Ecommerce boomed during the global lockdowns of 2020 and 2021 and retailers and consumer goods brands were forced to pivot to engage customers online out of sheer necessity. With nowhere to go and physically isolated, technology in 2020 was a lifeline - the go-to for everything from virtual socialising to on-demand entertainment, DIY self-help to the weekly grocery shop.
Being creative with digital strategies, like using social media, digital marketplaces, and direct-to-consumer websites and apps would have paid off for companies looking to survive and keep growing their shopper base during the pandemic. For many, this shift would have been at short notice and a direct response to the crisis as non-essential physical retail shut. Many people also turned to ecommerce for the first time to buy essentials.
But habits formed over the past 12 months have become the “new normal” - and even as economies open, digital adoption and ecommerce will only increase.
Listen: ‘Be careful of hiring top talent from Amazon or Walmart.com without leadership advocacy - because those hires will be wasted’
Edge by Ascential’s Shyla Killion, Director of Advisory, Edge by Ascential and Kurt Vogel, Director of Insights, Edge by Ascential, Americas share some of their research into how organisations are building capability to take advantage of ecommerce growth.
Our market research arm, Edge Retail Insight, predicts that the consumer shift to online will fuel the majority of growth over the next five years. Based on proprietary analytics, our analysts say that by 2025 ecommerce will account for almost 40% of global chain retail, up from 28% in 2020.
This means that by 2025, ecommerce will add $2.6 trillion in sales globally, two-thirds of the total amount of chain retail sales anticipated over the period.
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Within four years, 43 major retailers will be reporting ecommerce sales of more than $10 billion, up from eight retailers in 2015. Ecommerce giant Alibaba, the world’s biggest retailer today, will be almost twice its size by gross merchandise value (GMV) sales in 2025 vs. 2020; Amazon will have outpaced store-based rival Walmart, and Pinduoduo and JD.com will also experience powerful growth, leaving legacy leaders trailing behind and re-evaluating strategies to compete.
To take advantage of this new era of retail - one which not only requires different prioritization of spend and strategy to optimize for the online shopper, but also may challenge established relationships with store-based businesses - companies cannot rely on existing operating models and ways of working that have served them well for decades.
Future success will be predicated on technology, process, and internal expertise so ecommerce must be an organizational priority.
A new era; new skill sets and new team dynamics
The future of retail will be increasingly dominated by expansive and algorithm-driven digital marketplaces and retail ecosystems. These, pioneered by the likes of Alibaba and Amazon, but increasingly adopted by traditional retailers, such as Walmart and Carrefour, will continue to get more sophisticated. By 2025, we will reach the fifth generation of retail - “Retail 5.0” - a stage of mass personalization, where a supplier’s ability to leverage and unlock first party customer data will be critical to compete.
In addition, the next few years will see the development and evolution of new retail business models, such as delivery intermediaries and social commerce, which will grow their shopper base through commitment to convenience and engagement.
Brands that keep pace with new and fast-moving shopping trends and have the capabilities to leverage the growth levers offered by these different platforms will become the market leaders of tomorrow. But to get there, urgent changes are required now to organizational structures and ways of operating so that suppliers are not left behind.
Among the changes required, new quantitative and data-centric skills and roles are needed to drive forward a very different approach to shopper retention and engagement, while also predicting market demand shifts to manage inventory cost effectively.
So, what changes are organizations making to meet fast-changing consumer demands in a complex operating landscape? Are they making them fast enough, and most importantly, how effective will they be?
With no playbook to creating the optimum ecommerce business, we set out to understand how major consumer brands are adapting, and since 2018 have spoken to and benchmarked more than 30 leading consumer brands.
Here we can share with you some of our key findings.
Ecommerce operating models: what could yours look like?
It turns out that most global consumer goods companies are at the early stages of their journey to becoming ecommerce-first organizations and there are many commonalities in approach - although no two companies are managing the transition in exactly the same way.
Based on our findings, we created a framework to help companies assess where they are in their transformation and to offer a vision of where they are headed as more of their sales and growth comes from ecommerce.
Most of the global brands that we spoke to are at the second stage of our framework, what we call the Global Center of Excellence. At this stage, ecommerce sales tend to represent between 5% and 45% of revenue and digital channels are heavily influencing the path-to-purchase. To support and help accelerate ecommerce growth a central team is set up to coordinate best practice, training and guidance on ecommerce.
All of the companies we have spoken to recognize that this is a critical stage along this journey, and is now being used by most leading consumer brands worldwide in some form or another.
The next step on the path to ecommerce maturity is to develop a digitally-integrated omnichannel organization, and we are starting to see some early signs of leading brands beginning to move in this direction. This is when the ecommerce teams and store-based teams become one, At this stage, ecommerce roles are transferred from the Global Center of Excellence team back into the local market and customer teams.
The fourth and final stage of an organization’s transformation - and no company is here yet - is where suppliers have adapted to serve digital ecosystems. The digital ecosystem is a way in which retailers are organising their different verticals that go beyond their commercial platforms. This is the step after digital integration across teams and one which requires a fully data-driven and agile way of working.
But as companies move along this path, there will be growing pains - and one of the major challenges when building ecommerce capability is not having leadership support and sponsorship.
Clear reporting lines and sponsorship from the top
It may seem obvious, but when it comes to execution, this is where many organizations fall down. As ecommerce capabilities are built out, reporting lines change based on who the ultimate sponsor is and which department it sits under. This can vary from company to company; from sales, to marketing to a central dedicated team.
Understanding who needs to drive the decision making and clear accountability for delivery is really important - but even more so, is getting leadership buy-in, which is more challenging than it sounds. The biggest reason being, that from the 1950s all the way to the emergence of chain stores in the 2000s, business practices at the major organizations were generally held in high regard. They still stand up today. But they don’t necessarily work in ecommerce.
Ecommerce is just different in many ways: in how marketing works; in ordering processes and in other key ways too. So, one of the most difficult things to do is to persuade a senior leadership team who rose up to where they are because of a successful track record - they didn’t become CEOs, CFOs, CMOs by accident - that the tactics they used to be so successful are not going to work with Amazon, with Alibaba, or even Walmart or Target any more as these traditional retailers shift to a more omnichannel presence.
You can’t get the organizational structure right until you get the leadership team to acknowledge that it will take a whole different set of skills and a whole different set of people and a culture around you that is aligned on ecommerce KPIs. This will be key to supporting effective recruitment and upskilling, prerequisites for success in Retail 5.0.
As we go deeper into the 2020s, brands that showcase digital ecosystem leadership will be those that provide products, services, and experiences across different aspects of a shopper’s buying process. This is well beyond simply selling products. Digital activities will connect seamlessly with offline operations, creating cohesive brand experiences.
To get there, a culture of innovation and digital-first mindset across the organization will be critical - and that can only be driven by the board.
