The Rise of Omni-Channel Retail
As the immediacy of receiving the products you need becomes a non-issue in e-commerce due to increasingly smart logistics, the main challenge left is the desire to try or feel the products first. This might be the simplest explanation for the rise of omni-channel, where the online, mobile or social channels, and brick & mortar stores, are mixed into a seamless shopping experience, each leveraging its own virtues and supporting the other channels at the same time.
E-commerce is not, nor has it ever been, merely a “sales channel”, and companies have adapted to this notion. “Don’t think of e-commerce as a channel. It’s a way for consumers to research, to buy, to experience brands and then, ultimately, to have them have fulfilled”, says Coca-Cola North America’s EVP Sandy Douglas.
E-commerce, therefore, is becoming a component of omni-channel commerce.
Brick & mortar competitors establish digital presence, and previously pure-play digital competitors establish a physical presence. Recent acquisitions have established the market’s dynamics even further – e.g., Amazon’s acquisition of Whole Foods Market, and Walmart’s acquisition of Jet.com and Bonobos. More retailers today use stores as display spaces that support the need to try out and try on prior to purchasing online.
Market Size & Trends
Global retail e-commerce sales, including products and services (barring travel, restaurant and event ticket sales) ordered via the internet over any device,
reached $1.9 trillion in 2016, accounting for 8.7% of total retail spending worldwide (source: eMarketer).
According to eMarketer, e-commerce sales growth worldwide has slowed from 27% in 2014, to 24% in 2017, and eMarketer predicts that this trend will continue, reaching 16% growth in 2021. On the other hand, despite recent slowdown in e-commerce growth rate (a natural stage in the establishment of what was once a non-existent market), the market will see growth in CAGR in the next 5 years. This stems from the growth in methods such as auto replenishment, subscriptions and meal kits; smart home device penetration; and new delivery and payment technologies.
Delivery is the number 1 driver – and barrier – for e-tailers. Free delivery is very important to shoppers, and 63% of respondents in a q4, 2016 GlobalWebIndex survey said that the main reason for shopping on Amazon is – free delivery.
As shoppers expect free, quick, and limited-slot deliveries, retailers turn to creative solutions to solve the “last mile” problem - the portion between a store / distribution center and the customer's home. This is the costliest part of the delivery element in the purchase, and as a result, many startups and retailers opt to solve the problem.
Autonomous cars, drones (piloted by Amazon), “click and collect” (buy digitally, collect from a store or locker), ride sharing such as Uber and Lyft, and alternative parcel companies, are all tactics used by retailers and brands to try and offer cost-efficient solutions for delivery. In the US, Amazon has been the first to offer a 2-day delivery option for many items, with no additional charge to Prime members. Today, the company offers “Prime Now”, a 1-hour delivery service from local retailers and restaurants, in almost 30 cities in the US.
In June 2017, Walmart began testing home delivery of some orders by Walmart associates heading home for the day in their own cars, offering them extra pay and the ability to opt in our out at will. Following Walmart’s $3bn acquisition of Jet.com, Walmart lowered its minimum threshold for free two-day delivery to $35, leading Amazon to lower its own minimum. Walmart is currently testing a Jet.com one-hour delivery, offers “click and collect” options, and acquired Parcel, a “last mile” technology company in New York City.
In the UK, Tesco launched same-day delivery across most of the UK: Customers who order online by 1pm will be able to receive their groceries sometime after 7pm on the same day. “Click and collect” is popular in Europe.
Mobile, Social, IoT & Chatbots
Mobile is becoming more dominant in e-commerce shopping, as eMarketer expects 48.5% of e-commerce sales to stem from mobile commerce in 2020. At the same time, artificial intelligence is becoming the growth engine for mobile commerce, with smart assistants, chatbots and smart appliances all changing how people buy digitally, converging mobile and social commerce.
Connected devices, including wearables, smart appliances and smart homes are expected to experience growth by 2021. This will also how people buy everyday items, especially, since it creates a limited choice of retailers that are integrated with the device, thus narrowing down the choice a shopper has.
While “Buy now” buttons on Facebook are in decline, social media is still a major purchase driver for shoppers, and a primary part of the awareness and consideration stage. And, as content and commerce become interlaced, there’s a renewed opportunity for social commerce. In the USA, this is evident from the huge part Pinterest plays in online shopping.
A recent enabler for social media shopping is Chatbots. Chatbots are automated dialog systems which trigger dialog with customers within a messaging app or intelligent personal assistants (IPA) that use voice recognition, such as smart home devices (Amazon’s Alexa, Google Home etc.). This artificial intelligence (AI) technology has been increasingly available via instant messaging apps such as Facebook Messenger, WhatsApp etc., and is especially popular among younger shoppers.
With digital assistants becoming more popular, voice search is growing. Today, people can order pizzas, order groceries and compare prices, without ever encountering a screen. The implication is that brands need to be able to offer quick purchase options, including purchase history. They should also take into account the nature of search queries – which are how people naturally speak, usually in the form of a question.
For some product categories, such as furniture, or homeware and household appliances, consumers prefer to go to a store to see and try the products. For this reason, more retailers are adopting a “showroom” model: a store which constitutes a hub for trial and consultancy, with mobile payment and direct to home delivery.
Nielsen reports that, globally, 58% of respondents in a 2016 survey said that they have made a purchase online in the fashion category, and just 21% reported making a purchase in fresh grocery. Indeed, according to data from PwC, the grand majority of consumers still prefer to shop for groceries in brick and mortar stores, but with the influx of food and beverage direct to consumer offerings, including the expansion of Amazon Fresh and Jet.com in the US, and rise in meal kit penetration, we believe that online grocery will grow significantly.
Online reviews and recommendations continue to play a huge part in the shopper’s decision-making process. According to KPMG, when researching about a certain product, 55% of shoppers search online for reviews and recommendations; 47% visit the company website; 26% visit physical stores to see or try the products; and 23% spoke with their friends of family about it. Yet, the number one factor which drives final product – and retailer - decisions is price.
Loyalty programs, auto replenishment and subscriptions, are all tactics that take care of 2 important factors in e-commerce: time-saving/ convenience, and best price. Offering vouchers, cash back, and “subscribe and save” are widespread instruments for e-tailers today. Coupon aggregators are also popular. Buying in bulk and bundling also provide a way to lower prices.
Personalization continues to be one of digital commerce’s main strengths relative to brick & mortar. The availability of data from various sources on the shopper, including due to single-login (e.g., forming an account through Facebook), and using past browsing and purchases, creates a more engaging, convenient experience to consumers. Failure to offer a personalized experience will render a website irrelevant to the shopper. Furthermore, a huge opportunity exists in defining unique shopping parameters to help drive conversion rates up.
Key Success Factors
A “best in class” company will use physical and digital channels to provide a seamless shopping experience. It will offer a “great price” (using tactics such as subscribe & save / coupons / cashback / loyalty), will display customer reviews on its various channels, and will provide free / fast delivery options (including: 1-hour/ next day; “click and collect”).
Understanding mobile & social commerce, integrating bots and AI into both, and personalizing offers are will serve to create a competitive advantage (increasingly, they will become a “must have”).
But above all, remember that the customer’s journey is not comprised of channels; rather, customers are looking for a seamless shopping experience, trying something in-store and purchasing online, using AR/VR to learn about a product and picking it up in-store, etc.