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  First Thoughts

    Dan Gilmore


    Supply Chain Digest

Dec. 11, 2020

eCommerce Eats the World

Transformative Impact on Society, Business and Supply Chains

We are in a truly astounding time.

Right now, we have two forces that are changing in transformative ways society, business and thus supply chains as well.

The first force is of course the virus pandemic. In addition to now nine months of lockdowns, mask wearing, infections and a huge number of deaths, even with vaccines seemingly in the offing our world is unlikely to be the same.

Gilmore Says....

Many brands will clearly just not make it. But those that do their own transformative consumer direct acceleration programs have a chance.

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As just an easy example, the American Restaurant Association reported this week that 100,000 establishments - one out of six - will be permanently closed by the end of the year. The survey also found that 40% of operators still in business think it is unlikely their restaurant will still be operating six months from now if there are no additional relief packages from the federal government. Will the restaurant sector even remotely ever what we have known for decades?

The second transformative force is ecommerce. The interesting dynamic is that this megaforce has been turned into a super megaforce by the virus pandemic, dramatically accelerating an already powerful trend.

I have heard several commentators speak of the pandemic as having ushered in 10 years of ecommerce growth and change into a single year, or something to that effect.

It was in August 2011 that Marc Andreessen, co-founder of Netscape, one of the first web browsers, coined the famous phrase "Software is eating the world" in a Wall Street Journal op-ed. His point was basically that every physical thing that could be replaced by a digital solution is and would be.

It is now ecommerce that is "eating the world." Here are the main vectors of change:

Astounding Growth: Until the pandemic, US ecommerce sales were growing at a robust 14-16% each quarter versus the prior year. That looks like slow growth now.

On-line sales in Q3 grew 36.7%, according to data from US commerce department, after an almost mind blowing rise of 44.5% in Q2. It won't take too many more quarters like that for there to be a huge transformation in the retail sector.

Impact on Brick and Mortar Retail: The brick and mortar retail apocalypse continues on. CoStar Group, one of the top sources of retail real estate data, said this week that 40 major retailers filed for Chapter 11 protection and 11,157 stores were closed so far in 2020, both numbers representing new annual records.

The enormous growth of ecommerce will inevitably keep the number of store closures at high levels. It appears we are moving down a path where there will be a small number of physical mega-retailers (Walmart, Target, Kroger, Home Depot, etc.) and perhaps not much else.

There is justifiably some thinking that, for example, the department store concept is no longer really viable, outside perhaps a small number of select locations.

I made one of my own rare trips to the mall last weekend for some Christmas shopping. On a Saturday afternoon three weeks before December 25, I easily snagged a close parking spot and found store traffic that looked more like a day in June than peak season. Rather depressing, actually.

Negative Impact on the Retail Ecosystem: Thousands of companies and millions of jobs are dependent on serving the traditional retail stores, from mall and shopping center operators to software vendors, manikin makers, secret shoppers and many, many more.

As malls inevitably close, what will be done with these giant properties? An urban planning challenge for sure.

Technology vendors that provide solutions for store replenishment, point of sale systems, shopper analytics, RFID and more will be under pressure. I am not saying they are going away tomorrow, but many that are heavily dependent on brick and mortar will certainly struggle as store counts decline and chains go away, at least in terms of physical stores.

Changing Consumer Goods Company Strategies: What if you are company, such as those in apparel, which relies heavily on brick and mortar retail segments? You better get a new strategy, that's for sure.

At a high level, you seem to have two choice: sell through Amazon – or go consumer direct.

We saw this coming with Nike, which last year said it would stop doing business with tens of thousands of retail chains and focus globally on just about three dozen. It also launched its Consumer Direct Acceleration program.

Many brands will clearly just not make it. But those that do their own transformative consumer direct acceleration programs have a chance.

Changing Customer Expectations: We thought Amazon was altering customer expectations 10 years ago, when it took a number of days to get your order. Now, you place an order and it seems to be there the next minute. Every day, packages on the front porch.

This summer, I ordered a specific new AC power adapter fpr an HP laptop from Amazon early on a Saturday afternoon. It was delivered on Sunday afternoon. How is that even possible?

What's next, teleportation? We are headlong into the era of instant gratification in a way that not long ago would have seemed impossible or at least outrageously too expensive to consider. But we were all wrong.

The Dominance of Amazon: Setting the pace and ever growing its marketshare is of course Amazon. It still represents a relatively modest share of the total US retail market, but that is changing, and Amazon is likely to see close to $400 billion in total sales in 2020, gaining rapidly on Walmart's $500+ billion.

One often overlooked aspect of Amazon's dominance is its limitless power to control the display of what products appear where on product searches. That is a power to build – or to destroy – vendors increasingly dependent on sales through Amazon to survive.

Will the government at some point decide Amazon has become too big? And what then? I will note in the early 2000s there were were similar and reasonably valid concerns Walmart would take over too much of the retail industry. But Walmart's share began to flatline, and the scrutiny ended.

Where's is it all headed. I don't have a crystal ball, but it's already become a very different world. I'll note that on the CSCMP virtual conference this September, Arthur Vadez, head of supply chain for Target, envisioned a world where retailers became what he called "logistics hubs," collecting consumer direct shipments from all sources, then executing last mile delivery exactly as the consumer desires.


Ecommerce is indeed eating the world.


Is ecommerce indeed "eating the world? What did you think? Let us know your thoughts at the Feedback section below.

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