Each year, Digital Commerce 360 reaches out to retailers early in the year to assess their holiday performance, how key performance indicators (KPIs) are trending and what is capturing their attention in 2021. We believe that an evaluation of both the obstacles and the opportunities best informs the retail community about the investments that will drive 2021 planning. This year, 103 retailers weighed in representing a cross-section of the community.
It is our open-ended question that will set the tone for this article. We asked: “What is the most important action you will take in 2021 to positively impact your business?” And the answers were best classified into eight areas of focus. A digital focus (18%) topped the list, in which answers referenced digitalization of all aspects of the business, including finance, logistics and marketing, to website creation and overhaul. People were a factor such as restructuring teams. But most importantly, one retailer called out taking consistent, daily action to build its business, which is one factor that can surely resonate with every retailer.
Alongside digital focus was marketing, and its importance comes through here and within the research where 20% of the answers could be classified this way. Much of the feedback was around realigning one’s digital marketing spend, while one retailer saw an opportunity in adding a Prime-like membership model to spur loyalty.
From the customer experience point of view (10%), it is all about meeting each customer’s needs online, over the phone or in store. As one retailer cited, it requires “focus, focus, focus on sales growth and customer service.” Performance was on the minds of 12% of the retailers, including increasing profitability from all channels but also emphasizing net contribution margin, not total revenue. Looking at products, 10% of retailers suggested implementing new product lines and developing new business models to support these new product offerings.
Discussion among retailers also touched on marketplaces and channels (9%), such as “do less on Amazon and more on eBay and our own store on Shopify” or “a lot of new ways to get our product out. ASAP.” Supply chain initiatives, such as improving logistics and warehouse operations, saw interest among 12% of the respondents with technology and operations on the minds of 7%. Implementing a new and/or updated platform along with optimizing operations were both cited under the tech umbrella.
Looking back and looking ahead
Let’s start with a look back. 70% of retailers reported revenue being up overall in 2020 with just 14% flat and 16% down compared with 2019. In addition, most retailers’ (53%) holiday season revenue was up 25% or more.
Retailer achievements were abundant this past holiday, including topline growth for ecommerce sites at 61% and marketplaces at 52%. This was coupled with a more efficient marketing spend, as noted by 48% of respondents.
The biggest achievements on the marketing front included significant customer acquisition (42%) and those who saw improved customer retention (26%). Along with this growth, an optimized customer experience was notable for 35% and that went hand in hand with 31% who experienced improved site performance and better customer service at 30%. Logistics were challenged industry-wide but 24% of retailers still called out faster fulfillment while 20% improved warehouse operation as achievements. The range of ecommerce achievements in this survey speaks to the herculean efforts that were made throughout 2020 to take advantage of this unprecedented retail opportunity.
Overall ecommerce growth and pandemic consumer behavior shifts had the biggest impact on 2020 online holiday sales. Both positives and negatives round out the top five with promotions like free shipping still being important to retailers. Marketplaces were the beneficiaries of growth as shoppers hunted down inventory and sourced both critical and personal needs. The fulfillment challenges and related costs along with supply chain issues complicated matters for retailers and as such will remain a focus in 2021.
Most retailers report that all online KPIs saw significant gains year over year. The “up” numbers speak for themselves. The biggest challenge for retailers may be properly forecasting their 2021 business and maintaining such strong numbers across the board.
Despite all that success, there is still work to be done. Retailers strive to close the gap on their user experiences. Looking at those who assign themselves eight or higher shows that retailers have their work cut out for them. While 37% of retailers say they are at that level, now 92% are striving to get there in 2021.
Budgets are finite so retailers must strategically place their bets
Investing in ecommerce will be up across the board with digital marketing, customer experience and technology or other systems topping the list of how dollars will be allocated. That includes 53% who expect ecommerce platform investments to be up and 51% who cite performance marketing while artificial intelligence and virtual reality comes in, respectively, at 35% and 14%. Personalization resides in the No. 4 spot overall, which speaks to the retailers’ desire to target shoppers more effectively in hopes of converting them.
