The U.S. Department of Commerce reported that US consumers spent an estimated $500 billion on e-commerce purchases in 2018, a 14.2% increase from 2017. With no signs of slowing, e-commerce sales are projected to increase 15% each year for the foreseeable future. As more consumers buy online, a number of trends have emerged, each providing a unique competitive advantage for retailers.
Here are five of the biggest trends that are shaping modern retail:
Dropshipping can be a profitable order fulfillment model, particularly for e-commerce businesses with limited capital. Using the dropshipping model, the retailer does not keep goods stocked in their own warehouse or store, but relies on its dropship manufacturer or wholesaler partners to ships the goods, packaged with the retailer’s branded slips, directly to the customer.
For dropship manufacturers, it is important to find the “sweet spot” or percentage of your total revenue that dropship represents. A recent study by Lehigh University found that manufacturers who limited the percentage of dropship between 10% and 40% of their total business had more success than those who exceed 40%. Of course, this “sweet spot” will vary based on your industry, retailer customers and your organization’s experience in fulfilling dropship orders. In dropship, manufacturers also have the opportunity to expand existing retailer relationships with new product offerings and introduce new retailer relationships by dropshipping products that do not yet merit physical store shelf space.
Correspondingly, retailers are able to significantly expand their inventory without physically storing or purchasing more goods. While it can be uncomfortable to relinquish control to some extent, that is where the need for better collaboration and information sharing comes into play. Retailers can gain by sharing sales forecasts with their manufacturers to ensure that they’re prepared with adequate inventory levels. Manufacturers should provide real-time inventory visibility to avoid stock-outs that damage the retailer’s brand and decrease customer satisfaction.
“The relationship between suppliers and retailers is very much codependent, and the sooner both embrace that fact the more successful they will be.” -Professor Zach Zacharia, Lehigh University
2. Subscription Services
Subscription retail takes the crown when it comes to surprising and delighting customers.The subscription market has exploded in recent years, the result of viral marketing, streamlined logistics, efficient packaging, and timely delivery. In this fulfillment method, customers sign up to receive regular (monthly, weekly, etc.) shipments of products. While there are several forms of subscriptions, for retail products the two main forms are replenished and curated boxes. Replenishment subscriptions are those same products that you need regularly, such as dog food or health supplements. Curated subscriptions change with each shipment, either selected by the subscriber or by the company providing them. Examples include makeup, apparel and craft projects.
Because subscription services use recurring billing, this retail model requires financial systems capable of processing payments without action from the customer, with the ability to identify issues in real-time (expired credit card, etc.) and alert the customer. When it comes to your supply chain handling subscriptions, inventory visibility, efficiency, and scalability are the three most important factors in terms of sustainability. If warehousing is eating up your profit margin, focus on optimizing in-house fulfillment methods. If you find yourself struggling to fulfill orders in a timely matter due to increasing demand, partnering with a third-party logistics provider (3PL) may give you the boost you need to sustain your growth. If there is a disconnect between the inventory you see online and the inventory you actually have, you 'll need to invest in integrated supply chain technology capable of providing complete transparency and control, or risk customers shifting from delighted to disappointed.
3. Easy Returns
Just as consumers demand easier ways to shop across a variety of channels, they also demand easier (and free) returns through those same channels. Consumers that purchase an item online may want to return it to the store for an exchange, while others may prefer to have the carrier pick it up, rather than having to take it to the post office themselves.
A straightforward returns policy allows consumers the freedom to commit to a purchase, knowing that if it’s not right, they can easily return it, exchange it, or get a refund. 92% of consumers say that they will buy again if the returns process is easy, yet many companies have failed to update their policies accordingly.
92% of consumers say that they will buy again if the returns process is easy
Providing easy omnichannel returns is critical to attracting customers, but it comes at a price. One study found that investments in supply chain upgrades and managing a high level of online returns costs between 2% to 3% off the top of e-commerce sales. However, when calculating the cost of free returns, don’t forget that the flip side of that is the cost of lost business when you make returns difficult.
To prevent many returns, focus on providing detailed product descriptions, high-quality product images, clear specifications and information for your products, and by making sure your marketing efforts accurately represent your products. To facilitate the returns you’re bound to get despite your best efforts, you’ll need a digital, agile supply chain optimized for e-commerce and last mile, last-minute delivery.
4. Outsmart Amazon
It’s nearly impossible to talk about e-commerce and not mention Amazon. Whether you love Amazon or not, the retail giant isn’t going anywhere in the foreseeable future. In fact, a recent report found that 68% of shoppers go straight to Amazon when looking for a product. That kind of visibility is invaluable to most retailers, particularly newer brands, making the move to sell on Amazon a smart one.
However, big name retailers like Target and Walmart have opted instead to take a page from the Amazon playbook, inviting outside brands to sell on their websites. Whereas Amazon hosts all sellers, Target is invitation-only, maintaining their curated image both off and online. The items are sold and shipped from the third party sellers, with the option to return items online or in the store. This is where brands with brick and mortar locations have a clear advantage over Amazon, and where many traditional retailers could find an edge to beat Amazon at their own game.
5. Supply Chain Automation
The more tasks your organization can automate, the more scalable your business model becomes. For retailers, the goal of selling more products can create a catch-22 situation. As business grows, the demands, complexities, and tasks mount. Supply chain systems that once handled 200 orders become increasingly inefficient when orders increase. In response, organizations depend on manual intervention that requires increased labor costs - time and attention from employees. Time spent on what’s important is often sacrificed for time spent on what’s urgent, even when that’s just entering order information into a computer. The purpose of automation isn’t to replace people, but to replace repetitive manual processes. This is done primarily through data integration, wherein the various systems and software used in your supply chain are bound with one another, finally able to communicate with one another without manual intervention.
For example, Manufacturer X uses an accounting software, CRM tool, Warehouse Management System, EDI solution and has four employees to translate EDI documents into a readable format, enter them into the accounting, WMS and CRM software, and ensure that outgoing EDI documents are sent in accordance to each retailer’s specific business rules. After data integration, the EDI solution is connected to both the accounting system, WMS, and CRM software. When orders come in they funneled through each system, eliminating the need for manual entry. The integration is programmed for easy vendor onboarding and management of each trading partner’s unique business rules. The four employees previously tasked with data entry are now free to focus on more important tasks.
E-Commerce Winners and Losers
These trends all have one things in common, which is the unavoidable need for scalable processes and solutions. You simply cannot offer these services or adopt these innovations without the infrastructure necessary to support them. The e-commerce winners will ultimately be the organizations that make the right technology investments, with customer demand driving their strategies. The losers will be those who focus solely on growth with no plan for supporting it.
To learn more about leveraging e-commerce trends and strategies to grow your organization, watch our on-demand webinar, Raising the Curtain on Omnichannel and Dropship Trends, with Dr. Zacharia of Lehigh University’s Center for Supply Chain Research.