Bricks to Clicks - Global rise of eCommerce

The growth of eCommerce(Electronic commerce) around the world is evident, over the period of three decades(from mid 90's) eCommerce has transformed the processes of buying and selling goods. Before profound growth of eCommerce, the dominant form of commerce was the brick-and-mortar. With time every retailers evolved and made internet based presence along with physical stores.

Rapid growth of eCommerce has impact and influenced on both business-to-business (B2B) and business-to-consumer (B2C) commerce. 

 

What is B2B e-commerce?

B2B stands for business-to-business. It refers to a business model that lets organizations sell products and services to other businesses over the internet. For example, Micron Technology is B2B company which sells computer chips to smartphone manufacturers, such as Apple.  B2B e-commerce organizations sell products in bulk more often than B2C organizations. eFashion Paris is a B2B marketplace with thousands of styles from 600 Parisian brands. It serves fashion professionals and sells clothes and accessories for men, women, and kids.

What is B2C e-commerce?

B2C stands for business-to-consumer. B2C e-commerce refers to a business model that lets organizations sell products and services to end consumers over the internet. Walmart is an example of a B2C company with in-person and e-commerce components. Unlike B2B companies, like eFashion Paris, Walmart sells most of its products to individuals, not businesses.

eCommerce stats 

Business-to-business electronic commerce accounts for the vast majority of total e-commerce sales and plays a leading role in global supply chain networks. The global B2B eCommerce market valuing US$17.9 trillion in 2021 is over 5 times that of the B2C market. This report gives an overview of the market and main B2B countries, its trends, and the competitive landscape.

In 2010, less than 5% of retail sales happened online. During this decade of eCommerce growth, that number more than tripled to 18%. Much of that growth happened in 2020, when eCommerce sales increased by 44%. The eCommerce growth may slow, but the share of retail sales that moved online will continue to go up, not down.

U.S. eCommerce sales grew by a factor of five. Worldwide, eCommerce growth has been even more striking. Since 2010, global eCommerce sales have increased by nearly 800%.  As per report morganstanley forecast report - Over the long term, the e-commerce market has plenty of room to grow and could increase from $3.3 trillion today to $5.4 trillion in 2026.

 E-commerce as a percentage of retail sales continues to grow across regions(Ref: morganstanley-forecast-2022)

This rapid growth of eCommerce has been contributed by various factors, lets revisits few which has contributed in growth and still doing wonders for future. 

Customers flexibility and Convenience 

Internet based applications provides flexibility and opportunity for end user to choose product or services round the clock and shop wherever and whenever. With advancement of User interface technologies, application provides very intuitive experience to customers. In addition to shop any time and any where capability, most of bricks-and-mortar retailers provides options to buy product online and get it delivered to your door step or near by physical stores. Retailers enabling customer to get benefits of both world - legacy walk-in shopping experience with online access of product assortments. Walmart provides customer options to Pickup(to near by Walmart store), Delivery(from near by Store) or Shipped to home. 

Increasing use of technology : Internet use and Internet enabled devices 

Internet is a prerequisite to the “e” in eCommerce. Ubiquitous internet connectivity has been a direct driver of eCommerce growth. With time both developed and developing countries internet user base has increased and it has contributed towards flexibility for customers. Every smart devices has capability to access retailers online application to lookup items and place orders.

                                Global population accessing the internet from 2005 to 2022(Source)

Inherent benefits of eCommerce

Large Product Assortment 
Mostly physical stores sells few hundreds products in one category of merchandise due to limited space and capacity. For example, Wal-Mart supercenters: range from 99,000 to 250,000 sq. ft. and average 187,000 sq. ft. Even with this larger capacity there would be an upper limit to assortments availability. Another challenges comes with physical stores, It’s hard to sell a wide range of products in physical stores because retailers have to procure and take physical possession of products, get the products to each physical store, continually stock the shelves, and so on. This is all very capital and labor-intensive, resulting in low margins. 

• With online presence of retailers, number of assortments increases by multiple folds. There are various ways which helps retailers to increase assortments and provides customers unlimited option to choose from. For example, Walmart provides Marketplace platform for third party sellers to sell their inventory (3P) without having hold on actual inventory. Sellers can register themselves and start selling without much building IT infra and customer base. Its win-win deals for retails like Walmart and sellers across globe. 
•  Distributed fulfillment centers(DC): Big retailers have built multiple distribution/fulfillment center across country and they have flexibility of fulfilling customer demand based on demand of goods and seasonal assortments. Shipping of customer request gets easy and cheaper in terms of carrier cost. Retails has full control over inventory and it helps in routing the same to nearest DC or near by physical stores. 
• Partnering with vendors and sellers: Retailers today partnering with vendors for more dynamic and unique assortments. It brings more offerings for customers and creates a channels for mutual benefits for retailers and vendors. Sellers/vendors can sell their inventory and fulfill customer demand using well established supply chain of Walmart. Walmart has up-scaled partnership strategy with sellers by providing a unique platform to sellers called Walmart Fulfillment services(WFS) which -
  
  • Allows sellers to bring their inventory to Walmart Fulfillment center and 
  • Walmart uses its diverse and well established supply chain to fulfillment customer request.  
    

