The Good, Bad and Ugly for Consumer Retail in 2021
Andrew Hogenson and Ezhil Mani
Initial Covid-19 lockdowns led to acute shortages of essential supplies. Supply chains were in disarray, and retailers had to shutter their stores.
However, many good things have come out of the pandemic for retailers, consumer goods manufacturers and delivery companies. The industry has modernized quickly. Online commerce has surged. The supply chain has become more agile and delivery options flexible, and collaboration across the ecosystem have increased.
The Pandemic has accelerated consumers’ shift to digital commerce by five years according to data from IBM.
Grocery shopping, which was predominantly in-store before pandemic, also shifted online as ecommerce grocery sales increased from $1.2 billion in August 2019 to $7.2 billion in June 2020.
Traditional retailers were quick to embrace this trend. Online sales of Walmart increased by 79% year on year while the digital footprint of Target grew by 155% compared to last year.
Retailers also quickly reconfigured their processes to facilitate easy and faster deliveries. For example, Kroger, one of the biggest retailers in U.S., created automated warehouses to increase delivery efficiency. Target utilized its stores to fulfill 90% of its online orders. Its same day fulfilment services, including curbside pickup and doorstep delivery, increased by 273% in second quarter of 2020 compared to same time last year. Overall, curbside pick-ups in U.S. grew by 60% in 2020.
This shift to digital commerce will influence the overall competitive landscape of retail in U.S. in the long term, as more retailers profitably enter what was once Amazon’s stronghold.
Not everything is fine in the industry though. While online channels have grown, in-store shopping has taken a massive hit. Black Friday, which has historically been a store event, saw 52% decline in store footfall in 2020.
Though people might venture out more once vaccines are distributed, it is likely that they might spend more on experiences such as dining and travelling rather than shopping. Stores might not be able to revive anytime soon if they do not change their strategies to grab attention of consumers in this new normal.
Herculean efforts have been made by many consumer goods manufacturers, retailers and logistics companies to adjust their business model – but this might not be sustainable in the long run.
Many structural changes will be required to survive and thrive long term. Some difficult decisions will have to be taken about stores that are already closed.
As e-commerce becomes the core of the industry, efficiency of delivery services will become paramount. Today logistics are not designed to handle current e-commerce volumes. The shipment delay rate during the 2020 holiday season is expected to be around 14-18%, with up to 30% delays in urban areas. Logistics companies will need to overhaul their existing systems to manage growing e-commerce orders.
Another big problem is returns — a necessary evil of e-commerce to retain customers. E-commerce returns are set to cross $73 billion in 2020 holiday season, a 73% rise compared to last year, according to CBRE.
Returns pose logistics and inventory challenges in addition to cost incurred. Only 50% of the returned products go back to shelves. The rest have to be marked down or discarded. Companies need to urgently find ways to streamline return processes and reduce markdowns so that profitability does not get hurt.
The Way Ahead: Connect to Conquer
Companies will have to reimagine their business model to survive and thrive in the new post-pandemic normal, but they cannot do it in isolation. Retailers, manufacturers and logistics companies need to work collaboratively to enable efficient supply chains, effective demand sensing and agile inventory management. Only then will they be able to create a resilient eco-system that can withstand any disruption.
Andrew Hogenson is global managing partner, consumer goods, retail and logistics, Infosys Consulting, and Ezhil Mani is associate VP, consumer, retail and logistics, Infosys.
In this webinar recap, industry experts shed light on the last year within the retail space, providing an outlook on returns, alternative sources of demand and top trends to look for in the year ahead.
Quick, seamless, and economical returns management is vital to success in an increasing digital marketplace. Benchmark your efforts against your peers and discover how leading retailers are investing in the returns process to improve the customer experience and shopper journey.