By: Nimit Pahwa, Manager & Piyushi Pawan, Consultant, Retail Reply
Nimit Pahwa, Manager, Retail Reply
With the rapid pace of technological advancement and ever-shifting consumer habits, a revolution in the supply chain is unavoidable from the ground up. Retail Reply, experts in digital transformation and customer experience, have identified the top forces that will shape supply chains this year and beyond.
Changing customer behaviour
It is no secret that an accelerated shift to digital has been accepted as a key change in customer behaviour. Organisations must prepare now for what comes next. Consumer preferences have shifted from traditional bricks and mortar stores to online channels. However, within the next five years, Gartner predicts that e-commerce will no longer be a differentiator for retailers to stand out among the competition. While e-commerce sales are increasing, the yearly rate of increase is slowing down and is forecast to drop from 17.9% in 2021 to 13.7% in 2025.
Accurate inventory visibility will be the key driver to gain customer trust and differentiate retailers from the competition. Having the right products on the shelf, a better visibility of what is available across the supply chain, and the right fulfilment options will be paramount to meet the customer’s expectations.
Additionally, an upcoming phase of retail sales that combines entertainment with instant gratification is live commerce. In this model, products are featured on social media platforms and livestreams therefore encouraging the customer to participate, provide feedback or instantly purchase products. According to a McKinsey report, live commerce has established itself as a major sales channel in China with two thirds of Chinese consumers having made a purchase from a live stream.
Organisations must endeavour to better understand the scale of this model as consumers, particularly Gen X & Z (44% of those that spend online), become growingly interested in this new channel. It is vital that firms ensure supply chain capabilities are flexible to cater for the swell in demand and still deliver as promised based on the impulsive buying from this new segment.
Sustainability
Piyushi Pawan, Consultant, Retail Reply
Retail Reply believes that there are two ways to achieve sustainability objectives: the reactive or the proactive approach. For example, with regulations in the ESG domain, it is likely that companies will keep track and publish data on how sustainable their products are while moving across the supply chain. Introduction of the Plastic Packaging Tax from April 2022 will require manufacturers and importers to collect information on the product such as packaging weight, waste generated and compliance certificates. Retailers will also need data based on their products and the size of their business to meet recycling targets. With 8 million pieces of plastic flowing into our oceans everyday, these regulations follow a ‘reactive’ approach.
On the other hand, the proactive approach is the conscious effort taken by society to follow sustainable ways of living such as reducing wastage, growing produce, and supporting local and organic food. As an example, it is cheaper for businesses to source from the far east, but it comes at the cost of a higher carbon footprint. Organisations are therefore shifting their approach to proactively reporting carbon emissions and working towards near shoring. With consumers becoming increasingly environmentally conscious, businesses with higher carbon footprints are likely to experience a loss of customers as they switch their loyalty towards more sustainable alternatives – even if they must pay a premium price. A study from YouGov discovered that 57% of UK consumers are willing to pay more for sustainable goods.
Firms must also ensure that the suppliers in their vertical chain are compliant with ethical and sustainability practices. Failures in companies’ supply chains can negatively impact their brand, loyalty, and overall performance.
Digitalisation and automation
Digitalisation can deliver operational effectiveness and develop value propositions across the organisation. Companies will continue spending efforts to improve supply chain efficiency while keeping an eye on the delivery of new value propositions. Auto-replenishment is an example of an emerging technology within the digitalisation and automation space. This implies that retailers will know precise details about how consumers shop, what they shop for and their current stock levels.
These levels will be monitored by connected devices using RFID and thus automatically reordered when they are running low. It is understood that Amazon is currently researching into sensor-based refrigerators which identify expiry dates and inventory required as part of the buying and usage pattern. A powerful future proposition for the future may be to integrate this technology with Amazon Go.
Although concerns exist around data privacy, research suggests that customers are open to intelligent grocery shopping. Oracle’s Consumer Behaviour Research found that 48% of consumers think online automatic replenishment would be important to their future experience. Supply chains of the future will need to sense, plan, and expect to execute the fulfilment of the demand of these channels.
Another piece of Gartner research reveals that by the year-end of 2025, global fashion retailers will use AI and automation to create a more targeted assortment, which will reduce product range by up to 30%. On one hand, this might mean less personalised products, but on the other, it may appeal to sustainable shoppers. The potential impact of this variety reduction is positive as it will help deliver efficiency and productivity in supply chains, organisations must be ready to take advantage of this.
Finally, a game-changing technology that will radically influence buying behaviour is the metaverse. Within this virtual world, every physical entity can have a digital counterpart known as the digital twin, which the foundations of the metaverse will be built upon. Retailers and consumer goods organisations are looking for ways to gamify the customer buying experience. Brands such as Gucci, Ralph Lauren and Burberry are already selling digital apparel and providing immersive brand experiences on video gaming platforms like Roblox and Pokémon Go. According to Business Wire, the Global Twin Digital market size is expected to reach $63.5 billion by 2027.
This could open a whole market for virtual ownership managed by non-fungible tokens (NFTs). The idea of owning the physical and digital counterpart has created an entirely new revenue stream. For example, the ability to build and own a virtual house could altogether change the shape of the construction industry and their partners who supply for them. Developing modular homes could potentially transform the face of the construction industry and step towards sustainable solutions. The acceleration of modular building will require a different integrated supply chain partnership and planning.
Supply chains must cater to the model of impulsive buying in this virtual world. New fulfilment models are likely to support this new buying pattern of customers. The metaverse poses immense potential as an influence in attracting traffic, communicating marketing vision, and providing an excellent sales channel.
In conclusion, Retail Reply believe that change is inevitable. Organisations with flexible supply chain operational and digital capabilities are in a better position to respond to unknown evolutions. To cope with the disruptions in the dynamic world it is essential that businesses invest in increasing the maturity and flexibility of their supply chains.
