May 23, 2017
From a Small Corner Shop to eCommerce, A Tale of Few Retailers
Over the past century, the retail industry has grown from a small corner shop to large department stores and malls . Now with stores closures exceeding 8,600 over the course of the entire year, Amazon, who disrupted the entire industry has opened five brick and mortar bookstores and has a plan to open six more across the country. Let’s look at how some are adapting to this transformation while others are not.
With the development of the Internet during the early ‘90s, the retail world saw a shift in the shopping behavior. The now online retail giant Amazon took full advantage of the rise and development of data-centric search engines and the programming languages like Java to create powerful online businesses and bring the interaction with their customers to a whole new level. In 1995, Amazon’s CEO Jeff Bezos took a bold move to launch a new online business venture after he read a report which projected a 2,300% annual growth for web commerce. Bezos created a list of the 5 top most promising products and decided to open up an online bookstore due to the massive worldwide demand for literature . The company’s yearly sales jumped from $510,000 in 1995 to $17.5billion in 2006 to $351.8billion in 2016 (a 1,910% growth) .
Moving at the speed of a startup
For the past few years, Walmart has been making sustainable changes to their business model to accommodate the most recent retail trends and capture a larger market share of the online world. Many of their initiatives (the free 2-day shipping offer with a $35 minimum order from Walmart.com, the expansion of online grocery around the world, and Sam’s Club’s launch of Scan & Go across the U.S) promote a leading digital experience, convenience and new ways to save time and money. To accelerate their eCommerce development, the company acquired Jet.com, ShoeBuy, Moosejaw and ModCloth as well as creating a strategic alliance with the Chinese brand JD.com. Moreso, during 2018 the company has plans to allocate more capital to e-commerce, technology, and logistics and disinvest in new stores and clubs . They reported a staggering 69% increase in their eCommerce sales in Q1 2017 compared to Q1 2016. Walmart.com now offers 50 million items for consumers to choose from compared to 10 million a year ago .
Invest aggressively vs. cost cutting
Target CEO laid out an ambitious, multi-year strategy primarily focusing on making capital investments instead of cutting costs . Over the past two years, Target witnessed an annual growth of nearly 30 percent in the digital channel sales, and they are consistently outperforming the industry average. This growth is most probably the consequence of the substantial investments they have made in 2014 ($1,072 million) and 2015 ($773 million) in technology . During 2016 they have invested heavily in developing their children brands, and they are redesigning their food business to include express shops (but they still face fierce competition from Walmart who has been upgrading their food offering as well) . Compared to their competitors they also plan to invest up to $7 billion in new technology to improve their digital capabilities, improve their supply chain management and open new stores
How big is eCom after all?
While in 2015, eCommerce only accounted for 7.1% of the retail revenue, this percentage is forecast to grow to about 9.8% by 2019 as companies have already taken a series of initiatives to strengthen their market position, maintain healthy and steady profit margins and expand their operations into the digital world . However non-store retail sales is growing at about three times the rate of the retail store sales growth.
Adapt or Die
Meanwhile, some of the retailers who failed to adapt faster have been forced to make tough choices, scale back in operations and improve cash flow. Sears lost 95% of its total value between 2006 and 2016 and has recently announced they will close up to 42 stores during the second quarter of 2017 in an effort to cut down costs by $1 billion, improve cash flow and prop up the remaining operations . Sears and Macy’s, who were once giants are now on the brink of bankruptcy because they are still hung on antiquated ways of doing business and have failed to take the appropriate technological steps to meet the modern requirements of their customers .
Data Management at the core of the Business Strategy
Retailers such as Amazon, Walmart, and Target have recognized the shift and transformed their business model to absorb and take full advantage of the latest trends in the digital revolution.
They strive to drive revenue growth, increase operational efficiencies and enable business change on a larger scale. But none of the results would be possible without an intensive focus on finding, gathering and analyzing the most relevant business data and creating these new channels to engage with the customers, bring new and innovative products to the market and finding new operating models to expand into new markets.
As Sears’ history has shown us, the lack of a consistent data management strategy could prove fatal for any business, no matter how big and influential you are.
Without implementing agile data methodologies companies will never obtain better insights into the competitors’ evolution and invest in the most profitable “pockets” of growth and niche opportunities and allocate the resources in such a way that they yield the maximum return on investment. Successful Retailers understand that in order to give their customers exactly what they want when they want it, they need to create a fully-integrated ‘omni business’, with data at the core of every product and business function .
Watch our free on-demand webinar – Retailers Rely on Product Data Experience, Featuring Guest Speaker Ananda Chakravarthy
image credit – @riley_mccullough, @elifrancis