The biggest opportunity in retail, right now, is harnessing the huge global growth of ecommerce.
Already the fastest-growing channel in retail, many markets experienced five years worth of growth in just a few short months last year as home-based consumers flocked online.
Leading retailers are continuing to invest heavily to grow their share within the channel and to capitalise on this ongoing opportunity. As consumer trends evolve, no brand can afford to be anything less than innovation-driven and responsive in ensuring that their strategy aligns with that of their retail partners.
Bigger than any store-based channel
When grouped together, global ecommerce sales represent an opportunity far bigger than any store-based channel. Worldwide ecommerce sales reached a whopping $2.65 trillion in 2020 and are expected to almost double to $4.7 trillion by 2025.
This represents a CAGR for the online channel of 12.1% over the five year period, compared to much lower rates of 2.5% for hypermarkets, 5.1% for discount, and 3.9% for supermarkets and neighbourhood stores, according to our Edge analyst estimates.
Not surprisingly, the top ten ranking of global retailers is dominated by pureplayers and ecosystems: Alibaba Group, Amazon, Pinduoduo, and JD.com account for four out of five of the biggest retailers worldwide. Other leading multichannel retailers are ramping up investment to grow their ecommerce capabilities and to update supply chain and IT systems in a bid to keep up with consumer demand and the rapid pace of change.
A good example is Walmart, the world’s second-largest retailer. Walmart increased its capex from $10.3bn last year to $14bn in 2021 as it strives to catch up with the global giants online. With a target to reach global online sales of $100bn in the next few years, Walmart has increased investment in automation, supply chain, and fulfilment capacity. At the same time it is investing to improve its operations and customer experience across all channels.
We anticipate that 62% of Walmart’s growth to 2025 will come from ecommerce. Similarly, 42% of growth for leading US grocer Kroger will come from the online channel over the next five years. It recently partnered with Ocado to open its first 375,000 sq ft fully automated customer fulfilment centre for online grocery. The new facility in Monroe, Ohio, aims to provide customers “anything, anytime, anywhere” and uses artificial intelligence, advanced robotics, and automation to enable more seamless and efficient fulfilment, packing, and delivery.
Other retailers are also investing to catch up, with many also leveraging opportunities presented by stores, such as in-store picking, hyperlocal fulfilment, and partnerships with delivery intermediaries to maximise profitability.
The trend for online and digital investment spans all categories as retailers build on recent growth momentum. Fashion giant Inditex is investing €900m in capex this year, representing 6.9% of group sales. Of this, it expects to invest more than one third (37%) on digital, building on the 77% growth it achieved in the channel in its most recent year to January 2021.
Global giant Amazon reinvests more than any other retailer into innovation and growing its ecosystem. Others such as Walmart and Inditex are ramping investment in digital.
Domination of the giants
With such rapid expansion online, you might expect to see more retailers taking a share of the growth opportunity. Yet, whilst online is the fastest-growing channel for many leading retailers, global ecommerce leaders such as Alibaba, JD.com, and Amazon are growing much faster, to take a disproportionate share.
After accounting for 62% of global ecommerce in 2015, the top 10 largest ecommerce retailers are projected to reach 75% share of ecommerce in 2025. Further, Edge anticipates that just five leading platforms will account for two thirds of global ecommerce sales within the same period.
At the same time, a nearly limitless set of smaller ecommerce players are emerging. These are a combination of omnichannel offerings associated with store-based retailers, as well as pureplay sites focused on a broad assortment or specific category.
The leading retailers have a completely different operating model, based on ecosystems which give them a huge and expanding range of products and services, with limitless access to customers. Once drawn into the ecosystem, shoppers will easily navigate through to new categories and services.
The challenge for suppliers dealing with ecosystems is often their unwieldy size, yet it is essential to keep on top of changes and new developments to understand precisely how each ecosystem works, to maximise the opportunity within each category. In a consolidating market, brands that gain a deeper understanding of these platforms and how they work can optimise performance and achieve impressive growth.
Asia leads for ecommerce innovation
The fastest-growing region for ecommerce is Asia, where the online share of the market has almost doubled in five years, from 26% in 2015 to 50% in 2020. By 2025 Edge estimates that online will account for 61% of total sales among the leading retailers in the region.
Four of the five biggest retailers in Asia rely on digital for the majority or all of their sales and these platforms such as Alibaba, JD.com, and Pinduoduo are growing ecosystems that are innovating to reshape the landscape.
For instance, online grocer Pinduoduo is the largest agriculture-focused technology platform in China, serving 788 million active customers. A completely new breed of retailer, it has created an innovative platform to connect farmers and distributors with consumers directly through its interactive shopping experience.
Where Asia leads, the rest of the world is following. Amazon dominates online across North America, Europe, and the Middle East. The online giant continues to expand its ecosystem, growing market share and achieving a sales jump of 38% last year as it innovated for its customers worldwide. Meanwhile MercadoLibre is shaking up the market in Latin America.
Online success translates to in-store advantage
While some manufacturers may focus separately to protect their share on the physical shelf and to drive success instore, multichannel ways of working are becoming much more integrated across leading organisations. The implications of this are that a brand’s ecommerce performance, whether good or bad, is also causing retailers to reallocate space instore.
In a world where online and offline assortment and strategy are increasingly linked, ecommerce growth will be a factor in earning in-store placement. Furthermore, ecommerce is reshaping the role of the store, impacting not only assortment and pricing, but also the utilisation of store space to support last-mile fulfilment. In this environment, brands that have a place in both digital and physical baskets will be preferred because retailers can confidently allocate store inventory space to SKUs needed in online and in-store orders.
Staying one step ahead
At Edge we anticipate a continued acceleration in ecommerce, driven on the one hand by consumer demand and on the other by the growing influence of leading ecosystems.
As they strive to catch up, store based and multichannel retailers will continue to increase investment and focus into ecommerce, investing for scale, efficiency and growth whilst at the same time leveraging data across all channels to fine-tune assortment and improve customer experience.
The online channel, which already innovates much faster than physical retail, can be expected to accelerate even more rapidly, with a speed of execution and decision-making never seen before. This makes it essential for every brand and retailer to continually fine-tune its approach to the channel and to put online and digital right at the heart of a successful customer-focused strategy.