The correlation between investments being made and their likelihood to drive conversion is clearly seen. To optimize conversion, the most critical investments will be in customer experience (64%) and digital marketing (59%). Customer experience can have many meanings where the retailer’s perspective on its ability to drive conversion sees the following:
- Customer service: 56%
- Personalization: 44%
- Web design: 43%
- Showcasing brand values: 36%
Investment in the ecommerce platform (56%), along with technology and systems (54%) are also addressed and seen as critical via the following avenues from mobile commerce (38%) to performance monitoring (35%). Lastly, logistics/supply chain was designated critical status by respondents with 33% seeing both warehouse and logistics as critical for conversion optimization.
Marketing initiatives have been very important to improving online conversion rates. Email tops the list while social media trends up in its ability to contribute towards higher rates. Retailers are also continuously revisiting their branding as that too resonates with shoppers. Free can never be underestimated with one’s free shipping threshold coming in at 36% and the ability to provide free return shipping a valuable and risk-free perk for shoppers at 24%. Both are very important in their ability to drive conversion for retailers.
There are many different tactics that hold value for retailers. Inventory challenges emanating from 2020 likely resulted in 45% of survey respondents focused on optimized inventory levels while 33% look towards exclusive products as very important to help drive conversion. From a site experience perspective, both personalization and improved site load times were designated as very important by 39% of respondents. Logistics deserves a mention as well since delivering the goods is also seen as very important in driving conversion by 36% of participants.
Getting granular, retailers find many onsite tactics very important to improving conversion rates, starting with key page upgrades (59%), web design (56%) and site search (50%), which were given the top three designations. A thorough assessment of one’s checkout always has a role to play with 43% finding a reduced number of steps very important while 38% pointed to a simplified sign-up and checkout to improve online conversion rates. From a product and education perspective, information and size guides (47%), more sophisticated imagery (43%), and videos (35%) were all very important as well.
Online retailers will continue to grapple with shifting consumer behavior (60%), focusing on how best to address logistics and the supply chain yet keeping profitability in mind (47%). Logistics and supply chain are particularly important as retailers grapple with carry-over issues from 2020, including carrier shipping delays (56%), supply chain concerns (45%) and meeting fulfillment demands (45%). Marketplace participation will be on the minds of 30% of retailers, and store-based sellers will be evaluating the state of their omnichannel offerings, according to 20% of respondents. People are certainly part of this equation and 33% cited hiring smart during these dynamic times.
The most significant obstacles online retailers will face in 2021 center on cost-effective marketing, achieving planned growth and meeting profitability objectives. While marketing tops many of our lists, ensuring it is cost-effective is the most significant obstacle for 2021. Brand differentiation will continue to be important—cited by 36%—as Amazon remains a formidable competitor noted by 24% but realistically for all. Retailers will also need to get creative by refining product assortment (26%) and evolving new business models (25%).
Profitability is always on the agenda and weighs heavy. Achieving planned growth (48%) and meeting profitability objectives (41%) requires increasing KPIs as 34% suggested as obstacles. Improving the customer experience (30%) and site performance (25%) can both be factors in addressing these concerns. A renewed vigilance when it comes to investing in best-in-class technology as noted by 24% will underlay those efforts along with 31% who will look to combat supply chain issues.
Vigilance is the mandate to foster growth and profitability
Holiday growth was formidable. But that is in the past as retailers look ahead to what is next. Careful planning factoring in both obstacles and opportunities will require investments on many fronts. Many of those investments will focus on optimizing conversion and maintaining the strong KPIs reached over the holidays. From digital marketing to the consumer experience, along with the all-important logistics, the 2021 road ahead will be one to watch on many fronts. Hopefully, we will all move back to more of a new normal for both shoppers and sellers seizing on 2020’s momentum.