Physical stores are the key to ecommerce success

Paul Boyle, CEO of Retail Insight discusses how online grocery has adapted during the pandemic and the continuing vital role of the store.

Prior to the COVID-19 pandemic, retail watchers and the media at large were quick to predict the demise of bricks and mortar retail. With a swathe of store closures and an ever-growing range of shopping opportunities online, from mobile to social commerce, this form of shopping looked set to dominate the retail landscape.

As national lockdowns forced many consumers to remain indoors and work from home, this led many to automatically switch to ecommerce. As such, the arrival of the pandemic would be seen as the final nail in the coffin.

Increased demand for online

For grocery, this tells a similar story. Data from Nielsen shows that online’s share of FMCG sales accounted for 14% in the four-week period to 11 July, which is a 115% jump compared to the same period last year. Consumers have been quick to adapt to shopping for their groceries online – many of which had never done this pre-pandemic. However, whilst the demand for online grocery has accelerated, retailers themselves have also had to work quickly to adapt to this surge in demand.

The ease and convenience of online shopping has also increased consumers’ expectations, who expect to receive their orders as quickly as it was to order them. This means retailers are under increasing pressure to fulfil huge orders and deliver them without much delay, and why bricks and mortar stores can play a crucial role in this shift to ecommerce.

Why stores are critical for online’s success

Supermarkets are built with convenience in mind, meaning that they are almost always within a near distance of where consumers live. It therefore makes them ideal locations for retailers to use as fulfilment hubs for online orders or click and collect. If you think about it – most of the stock is already there on the shelves.

In what is being called the ‘New Retail’  a phrase coined by Alibaba’s Jack Ma – we’re beginning to see the lines blur between on and offline commerce as physical stores become a functional part of the supply chain, and integral to the success of the online operation. In the US, Walmart uses some of its 4,756-strong store network to fulfil online orders, while Target deploys its 1,833 stores and 41 distribution centres to respond to both online and in-person shopping.

Ma has put his money where his mouth is when it comes to the New Retail concept, initially mooted back in 2016, with Alibaba investing $3.6bn to gain a 72% stake of Sun Art, a Chinese grocery and household retailer. An initial investment was to learn more about customers and boost online sales but it has become increasingly clear that the physical stores offer even more in the way of logistics and delivery opportunities.

This, and Amazon’s acquisition of Whole Foods in 2017, is further evidence that online convenience is becoming dependent on decentralised and specialist suppliers to fulfil their expansion ambitions. In Amazon’s case, it is a crucial element if they want to become a significant challenger in the mainstream grocery space.

The joined-up experience

The New Retail concept is also paving the way for rapid delivery, a trend first explored during the pandemic. Investment by Amazon in food delivery service Deliveroo not only saved the latter from almost certain demise, but added even broader rapid delivery capacity to Amazon’s proposition. Instacart has also been a huge success in the US throughout the pandemic, and has partners with multiple retailers such as Aldi, Costco and Kroger to fulfil grocery deliveries by leveraging their store networks. The surge in demand, led the business to be valued at nearly $14 billion in June 2020.

New Retail comes down to more than just using a store network to send and receive goods. It is, instead, about squaring the circle when it comes to customer experience. All too often consumers find themselves with an ongoing need from their online shopping experience – a repair or return for example – but cannot complete their journey via the offline version.

The New Retail concept recognises the need for retailers to integrate all of their assets to not only create great physical shopping experiences, but also to satisfy those using the online channel as they realise that their stores can also be used as micro-fulfilment centres, leveraging their forward deployed inventory, and opening up the opportunity for consumers to finally enjoy a 360-degree experience that delivers all of the benefits of both on and offline commerce, with far fewer of the inconveniences.

The original article featured in eDelivery and can be found here.

Written by Paul Boyle

Paul, a Master's graduate in Engineering, became CEO of Retail Insight in 2011 having previously served as COO since the business was founded in 2005. He enjoys everything about Retail Insight; our people, products, and partners. Prior to Retail Insight, Paul worked at P&G and HJ Heinz in Commercial and Strategy.