Better competitive price: 

With multiple retailers in business and their online presence help customer to make informed decision. Many customers believe that pricing is better online. For example, an Accenture survey showed that 52% of customers in the US and UK believed that prices online were cheaper than in store.

Taxes are another downward driver on prices. Taxes on goods purchased in a physical retail store in most developed markets can exceed taxes and many jurisdictions charge taxes only when the retailer physically has a presence in that jurisdiction. For cross-border shipping, especially of expensive electronics and luxury goods, this is often not the case. The cost savings can be substantial.

Technological advancement and customer incentives 

Virtual trial and look & feel

One of major challenges faced by online shopper was not able to try it - "Try and Buy" was missing due to virtual nature of online shopping. However with advancement of technology, customer now can have look & feel how does it look before buying.  

eCommerce vendors offer advanced tools to help you find exactly the product you’re looking for. For example, Netshoes.com is the largest online apparel retailer in the world. It has no physical stores and specializes in selling shoes online. To better compete against physical retail stores, Netshoes.com.br invested in technology to perform 3D scans of shoes. When you create your profile, you can enter in the model number and size of the shoes that fit you best. When browsing for new shoes, you can compare the fit of your old shoes versus new shoes. Innovations like this highlight the advantage that eCommerce offers.

Virtual Try-On for Apparel - Walmart Levels Up Virtual Try-On for Apparel With Be Your Own Model Experience. This experience allows customers to use their own photo to better visualize how clothing will look on them, and creates a gamification of shopping that we believe will be very compelling to the customer. Walmart is the first to offer a virtual try-on experience for apparel brands at scale,

Omnichannel retailing

The ability to seamlessly transact across multiple channels is broadly defined as omnichannel retailing. Customer can buy goods online via web/app of retailers or physical stores & return the same to near by physical stores or ship to retailers return center. Having a strong physical and ecommerce presence is what’s required to succeed in today’s increasingly digital world.

A few offer fulfillment from physical stores, meaning any item from any physical store can be picked off the shelves and delivered to customers. This makes all of the inventory from a retailer’s entire network available to anybody in the world. For example retail giant Walmart offers buying goods online and pickup from near by Walmart store/super-centers, delivery from near by store and shipping from fulfillment center via carriers like FedEx/USPS.

Customer friendly policies

With advancement of supply chain technology, customers now demand that retailers have a presence and be able to seamlessly transact across multiple channels: Web, Physical Store, Kiosk, Chat, etc. 

In physical retail world we pay for the products at a point-of-sale(POS) terminal and walk out the door with your products in hand but when buying item online it brings various uncertainty and experience deficiencies to customer like

• Time it takes to reach customer, 
• Cost/time to return and 
• No "try and buy"
  

To offset deficiencies caused by eCommerce retailers are offering

• Free inbound (sending goods from vendor to customer)  and outbound (sending returned goods from customer back to vendor) shipping to at least some customers (i.e Walmart+ members get free shipping)
• Free same-day delivery to provide physical store experience like go and buy item.
• Buy anywhere and return to physical store - It helps customer and saves shipping cost for retailers too (restocking online sold items in physical store instead of spending money on inbound shipping)
  

Personalized shopping experience

Personalization has proven to be a powerful driver of both customer satisfaction and higher revenue. Broadly, personalization is the ability to customize a shopping experience to individual customers or groups of customers based on an attribute or behavior. Effective personalization drives sales in the way that an attentive sales staff does, except you don’t have to pay commission to algorithms.

• Attribute-based personalization - Attribute-based personalization often uses demographic information captured during registration, and sometimes browsing behavior to provide recommendation to customer.
  

• Behavior-based personalization - Its triggered by specific events, for example based on browsing history, eCommerce website has determined that I would be interested in the certain goods.
  

Behavior-based personalization is often preferred to attribute-based personalization because it’s based on what customers actually do as opposed to stereotypes about what they should do.

How Retail has changed over period of 3 decades

Retail around the world is quickly changing, with the Internet and globalization the two driving forces behind these changes. Below is comparison of top 10 retailers in US in 1990 versus 2012. 

Source: https://www.mckinsey.com/industries/retail/our-insights/how-retailers-can-keep-up-with-consumers

Coming to next decade 2022, below are NRF top 10 retailers list ranks the industry’s largest companies according to sales.

Source: https://nrf.com/resources/top-retailers/top-100-retailers/top-100-retailers-2022-list

Based on Forrester Research data and McKinsey analysis-  despite the e-commerce boom, brick-and-mortar stores should still account for approximately 85 percent of US retail sales in 2025) That said, incumbent retailers can’t expect to stay successful by going about business as usual. 

Today all retailers are aggressively up-scaling their internet application based presence for customer and that will certainly increase retailers customer base and better customer experience. 

 

 

Disclaimer: Reference used with respect to Walmart only does not mean there are no other alternative available with other retailers. It has been done intentionally to avoid any conflict of interest. Article is for information purpose only, author does not represent his employer views in any form. All references used are in public domain.

 

Other references: eCommerce in the Cloud, Kelly Goetsch