Tuesday, September 19, 2017

The Big Shift in Commerce Part One

Innovation / Platforms / Mobile

Current State

The buyer is in control in today’s world of commerce. Sellers must adapt their businesses to support the buyer’s path to purchase instead of their legacy way of doing business. This fundamental shift in customer expectations is disrupting retail and wholesale distribution channels.

Some companies have taken advantage of the shift, others not so much. The companies responding to this shift and meeting their customers where and how they want to purchase are growing are taking the lead. Sellers stuck in their old ways are shrinking.

In Part One of this blog post, I’ll breakdown the impact of the “Big Shift”. In Part Two, we’ll take a closer look at the five key trends that will accelerate the shift in the next two to three years.

Snapshot – Commerce 2017

B2B and B2C markets are in transition today. Let’s start with retail commerce.

  • A record number of bankruptcies have occurred already in 2017, including big brands like Wet Seal, Limited Stores, Eastern Outfitters, Gander Mountain and many more. Expect more by the end of the year.
  • Store closings by major retailers are too many to mention. Again, record numbers for 2017.
  • In-store sales are slowing or negative for most retailers. Online sales are growing. An example is Target, #20 on the Internet Retailer 500 rankings. Per Internet Retailer, Target’s Q1 results accounted for 4.3% of their revenues, up 21.5% from the previous quarter. At the same time store sales declined by 1.9%
  • Amazon continues amazing growth. According to Internet Retailer, $4 out of every $10 spent on-line in the US is on Amazon.com when factoring in their 3rd party gross sales revenue. Their revenue on product sales and fees earned on 3rd party sales on the marketplace grew by 24.9% to $123.77 Billion globally in 2016. Adding Whole Foods and their brick and mortar presences alters the landscape in more ways.
  • Online commerce in the US for consumers was $394B in 2016, representing 11.7% of total retail sales according to Internet Retailer. The bulk of the gains came from Amazon. 

In B2B commerce, manufacturers are waking up to the reality they must leverage an online channel to better serve their channel partners. Brand manufacturers are leading the charge to sell directly to consumers – think Nike and Under Armour.

Even industrial manufacturers are selling directly to end customers, further disrupting distribution channels. Amazon Business adds new categories and seemingly thousands of products monthly. They have added capabilities to their site that accommodate payment terms, organizational buyers and workflows, punch-out, and even phone support. Business buyers can still leverage their Prime account and gain all the benefits of that program.

Why is this happening?

  • People like to research products and shop online. It’s easy, they can do it anytime they want and anywhere they want. Native apps are increasing customer engagement through personalization, augmented reality, and buyer’s tools.
  • The variety of products are greater online and prices are generally lower.
  • Physical stores have reduced inventory and variety to increase margins resulting in lost sales and fewer buyers. Unless the retailers offer to take an order in the store and ship for free to the buyer’s home within a day or so, most shoppers will just order the item online from another store. Stores are lucky if they even have that opportunity today as customer service in stores is also marginal in many cases.
  • According to a 2016 survey by BloomReach, 55% of shoppers start their search on Amazon. Google has dropped down to 28%. Part of that reason is that stores have reduced inventory and variety per the previous bullet.
  • Online channels are more personal, supported by the communities created through social media and various online venues. Third party reviews are available and important to buyers as they make decisions.
  • Free, two-day shipping is widely available. In many cases return shipping is also free.
  • Customer experience and product information is better online. Smaller, niche online retailers are delivering a superior customer experience that focuses on stories and lifestyle rather than just products. Big retailers like Sephora, Under Armour, Lowes and IKEA offer native apps that support both online and in-store purchases, build community, and leverage technologies like augmented reality to enhance the shopping experience.
  • Vertically integrated manufacturers deliver an end to end experience that they control which improves the customer experience, margins, and promotes innovation. Bonobos is a great example of this. Will Walmart stifle or allow them to keep doing what they do after the acquisition? 

How Did We Get Here?

All of the behaviors above are a result of the convergence of micro and macro changes in technology and consumer behaviors. Digital leaders like Amazon and Grainger invested heavily in online channels that leveraged technology shifts to support mobile devices, personalization, data powered merchandising, and superior user experience design.

The abundance of smartphones and high-speed connections has enabled commerce to easily shift online. Millennials and digital natives moved their shopping online aggressively over the last 5 years. The next generation coming into adulthood - Generation Touch – will be even more tech savvy, have more devices, and their norm will be to talk to Alexa or Siri to shop rather than type anything into Google Search or visit their Amazon shopping app. They are less brand loyal than millennials, so brands will have to work even harder to encourage engagement.

As a result of this convergence and evolution of technology and behaviors, customer expectations have changed dramatically in both the consumer and B2B markets. Millennials and digital natives prefer digital channels and have powered the big shift to the buyer being in charge. Manufacturers and distributors are scrambling to respond to this shift to support new channels and business models.

What Sellers Face Today

To summarize the challenges:

  • Technology continues to enable micro and macro revolutions in commerce
  • Traditional customer engagement models are being up-ended via technology
  • Business models are shifting and markets are vanishing with new ones appearing every year
  • Experience and experiences are becoming as valuable as goods
  • Behavior of millennials and younger are driving behavioral change across generations
  • A world where Digital is the life-blood is becoming reality.
  • Dominant digital companies are gaining huge competitive advantages

As sellers evolve their commerce interactions, they must meet customers where and how they seek them. Bigger shifts are on the horizon including conversational commerce, widespread use of augmented reality, more use of apps by brands to engender engagement and loyalty and many more. My next post analyzes those in more detail.

Rightpoint leverages core capabilities in Digital Strategy, Customer Experience Design, Technical Implementations, Sales and Service, Change Management, and Digital Execution to design and implement solutions that deliver the business outcomes our customers are seeking. Learn more about how our deep understanding of B2B and omni-channel retail commerce enables our teams to drive digital transformation across all your sales and marketing channels.

Dale Traxler is Vice President of Commerce Solutions at Rightpoint. Follow Dale on Twitter and LinkedIn.