Amazon-scale investments in physical assets? The answer lies in maximizing the value of their own assets—their physical stores and warehouses—and leaning on their drop-ship network to optimize carrier selection to drive down costs and meet competitive delivery promises.
As Amazon’s acquisition of Whole Foods indicates, physical stores matter and retailers need to extract as much value as possible from their existing assets. This includes enabling a pickup-in-store option for online orders of products that are available in local stores, but also enabling a ship-to-store option and drop-shipping online orders of virtual inventory items to stores for pickup as well. Providing consumers with free options to ship items to stores drives additional foot traffic and puts retailers in a strong position to sell additional items to those consumers when they walk in.
Ship-from-store has already become part of the standard retailer tool belt, but mostly for items shipped on multi-day ground service levels by traditional parcel carriers, such as UPS and FedEx. Increasingly, however, retailers see same-day delivery as an evolving necessity. Target recently acquired two software firms (Grand Junction and Shipt) to help enable same-day delivery, and Walmart acquired New York-based Parcel in October of 2017.
By utilizing networks of local couriers, same-day delivery for online orders of in-store products then becomes part of a retailer’s overall shipping offer, along with accurate delivery estimates and consistent shipping offers across retailer-owned inventory and the drop-ship network.
2. Bi-directional Supply Chains
Traditionally, drop-shipping was a one-way relationship between a retailer and its suppliers—the retailer would sell a product to a consumer and then have the order fulfilled by a supplier, such as a distributor or a brand. This model worked fine for brick-and-mortar retail or an e-commerce world where brands did not also sell directly to consumers. In today’s e-commerce, however, brands are selling direct-to-consumer while also maintaining and growing their retail channels. Without coordination between retailers and brands, inventory can pile up in channels without sufficient consumer demand, leading to scenarios where retailers are forced to liquidate a brand’s products, which then end up in the gray market.
When retailers and brands share geographic inventory information over a distributed commerce network, product inventory is “unlocked” and made available to local consumers in a geographically optimized way. In this model, brands can fulfill retail orders as they always have, and retailers can also fulfill direct-to-consumer orders for brands when a local store is the closest location to the consumer.
The one-way supply-chain then becomes bi-directional, similar to how a homeowner with solar panels can be a supplier of electricity to the grid during times of peak sunlight and a consumer of electricity from the grid at night. Through supply-chain coordination, retailers and brands can unlock additional product demand and uncover more cost-efficient ways to delivery products to consumers quickly.
3. Strong Supplier Relationships
CommerceHub’s data show that, in 2016, approximately one-third of all online sales came from new products that were added to retailers’ online storefronts. Retailers are always looking to establish new supplier relationships to help fuel growing online product assortments, but some retailers miss the opportunity present in their existing supplier relationships.
At CommerceHub, we have analyzed product and inventory data from our retailer network and discovered that many retailers are selling only a subset of the products offered by their suppliers—often a small subset. While these products do represent the most accessible opportunity for retailers because they already have the fulfillment relationship in place with the supplier, this tactic is even more effective when combined with competitive assortment analysis. Using data analysis to find out what products consumers might want to purchase from a retailer in addition to the products the retailer already stocks is the first step in building on these existing supplier relationships.
4. Algorithmic Assortment Planning
There was a time when retail buyers traveled the world to feel the cloth and discover previously unknown suppliers. Those times have past, and retailers will find their time more productively spent searching for innovative brands on Instagram than the street markets of India. Startup brands are now digitally native and direct-to-consumer by default, and retailers can act as expanded channels for these brands if they find them and act quickly to establish partnerships.
Treasure troves of data are available as retail moves online. Retailers need to leverage big data to combine disparate information sources and create value for their customers (and shareholders). For example, it is becoming standard practice for retailers to constantly monitor their competitors’ product assortments. This competitive intelligence is then compared to their own product assortments and the products available through their existing supplier relationships. Assortment “gaps” are then quickly closed, which can lead to increased revenue for retailers as consumers see more relevant products available.
This kind of analysis becomes even more effective when retailers enhance their customer files with demographic data that provide income and other lifestyle information on their own customers.
5. A Focus on the Consumer: Learning from Amazon
When you boil it all down, Amazon is winning because of its obsessive focus on pleasing its customers. From the second a customer begins their search for a product to the time of delivery, retailers and brands need to leverage new technologies to deliver unique and compelling customer experiences. From overhauling delivery systems to building and enhancing supplier relationships with analytics and providing complementary product selections to consumers across brands, retailers must optimize for consumer experience, because that’s exactly what Amazon is doing.
CommerceHub provides online retailers services in such areas as order fulfillment and delivery, assortment and content management, and marketplace syndication and demand generation.