Retail: Digital technology is transforming business models

6 February 2020

    Paris, France 7th November 2019

    Over the past ten years, the eruption of e-commerce has transformed modern distribution in both industrialised and emerging countries. It has given way to the emergence of new business models among both online platforms and traditional manufacturers. A new value chain is emerging.

    The accessibility of the internet and smartphones has introduced new purchasing tools to consumers.

    E-commerce platforms (Amazon, Alibaba etc.) offer substantial advantages over traditional retailers. For example, they offer immediate access to a disproportionate number of products. The numbers of which can reach more than 100 million (in the case of Amazon), which traditional stores are not able to do. They deploy dynamic commercial strategies and are even beginning to offer payment tools, for example, Ali Pay, WeChat Pay in China, or Mercado Pago in South America.

    Furthermore, the platforms are characterised by speedy deliveries. Half of the products bought in this way are delivered within 24 hours and some even sooner, with Cdiscount in Paris delivering within 30 minutes ("Express service”). The platforms are thereby able to respond to new customer expectations related to changing ways of working and demand in cities.

    The new face of retail

    This is about a global transformation since it concerns nearly all continents as well as developing countries and emerging countries in Asia and South America. 750 million Chinese people have internet access, and 550 million of them are buyers. Chinese internet users have an exceptional appetite for e-commerce and operate via smartphone.

    This phenomenon has disrupted the entire sector, both in food and non-food areas. Traditional chains in industrialised countries have rapidly converted to digital. John Lewis, for example, a historic retailer in the United Kingdom established in 1864, now conducts more than 40 per cent of its sales online.

    However, e-commerce still occupies a minority place: It represents just 8 per cent of all retail. It is growing faster in non-food sectors than in food sectors. Consumer appetite varies depending on population categories. It is particularly well developed among Millennials who use it as their main purchasing channel over spending in traditional stores.

    This current transformation is, in fact, resulting in a multiplication of distribution channels as well as ways of buying: Retail has entered the multi-channel era. In addition to the traditional act of purchasing goods in a store, we also see online purchasing and home deliveries, as well as online purchasing and in-store collection, simple online information searches etc. “It has been a radical change. Now we are talking about the omnichanel consumer. The consumer has endless touchpoints” says Rodrigo Sanroman, VP Finance, global E-commerce at Unilever.

    What is indisputable is that the change is irreversible and that there will be no going back.

    Thanks to new technologies (artificial intelligence, data, blockchain, the use of voice etc.), innovation can be expected to accelerate even further. Transformation in terms of mobility (drones etc.) may also impact the sector. It’s hard to imagine what the act of buying and the retail industry will look like ten or twenty years from now. We can wonder about how many stores will be in the street because I am sure non-food stores will no longer exist. Everything will be online, it is a question of generation changes” says Emmanuel Grenier, CEO of Cdiscount.

    All stakeholders (platforms, traditional retailers, manufacturers, logistics professionals etc.). must take this into account, monitor current changes and adapt their strategies. What’s being created here is a whole new value chain.

    The unknowns of e-commerce

    This challenge concerns first and foremost e-commerce platforms. Amazon lost money over a number of years before becoming profitable, but the company has managed to benefit from the support of investors who have helped it consolidate its original model.

    Furthermore, numerous e-commerce companies (Uber, Deliveroo etc.) initially made a loss, and have yet to consolidate their business models. E-commerce companies must manage their costs in order to offer their customers better prices. Innovation is at the heart of their strategies because this helps to improve quality, reduce delivery times, lower operating costs and integrate a sustainable element (recycling packaging, reducing carbon emissions when transporting goods and delivering to the customer etc). In an increasingly competitive world concerned with transparent, e-commerce companies that do not integrate sustainable development and social inclusion into their strategies will sooner or later find themselves forced out of the market.

    “Sustainability is everywhere in the business” indicates Stéphane Klein, Managing Director of Pret A Manger France.

    The transformation of retail also represents a challenge for manufacturers, who also need to define new business models. But digital technology also opens up opportunities to interact with consumers. Manufacturers can make their new products known more quickly on these platforms or on their own tools and better promote brands. Digital technology offers a window that allows businesses to expand their user base and create new loyalty mechanisms. It also makes it possible to get information on consumer buying habits and to therefore come up with targeted actions.

     

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