Distinction or Extinction: Why It’s Game Time for Main Street
eCommerce has been cannibalizing Main Street’s sales for years, and thanks to the pandemic, that trend has exploded and doesn’t show any signs of slowing down. By 2025, US eCommerce sales are projected to reach $563B which is estimated to translate to over 5B packages being shipped to consumers!
Although many companies have already cashed in on this trend, for others, it’s become clear that traditional approaches to selling no longer work in the face of change. Now is the time for retailers to clearly define new aspirations, make fundamental changes to their operating models, and rethink retail.
eCommerce: From the noughties to the roaring ’20s
In the early 2000’s eCommerce only accounted for 1.3% of US retail sales. This all began to change when pioneers like Amazon began to lure consumers to their websites, and US eCommerce sales slowly but steadily increased to ~14.7% of retail sales pre-pandemic.
During the pandemic, evolving consumer behaviours became entrenched. Consumers are now accustomed to making purchases from nearly any channel, device, and seller they choose, putting additional pressure on retailers to accommodate this new preferential behaviour.
As we slowly emerge from the pandemic and see pent up demand take flight, the question becomes what trends will shape the future of eCommerce through 2021 and beyond, and how will the industry evolve to accommodate the new?
Here’s a snapshot of 4 trends we see:
- Headless tech stacks reign supreme
- Technology redefines Online and Offline experiences
- Data drives embedded fintech, personalization, and more
- Curation and control fuels the D2C boom
1. Headless tech stacks reign supreme
Just as Amazon once set the bar for next-day delivery, headless eCommerce companies are now setting the bar for page speed and the overall website experiences they create. Two factors are driving this trend. The first is the dramatic increase in eCommerce spending last year, which helped catapult the industry forward by as much as five years in eight weeks, according to McKinsey data. The second is that thanks to Shopify, dropshipping wholesale marketplaces and distribution platforms like Instagram Shopping, it’s never been easier to spin up a direct to consumer (D2C) digital brand.
The link between performance and conversions are understood, but the impacts of improving site performance are still underestimated. It’s only a matter of time before we cross the chasm.
At Inovia, we believe that the future of the eCommerce tech stack isn’t one platform but rather microservices that seamlessly connect all of the back-end applications required for effective commerce. Take Nacelle*, which integrates with best-in-class monolithic solutions and individual back-end solutions. Nacelle acts as the connective tissue between the various systems and the abstraction layer on top that enables businesses to go headless. Barefoot Dreams observed a 64% increase in conversions after launching with Nacelle.
The next generation of API first microservice applications will be designed to support rapid deployment and scalability without impacting the entire application of platform services. Customer-centric point-solutions with a laser focus on a specific job to be done, that are conducive to multi-channel operations will unlock the benefits of omnichannel. Examples include but aren’t limited to; multichannel content management and distribution; two-way data syncing and real-time inventory management.
Simply put, those whose tech stacks have the flexibility to accommodate new solutions over time will continue to evolve and thrive long term.
2. Technology redefines Online and Offline experiences
The post-pandemic consumer expects consistency of information and delight across all interactions. Retailers need to take advantage of cutting edge solutions and deliver feature-rich experiences to consumers regardless of the channel.
First-generation eCommerce businesses are embracing “shoppertainment”, adding more depth, context, and emotion to digital sales creating a new form of entertainment commerce. Sephora’s Virtual Artist app uses augmented reality to give customers virtual makeovers, while the newly announced Amazon Salon will use the technology to help patrons visualize themselves with a new hair color. We’re seeing the adoption of high-tech spill over to offline checkouts too with companies like Standard Cognition bringing cashierless technology to high-velocity convenience stores.
The lines between online and offline are blurring, >50% of customers engage with three to five channels during each journey to making a purchase according to McKinsey. Strategic objectives for retailers have shifted to focus on their core channels; reformatting, testing new concepts and pushing the boundaries of what the consumer experience can be online and offline. We’re excited about emerging operating systems that can deliver flexible fulfilment such as Swyft* capable of powering “buy online or ship from store” or systems for “reserve online, try on in-store”; workflow tools to empower associates to better cater to their customers in real-time and emerging social commerce platforms fueling community and product discovery.
3. Data drives embedded fintech, personalization, and more
Retailers are sitting on a treasure trove of financial and other siloed data, generating fresh opportunities for those able to tap into it. Companies like Clearco*, have created new ways to underwrite fast-growing D2C merchants using granular online transactional data. Doing so has helped independent businesses secure new lines of credit, among other borrowing opportunities. And companies like Affirm are capitalizing on the buy now, pay later trend. This payment method is seeing a boom, with 215% Y/Y growth in the first two months of 2021. Consumers using this service are also placing orders that are 18% larger.
Meanwhile, Neo*, a tech company that’s reimagining the way people spend, save, and earn rewards, is adopting digitally native co-branded bank cards in the hope of unlocking siloed customer data for its merchant partners to offer better, personalized rewards.
The next wave of data tools will centre around aggregating first-party structured and unstructured data from different sources and providing a single view of actionable information. What all of this means is that for the first time, retailers will be able to provide transparent product information, and offer unique product bundles and rewards to customers in real-time thanks to their single underlying view of typically siloed data. Formats, experiences, business models, and unit economics will all continue to be redefined.
4. Curation and control fuels the D2C boom
Previously, breadth of distribution and scale was the major focus for department stores and global brands. Department stores tried to be all things for everyone, and traditional brands such as Nike and Adidas operated large vendor distribution programs. With D2C brands increasingly capturing more of the American retail market, retailers are doubling down where they can win. Department stores will shift to driving strong customer experiences and footfall, and brands will turn to a grassroots movement. Nike has publicly announced that they will scale back sales via third-party vendors and will return to what Johnson, one of its early employees, did in 1967: build a strong community and customer loyalty.
Selling direct enables retailers to own the customer relationship end-to-end, collect rich customer data and tighten feedback loops. It also drives more viewers to engage with brand content unlocking key insights relating to buying trends; informing product development; manufacturing and marketing. Direct-to-consumer brands have put great emphasis on building and nurturing their own social communities, with companies like Tribe* embedding white-labelled community platforms into a retailers website to improve customer engagement and long term value.
Switching from indirect to direct channels comes with its challenges and opportunities. We’re excited about the new infrastructure applications supporting direct-to-consumer operations across the entire supply chain, from tools for emerging designers to shape new product lines to cyber risk management for consumer businesses.
On the flip side, small independent direct-to-consumer brands that have embraced an entrepreneurial culture and built engaged communities around new innovative products can benefit from centralized operations. Companies like Moonshot Brands are emerging as new digitally native CPG platforms. By leveraging central operations to manage platform distribution they are creating a unique opportunity in commerce. We expect to see a new wave of tools designed for multi-brand management for example; companies like Broca who are augmenting creatives through AI-powered copy and campaign management.
An Exciting Future to Come
A combination of pandemic-driven tailwinds and rising competition has led traditional brands and retailers to reexamine their approach to commerce. Any business which fails to innovate will struggle to survive, so the stakes are high. Fundamentally, what all of the above-mentioned trends point to is that dynamics have shifted. Now more than ever before, the power is in the customer’s hands.
If you’re a founder working at the intersection of any of these trends, we’d love to chat. Please don’t hesitate to get in touch.
*Inovia portfolio company
