Thierry Elmalem
Author Amy Onorato
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The Peak E-Commerce Assessment identifies retailers’ shortcomings rapidly so their digital platform is ready to handle high sales volumes.
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Historically, e-commerce has been loss-making due to excess cost of free shipping, order preparation and last-mile delivery. Retailers have responded to consumer demand and made investments to establish working e-commerce models, aiming to achieve profitability over time. But uncertain times have served as a wake-up call for retailers. Now, e-commerce is not just an ancillary service – it’s a critical channel. By 2023, e-commerce is expected to make up 22 percent of total retail sales worldwide, netting $6.5 trillion in sales by 2022 in the U.S. alone. In Europe, online grocery surpassed 10 percent market penetration just this year, due to a sudden spike in demand prompted by the COVID-19 pandemic. Now, we’re taking a look at how data, technology and operations can maximize revenue, optimize fulfillment and provide better experiences for consumers whose shopping habits have changed in the wake of retail’s “new normal.”
To start, it’s important for retailers to get back to the basics. According to Invesp, customer acquisition costs businesses five times as much as retaining current customers. With consumers shifting spending habits amid the pandemic, retailers need to focus on building longstanding relationships. Thierry Elmalem, senior managing director, EMEA, Publicis Sapient, says retailers should examine existing e-commerce and data capabilitiesin two areas:
Typical Impact: +5-10% average basket, 1.0-0.5% improvement in commercial margin, 20% savings on acquisition costs
Time to Market: 3-6 months
Feasibility: High
Even after mastering the basics, e-commerce still structurally loses money. Retailers should consider ways to create additional revenue in accordance with their brand promise and values.
According to Publicis Sapient data, 55 percent of people tried a new retailer and 74 percent purchased a product from a brand they hadn’t purchased from previously throughout the pandemic. With consumers willing to try new things, loyalty programs need a reboot. With a membership model, consumers pay an upfront cost for access to things like free delivery or premium content, “so when you start the year, you know that a lot of your fixed costs are going to be covered. This has worked very well for retailers like Costco in physical retail and for Amazon Prime in the e-commerce space,” Elmalem says, noting Amazon Prime generated $19 billion of income in 2019, with Prime members spending 2.3 times more on average than a non-member. Though membership programs can benefit retailers and consumers, retailers must consider how to make the option attractive to shoppers by offering products and services people feel are valuable.
“In the past, people were primarily looking for value through savings,” Elmalem said. “Now, people value time and convenience and they are ready to pay for convenience.”
Typical Impact: Membership income and impact on loyality
Time to Market: 3-6 months
Feasibility: High
"In the past, people were primarily looking for value through savings, now people value time and convenience and they are ready to pay for convenience."
The largest cost item in any e-commerce P&L is fulfilment. Retailers are experimenting with different fulfillment models (fully manual, hybrid, micro-fulfillment, click-and-collect, etc.) to increase efficiencies. Many retailers are collaborating with services like Instacart, Deliveroo or Uber Eats as a low-cost, rapidly scalable solution to optimize delivery and add capacity. In addition to choosing the right operational model, retailers have to master inventory and forecasting with data and AI. Traditional replenishment models focus on historical sales, preventing retail supply chains from responding fast enough to deploy inventory in times of crisis. New models can capture a broader set of inputs and use machine learning to sense demand earlier, enabling creative ways to meet customer needs.
Typical Impact: 20% savings on total cost of order
Time to Market: 18-24 months
Feasibility: Complex
Digital IT costs are an important part of any e-commerce strategy. It’s important to review IT operations with a profitability lens and make sure they work to provide visible benefits to customers to drive higher returns from their investments. Having an organization equipped to move quickly is also critical to ensuring success. To build talent at scale and reduce costs, some retailers are leveraging offshore teams to hire and maintain ongoing operational infrastructure, resulting in savings of 20-30 percent.
“Whether it's frontend or the backend systems, you need a team able to develop and to improve your customer experience on an ongoing basis,” Elmalem said. “It's not a one-off – you need to evolve your platform, improve the experience and provide new services. It is never ending.”
Typical Impact:20-30% cost savings
Time to Market: 3 months
Feasibility: Medium
"Whether it's frontend or the backend systems, you need a team able to develop and to improve your customer experience on an ongoing basis. It's not a one-off – you need to evolve your platform, improve the experience and provide new services. It is never ending."
Thierry Elmalem
Senior Managing Director, Management Consulting, EMEA
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