Will a return to retail drive supply chain costs down for brands?
While the pandemic led to a rapid growth in ecommerce, it also led to an excessive increase in supply chain costs. The root cause of this increase in Supply Chain costs are due to 2 significant components:
- Cost increase due to supply chain disruptions
- Cost increase due to increase in the share of sales from ecommerce
The supply chain disruptions were caused primarily due to localized lock-down regulations and an acute shortage of containers. With the easing of restrictions, this cost has witnessed a cooling off in 2022. However, whether a retail return will help brands save more on supply chain costs is still worth a deeper look.
Before delving further, it’s important to understand how a more significant share of sales from e-commerce impacts overall supply chain costs. Regarding eCommerce, every device in every nook and corner of the world becomes a point of purchase. In other words, the role of the supply chain doesn’t end with transporting to the distributor or retailer. Instead, it’s about transporting up to the end customer.
The additional step makes the supply chain more complex, lengthy, and definitely expensive. Companies do try to recover some of it by charging delivery fees. However, thanks to the intense competition, the delivery fee often has to be subsidized and thus isn’t sufficient enough to justify the increased cost. There is also the problem of reverse logistics. Barring a few categories, returns are pretty standard in eCommerce. The reverse logistics adds to the overall supply chain cost too.
So now you can’t blame brands for silently wishing for a return to offline retail in the post-pandemic world.
Did the wish come true?
Multiple reports have shown that offline footfalls are at par with or better than pre-pandemic levels in most cases.
Interestingly, the growth in footfall has not led to a commensurate growth in offline sales volume. Overall offline conversions continue to be lower than pre-pandemic levels.
The answer lies in a significant change in customer buying behavior that will outlive the last traces of the great pandemic.
Let’s understand this in simpler terms. In the pre-pandemic days, some folks bought most of their stuff offline. Some bought most of their items online. For the rest, it was a mix. For some categories (like fashion), offline continued to be the preferred channel for many. On the other hand, for standardized products like electronics – online has been the winner for quite a while.
However, using both offline and online to make a single purchase wasn’t typical. Is it a corner case or the new normal in the post-pandemic world?
Let’s look at the data. According to a study by Shopify in early 2022, 59% of consumers admitted that they were more likely to check out products online and then purchase offline. Experts named the phenomenon “Webrooming.” Alternately, 54% were likelier to check out a product online but buy offline. This phenomenon is fondly referred to as “Showrooming.” The sheer number of Webroomers and Showroomers makes it very clear:
While shoppers will flock to the offline retail spaces, on its own, it won’t serve much for brands in terms of bringing down supply-chain costs!
So how do brands best tackle this new complication? The answer lies in omnichannel optimization.
Customers are firmly in favor of seamless omnichannel experiences. The same survey by Shopify revealed that 37% of shoppers found it frustrating to wait too long for products to arrive and 23% hated paying hefty delivery charges. They love the online shopping experience but don’t mind driving down to collect their purchases – if it cuts down on wait time and delivery cost.
The retail answer to the above problem would be the BOPIS (Buy Online Pickup In-Store) option. The task for brands would thus be to make their products available in outlets near potential customers.
2 other models are becoming popular too:
- Buy In-store & get delivered to your home
- Buy Online but return to the store
The popularity of the omnichannel models will be a win-win for both the brands and the consumers.
Brands must realize that to play the omnichannel game well; they need to change some well-entrenched traditions. For example, for the BOPIS experience, you need not invest heavily in branded showrooms. Strategic Dark Stores are just good enough for a pickup experience.
There is also the need to architect a new system to optimize for omnichannel. Most traditional brands have well-established technology and systems for the former supply chain and distribution. There are thus the “sunk cost” considerations at play when adopting a new system: What about the millions I have spent on my old system? What about my workforce that’s expert in the old system?
The concerns are indeed genuine. At Eunimart, we thus decided to help brands adopt Omnichannel without compromising the well-oiled machinery that’s already in place.
We realized that the real solution for these brand woes lies in a composable commerce architecture – in other words, we don’t force a brand new system upon you. Instead, we compose a new system for you by integrating most of what you already have in place with the best-of-clan missing bits.
If you would like to learn more, we would be happy to demonstrate on a call (https://meetings.hubspot.com/shayak)
At Eunimart, we have been asking questions and framing problems on behalf of brands, retailers, and supply chain companies. Our vision is to help companies generate more revenue with a futuristic approach and growth trajectory. We have built a full stack of AI tools to bolster revenue, supply chain, and omnichannel distribution combined with an incredibly flexible and advanced open source platform to empower the next generation of entrepreneurs who dare to dream in the post-COVID era marked by a shift in the supply chain dynamic.