Making Online Retail Profitable

E-commerce sales are up. Studies show that global e-commerce sales were $4.28 trillion in 2020 and are expected to reach $5.42 trillion by the end of 2022. Growth is still good, but it’s worrisome when it’s growing. drives down margins, especially in a low-margin industry like retail. Retailers and brands have to work a lot harder – and invest more – for every dollar of profit from e-commerce channels. There are several reasons for this, but the bottom line is that their assets were built for volume and efficiency, not to serve individual customers.

However, the recent pandemic-related acceleration of e-commerce has prompted merchants and brands to think differently and redouble their efforts, some of which are proving to be game changers. If e-commerce becomes as profitable and scalable (or more) than in-store commerce, we would reach a tipping point for the entire retail and D2C industry. Once considered a distant possibility, here are some steps retailers are taking to make that dream a reality:

• Reconfiguration of the distribution network: E-commerce is here to stay and grow. It’s equally important to “build and sweat” targeted assets designed for e-commerce, not just configure existing assets to serve a dual purpose. Large retailers, including Walmart, are investing heavily in micro-fulfillment centers with automated robots for packaging and last-mile delivery, giving them a distinct advantage in a crowded marketplace. These retailers are able to fill orders with very short turnaround times.

• Alternative operating revenue streams: Retailers and brands have started to aggressively use their digital assets to increase profitability. Although the cost of marketing is generally high in the online world, assets can be marketed. Grocery giant Kroger Co. now enables retail brands to improve their visibility, reach and profitability. Brands can use Kroger’s first-party data to target advertising and improve sales.

• Differentiate offers beyond traditional paradigms: Customers want it “fast” and they want it “free”. These two diluted margins and do not contribute to customer loyalty. Instead, retailers and brands should be looking at subscriptions, trial and return options, virtual experiences, social commerce, and bundled offers and services that can delight customers while remaining profitable. The Dollar Shave Club is a great example of how products can be delivered just-in-time with a predictable cadence (and cash flow!) via a subscription service, while customers increase their savings and benefit total product and delivery flexibility.

READ MORE: Trends are accelerating e-commerce growth in India

• Build unconventional partnerships: Digital commerce is about partnerships. The success of marketplaces, inventory held by partners, diverse and local supply chains, delivery partnerships, etc., have all helped shape the “Amazon world”. However, effective partnerships can also boost sales and profits for traditional retailers and brands. Another opportunity is to learn from successful e-commerce businesses in Asia, particularly in India, China, and Southeast Asia. Vendors like Amazon and Alibaba are using these learnings to stay ahead of the game.

• Capture e-commerce converts: “Functional” shoppers – people who believe in “in and out” type behavior – are more likely to shop online. They are generally looking for convenience, authenticity, security and discounts. Retailers and brands need to target these shoppers and convert them to their platforms.

Investing in marketing to increase retail partner sales, implement micro-fulfilment systems, help divert orders to fulfillment centers and manage scale is a challenge for retail brands . Yet these are the strengths that will support growth. The secret to achieving this is agile, flexible, and adaptable technology that can quickly integrate with external systems, change workflows and processes, and scale with business needs. This is what we digital practitioners call a byte-size transformation approach.

The giants cast a long shadow, especially if they continue to grow and develop like Amazon. But nearly 10 years after the “omnichannel” terminology came into play, retailers and brands are acting aggressively to shed the shadows and win in a customer-centric world. While data and technology can serve as powerful enablers, anticipating customer needs, driving innovation and accelerating change is important to drive both revenue and long-term profitability. .

Anne G. Cash