The real implications of e-commerce: ‘anything, anytime, anywhere’
As part of a series of posts focussing on the often misinterpreted impact of e-commerce on traditional high street stores and logistics sector, Stephen Springham, Head of Retail Research, challenges the populist view that online has supplanted store-based retail.
4 minutes to read
Down-playing the traditional view of e-commerce and questioning the relevance of online shopping statistics does not detract from its influence across both retail and real estate industries.
The true implications of e-commerce are far less quantifiable, but far more wide-reaching than any statistics could do justice to.
The single most significant factor of e-commerce is that it has dramatically changed consumer expectations. The rise of online has given rise to the ‘anything, anytime, anywhere’ on-demand consumer and the bar of expectation is higher than ever before.
But at the same time, it has also destroyed the last vestiges of traditional customer loyalty and today’s consumers are far more promiscuous than those from a pre-digital age. The good news for retailers is that they are as pre-disposed as ever to part with their cash. The bad news is that what they expect in return is far more demanding – and if they fall short, the shopper will just turn to a competitor instead.
"The rise of online has given rise to the ‘anything, anytime, anywhere’ on-demand consumer and the bar of expectation is higher than ever before."
As we have already stated, the rise of online presented a number of opportunities to store-based retailers. A key one was to broaden the number of items they stocked. Without the constraint of shelf and store space, most retailers significantly expanded their SKU count.
The number of channels to reach customers also increased, as evidenced by our earlier analysis of the various e-commerce permutations and combinations that are available. The opportunity to sell more products to a much wider audience was an incentive for store-based retailers to embrace e-commerce with open arms.
However, there are a number of negative flipsides, not least increased fulfilment costs. E-commerce has prompted a sea-change in the interaction between retailer and consumer.
In a pre-digital age, the relationship was largely on the retailers’ terms – the shopper came to them and brought from them. Now the relationship has been turned on its head and it is the shopper that pulls the strings – the retailer has to deliver to the shopper.
The cost of shipping products to a location of convenience for the customer – be that at home, at work or any store of his/her choosing – is much higher than if they came directly to the retailer.
Although most retailers have tried to recoup some of these costs through delivery charges, there is still some degree of push-back from consumers. The fact remains that e-commerce is less profitable for retailers than traditional store-based retailing – in some instances, it may not even be profitable at all.
"The impetus to shorten lead times is immense – and this is only serving to intensify pressure on already onerous costs."
But the genie is out of the bottle. Consumers expect seamless fulfilment and expectations are of ever shorter lead times. The likes of Next and Debenhams pioneered next day delivery, while Argos has since raised the bar to same day delivery.
All the time Amazon is also upping the ante through its Prime delivery options. The impetus to shorten lead times is immense – and this is only serving to intensify pressure on already onerous costs.
Supply chain and logistics implications
In simple terms, many retailers have got ahead of themselves in their promises to consumers and are running before they can walk. Few have the necessary infrastructure to adequately cater for the huge demands that e-commerce is placing upon them.
Most are making do with what they have, but this masks some serious operational shortcomings. Many of these remain behind the scenes, but they do periodically come to the fore at peak times, such as Black Friday and Christmas. In particular, Black Friday in 2014 laid bare many retailers’ supply chain limitations.
The issue is that improvements in supply chain have been evolutionary, whereas the rise of e-commerce has been almost revolutionary.
Development in logistical infrastructure has not kept pace with the heightened demands and expectations of the consumer.
" For all the progression of e-commerce, the main conundrum remains – how to fulfil lofty consumer expectations in an efficient and cost-effective manner. "
Retailers’ distribution hubs and networks are still largely geared towards a pre-digital store-based model – infrequent, bulk-based to a pre-defined network of stores. They are not designed to fulfil single-item orders to a location dictated by the consumer within as short a timeframe as possible.
For all the progression of e-commerce, the main conundrum remains – how to fulfil lofty consumer expectations in an efficient and cost-effective manner. The need for retailers to have access to a more nimble and flexible supply chain remains a huge opportunity for the industrial market.
Our next series of posts will analyse and demonstrates the extent to which retail has been a positive driver for the industrials market in recent years. The chasm of where retailers are operationally now and where they need to be in the future suggests that we are only at the tip of the iceberg.
To discuss any of the issues raised in this article, please contact Head of Retail Research Stephen Springham or: