Within the next five years, global e-commerce sales are expected to double, growing to a quarter of total revenue. According to figures from Commbank and ABS, Australians spent a record $62.3 billion in 2021, but still lags other major world economies in terms of online spend. This means there is significant growth still to come.
Despite the challenges, an opportunity exists for traditional retailers to win new customers and increase their share of wallet with existing shoppers through digital channels. But to succeed and be profitable, they must be able to scale in a way that accommodates new customer demand, generates new revenue and balances costs.
To achieve this, retailers should focus on these four pillars of eCommerce profitability.
Pillar 1: Customer Acquisition and Retention
Just as product pricing may differ from channel to channel, so does customer marketing. The costs associated with drawing customers into stores vs. onto mobile sites are markedly different.
However, data can help find the answers. By analysing sales figures against all marketing efforts, it is possible to understand what types of offers consumers are most responsive to. The most expensive advertising options are not always the most effective.
Retailers should also consider the differences between new and existing customers and shape retention strategies accordingly.
Pillar 2: Product Selection, Pricing and Promotions
E-commerce marketplaces have more flexibility to offer a wide range of products with minimal inventory and warehouse costs. Partnerships with other retailers or brands also allow expanded product selection to a larger network of consumers and the creation of alternative revenue streams, such as data monetisation and digital advertising.
Retailers should view marketplaces as a way to enrich their product offerings and become a destination where people can find everything they need. For example, Vicinity Centres, which has 61 physical retail destinations in Victoria, has partnered with Click Frenzy owner, Global Marketplace (GMP) to expand its omnichannel retail presence.
Additionally, many retailers continue to push e-commerce offers and promotions, despite thin profit margins.
Instead, retailers should consider robust dynamic price-matching algorithms that can not only scrape data and analyse the best price from competitors but also identify the right source for comparison.
Pillar 3: Supply Chain Optimisation
As shopping continues to shift to digital channels, many retailers find their fulfilment costs are rising. Supply chains have undergone immense disruption over the past couple of years, with shipping becoming more expensive, slower and less reliable.
While retailers struggle with fulfilment, AusPost research shows that fast and free shipping are key drivers of sales.
Monash Business School found that consumers prioritise free over fast shipping even more than their global counterparts , and a lack of free returns was a top turn-off for half of Australian consumers.
Fortunately nearly all retailers can generate significant efficiency gains in the area of both fulfilment and returns by refining their supply chain. In many cases, making small changes can generate significant returns, such as auto-populating the shipping option to one that is more cost-effective for shoppers.
Pillar 4: IT Modernisation and Big Data
It’s not surprisingly that e-commerce profitability is tied closely to technology—and with good reason. Data analysis, AI and machine learning are increasingly being adopted across the retail sector.
With enough high-quality data, retailers can identify trends that can help anticipate buying patterns, optimise inventory levels, right-size the workforce, and set prices and promotions that maximise revenue. AI can also be used to power solutions—from 24/7 customer service chatbots to customised product recommendations—thus helping retailers increase their profitability in the burgeoning digital world.
Robotic processing automation (RPA) is another powerful opportunity. Many warehouses are woefully out of date, relying on humans to collect items for digital orders. Through the use of scanners, conveyor belts, robots, automated forklifts, exoskeletons, and drones, the time spent at every stage of the fulfilment process can be significantly reduced.
Although virtually all organisations recognise the value of technology, many stop short of implementation due to cost concerns. However technology infrastructure investments are increasingly not just enablers of growth but key to viability. Our research has shown that IT infrastructure investments can pay back in two to three years, due to increased conversion, reduced operating costs and increased productivity and quality.
Currently many retailers are experiencing e-commerce profitability due to the huge surge in online retail driven by the pandemic. But few are taking a holistic approach to maintaining sustainable growth and retention over time. Retailers need to ask themselves serious questions around customer acquisition and retention, look at ways to optimise catalogue and supply chain, and figure out how they can leverage data and analytics if they are to survive and thrive through the next decade.
By Bradley Grinlinton, Publicis Sapient
This article was first published by Inside Retail magazine