The Future of E-Commerce: Creating a Competitive Advantage with Supply Chain

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The e-commerce market is rapidly expanding in Australia. Retailers and e-tailers increasingly need to review their strategy and drive competitive advantage via their supply chains.

The global e-commerce market has been expanding rapidly and is expected to continue to grow at 12 percent CAGR over the next three years (see figure 1). The Australian e-commerce market is also growing strongly. In 2017, online purchases in Australia grew by 18.7 percent to reach $21.3 billion, predominately due to significant online growth in variety store and fashion purchases. In contrast, traditional retail channels only grew by 2.5 percent over the same period.

While the e-commerce market is experiencing significant growth and retailers must fully embrace the changing e-commerce landscape, growing customer demands for better, faster, and cheaper delivery are escalating margin pressures and challenges across the entire value chain. Now more than ever, retailers and e-tailers need to build a flexible supply chain that is both cost-efficient and includes last-mile capabilities to protect their margins and maximise their growth.

Non-adopters and slow adopters struggling to survive

Many Australian retail stores are struggling as a result of changing customer expectations and the emergence of e-commerce giants such as ASOS and The Iconic. Specialty Fashion Group sold its chain stores Millers, Katies, Autograph, Crossroads, and Rivers to Noni B after recording an after-tax loss of $8.8 million in 2017. The company announced that it will focus on e-commerce and expanding the wholesale business of its remaining brand, City Chic. Similarly, Australian department stores have struggled to combat e-commerce disruptions, with Myer, David Jones, and Target all suffering significant losses. In response, Target is closing 305 stores (20 per cent) and will rebrand itself as a mid-tier boutique retailer.

Other brands have been hit even harder. Oroton Group and Topshop, for example, have both gone into administration. The Sydney Morning Herald reported that under-investing in an online presence was a major contributor to the latter’s downfall. Meanwhile, Esprit closed all 67 of its Australian and New Zealand stores in 2018, citing non-performing physical retail stores for the exit.

Building Competitive Advantage Through the Retail Supply Chain

As customers continue to embrace e-commerce and online purchases become the norm, offering a superior shipping service is becoming more important to the overall customer experience. According to Temando, a shipping and fulfilment software firm, 80 percent of shoppers say they will buy again if they have a positive shipping experience, while 59 percent say a negative experience will stop them from making future purchases.

Australian consumers now seek faster and more convenient delivery options such as same-day delivery, click and collect, locker collection, and specified timeslot delivery. However, Australian retailers have been slow to react, with less than 40 percent providing such options (see figure 3). This is leading to higher levels of cart abandonment and lost sales. To remain competitive in an increasingly crowded market, retailers need to provide a diverse range of delivery options and a seamless shipping experience.

In the future, retailers must build a flexible supply chain to ensure that delivery satisfies customers’ ever-changing expectations. Retailers’ underlying supply chain will need to fundamentally shift from a “push” model (pushing cases and pallets to physical stores) to more of a “pull” model (pulling customised baskets to desired locations), with increased emphasis on last-mile delivery.

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A.T. Kearney is a leading global management consulting firm with more than 3,600 people working in more than 40 countries. A partner-owned firm with a distinctive, collegial culture that transcends organizational and geographic boundaries, they work with more than three- quarters of the Fortune Global 500 as well as with the most influential governmental and non-profit organizations. With nearly 100 years of experience, procurement is not only a capability which the management consultancy was born out of but is also one of their largest offerings.

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