Examining the new reality for brick-and-mortar businesses

To adapt to the explosive growth of omnichannel shopping, retailers will have to rethink everything, including their supply chains.

A shopper walking quickly and swinging shopping bags in their hands

Understanding the omnichannel experience

Online shopping today accounts for around 7% of global retail sales. That might sound low, but when you consider that in five years’ time the figure is predicted to reach 20%, you get some idea of the phenomenal growth rate of this channel. Clearly, shopping behavior is changing and, in the most mature markets, brick-and-mortar stores are on the decline unless they are discounters or convenience outlets.

Andrew Cosgrove, Global Lead Analyst, Consumer Products and Retail at EY, says the shopping journey is evolving rapidly into an “omnichannel” experience — meaning consumers use many different routes to reach the point of purchase. Even if they don’t buy online, around 65% use the internet in some way during the shopping process. “It’s non-linear,” explains Cosgrove. “Consumers browse online and visit comparison sites as well as going to stores.”

Changing business models

So what are the implications for retailers? Clearly, they can no longer rely purely on traditional business models. But the sheer cost of setting up omnichannel services — including delivery to the customer’s home — risks dragging down margins. “The problem is that if you don’t do it you may protect your profits in the short term but, ultimately, you might lose your customers altogether," Cosgrove says.

In a recent EY survey of the world’s largest companies, 81% said their supply chain was not fit for the purpose for omnichannel shopping. Cosgrove says the solution is that omnichannel has to stop being an afterthought and instead be built into the entire value chain, starting with product design. For example, businesses could design products that are cheaper and easier to ship individually.

More agile supply chains

As part of this overhaul, the supply chain must also change. Traditionally, supply chains are set up to deliver large boxes and pallets, whereas online customers want single items. “Supply chains have to become much more agile and flexible,” Cosgrove says. “Now that supply chain is responsible for customer delivery, it’s very visible. It’s gone from being back of house to front of house.” In some emerging markets, manufacturers are exploring going direct to consumers and bypassing retailers altogether.

These trends will only accelerate over the coming years: the dawn of the internet of things means that sensors will track our every purchase. This technology can help sellers discern a pattern of repeat purchases ... and act on it. “We will start to see a shift from shopping to automatic subscription and fulfillment," Cosgrove says, noting that such shifts are already happening with products such as powdered milk formula for babies. As traditional shopping is increasingly replaced by “auto-replenishing,” that will present yet another challenge for retailers to master, if they are to survive.