Increase responsiveness to achieve online success

Despite double-digit annual growth in the e-commerce market, only a handful of retailers have profitable online activities. There are plenty of opportunities, according to retail experts Kees Jan Roodbergen from the University of Groningen and Peter Bocken from Slimstock. However, in order to take advantage of them, retailers must make the right decisions and learn to become more responsive.

Online consumer spending is increasing by double digits year on year, but only a small group of retailers are actually benefiting from this growth. “Most online retail activities are loss-making,” states Professor Kees Jan Roodbergen. “For some retailers, this is a conscious decision as part of a strategy to maximize their market share, but that can’t last forever. We will see a huge shake-up over the next decade, and that’s completely normal for the phase e-commerce is currently in.

From a historical perspective, every new sector has been through a similar evolutionary process.” Peter Bocken sees that retailers are struggling and falling behind the likes of online giants such as Amazon and Bol.com. He has also noticed companies such as Alibaba and JD.com making progress with new revenue models. “Traditional retailers are weighed down by a legacy of expensive real estate, high wages and cumbersome processes. It’s a very different ballgame for the so-called ‘pure players’; they are agile, data driven and have much lower operational costs because they only have one single inventory point and can get their suppliers to deliver direct via drop shipments.”

Utilising data

Despite these challenging circumstances, the two experts see plenty of opportunities. They are both active within a Dutch knowledge platform, where they work together with supply chain professionals from the industry to explore innovative concepts for e-commerce logistics. “I see companies such as Bax Music and ReplaceDirect, who are successful because they make smart use of online data,” says Bocken. “Based on consumers’ search and click behaviour, they succeed in offering the right items without allowing their product range and inventory to spiral out of control.

Traditional retailers could improve at this. In fact I think they could even have an edge, because they have access to not only online data but also a wealth of offline data, such as about shopping behaviour in specific regions.” Roodbergen agrees that traditional retailers have more opportunities: “Same-day delivery is currently on the rise. Retailers with physical stores have a huge advantage in this case because, by working with courier companies, they can deliver faster than online retailers who only have one e-commerce warehouse somewhere in the middle of the country.”

Online shopping centre

One of the reasons behind the continuing growth of firms such as Amazon and Bol.com is that they also sell other retailers’ products. “They’ve each become a kind of online shopping centre,” says Roodbergen. “And just like in the real world, retailers have to have a presence in those shopping centres in order to be found. Consumers are increasingly going straight to a platform rather than searching on Google. In the US, Amazon is the number-one start page for online shoppers looking for a product.”

According to Peter Bocken, traditional retailers can significantly benefit from the logistics infrastructure and extra sales opportunities offered by such online platforms and marketplaces, providing that they can adapt their supply chain accordingly. “They can optimise their margins by taking a smart approach to allocate the right inventory to the right sales channel. If you only have ten units in stock, for example, you should allocate them to the channel that gives you the best margins – so probably your own online store.”

However, he emphasizes that each retailer should decide for themselves whether it makes strategic sense to work with an online platform. “Dutch electronics retailer BCC has made a clear choice for Bol.com, whereas Intergamma has decided to sell exclusively through its own channels.”

Marketing collaboration

Do these two experts have any tips for retailers to help them optimally seize the opportunities e-commerce offers? “For me, it’s really all about a differentiated inventory strategy,” says Bocken. “Try to forecast the demand as accurately as possible per channel, region or customer group, and implement automatic decision rules to help you optimally allocate your stock. Besides that, put a good product life cycle management process in place because there are huge big gains to be made in the phase-in and phase-out stages. It comes down to greater responsiveness and your ability to react to changes in demand.” Roodbergen’s tip is to experiment and to stimulate close collaboration between Supply Chain and Marketing.

“The two departments need to have a continual dialogue about inventory and marketing, especially around promotions and product launches. Marketing holds the data about how demand is evolving and Supply Chain should respond to that immediately. Likewise, if Supply Chain realises that there is too much stock of a particular item, Marketing can shape the demand using techniques such as pricing. To achieve e-commerce success, companies need to become adept at this, experiment and work around the clock to constantly improve.”

 

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