Online Shopping, the Power of Consumers & the Supply Chain

Consumer behavior is having a powerful transformative effect across America.  You may have noticed that U.S. shopping malls are closing at an alarming rate.  According to a report from Credit Suisse, between 20 and 25% of American malls will close within 5 years.  Despite this fact, online sales are projected to grow from the current rate of 17% of retail sales to 35% by 2030. 

The Credit Suisse report estimated that 8,600 stores will close in 2017, a substantial increase over the highest rate of closure of 6,200 stores in 2008, the height of the recession.  What is going on and how does this relate to the supply chain?

The world is in the middle of several revolutions, ‘Titanic shifts’ that will force substantial changes in the current supply chain which was built for retail distribution.  Today, several revolutions are occurring, all at different rates.

1. Consumers are More Powerful than Ever. 

With the advent of affordable, readily available Internet service, consumers have become much more technologically sophisticated, knowledgeable and connected with each other. The rate at which American consumers shop and purchase online has dramatically increased in previous years and brick and mortar retail stores have been affected.  Amazon set the bar. Today’s consumer expects fast delivery of their orders and also wants the flexibility to ship to alternative pick up locations.  Consumers are impacted by social media, the availability of product and company information and peer reviews of products and services.

 2. Vast Amounts of Information are Now Readily Available. 

Analyzing this data can provide valuable insight and lead to new perspectives, ways of doing business and improved decision making.

3. Intervention for Change Using Regulations.

Concerns for health and safety, product counterfeiting; environment, worker protections and other matters have led to new legislation that impacts products and businesses along the supply chain.

A Look at the Impact Consumers are Having on Supply Chains

All over the world, the consumer class has been growing.  Economic conditions are increasing, enabling more people to transition from a status of “subsistence living” to that of a “consumer”.  A “consumer” purchases goods and services for his or her personal use and has an income that exceeds that of merely subsistence. After basic needs have been met, a consumer can consider the purchase of an array of services and goods.

Consumer Diversification and Changing Demographics 

Consumers are not all the same.  Because of vast generational differences in terms of life experience, it is best to consider consumers in multi-generational terms.   Here is a limited look at the population:

Baby Boomers

Currently there are more than 900 million people over the age of 60 in the world.  This group is anticipated to increase in size to 2 billion by 2050.  By 2020, the over 60 population will outnumber the under 5 population for the first time in human history.  This shifting dynamic means that the over 60 population will be responsible for an increasing proportion of demand, especially in advanced economies.  By 2020, the share of wealth that senior consumers hold will also increase significantly.  

This will result in the largest transfer of intergenerational wealth we have ever seen as the Baby Boom generation retires in the next 10-15 years.

Baby Boomers are very comfortable browsing and shopping online.  According to a report by Immersion Active, 66% of people over the age of 50 in the U.S. routinely purchase from online retailers. Baby Boomer consumers prefer traditional sites such as Facebook and tend to prefer one-to-one interaction with retailers and use social media to find information, get in touch with retailers through alternative channels.

Generation X (Gen X)

The first generation to be raised in the transition phase from written to digital knowledge, Generation X is the first to have access to computers in middle school or high school.  Gen X makes up 25% of the U.S. population and claims 31% of its total income dollars.  A report by eMarketer cites that 70% of Gen Xers will make a digital purchase this year and are the most frequent purchasers of the generational groups once they join a loyalty program.

Millennials (Gen Y)

Millennials, also known as Generation Y, grew up using computers and digital devices.  Online, social and mobile-oriented, Millennials are accustomed to getting information and socialization via the Internet.  AdAge research indicates that Millennials spend an average of 25 hours a week online and are highly influenced by social media including blogs.  This is truly the mobile generation:  69% visit mobile retail sites and 41% use mobile coupons.

The change in what consumers want has been monumental over the past few years. The “more is better” attitude towards information and the range of goods and services has served to empower consumers.  Consumers now want a huge array of products from which they can select.

Consumers demand and have access to more products than at any time in human history.  Digital technologies and the Internet ensure that consumers have access to reviews by peers, product information, availability and competitive pricing.  Shopping is at your fingertips.  Also available is information on the companies that produce, manufacture, sell, distribute, warehouse and transport these goods.

Today consumers are far more discerning than ever before and now have the information to make buying decisions that align with their ethics and values.  Want to buy a product that is organic or from companies that use sustainable practices?  Check it out online.  The ability to read reviews of peer consumers on the Internet and through social media is helping to alter and shape the perception and reputation of brands.

What is Fueling Changes to Consumer Behavior?

• Availability of lower cost Internet access
• Social media
• Widespread availability and use of mobile technologies (Smartphones, tablets, etc.)
• Ability to conduct transactions online and via mobile devices

Consumer purchasing today has taken on entirely new levels of complexity.  Today consumers want to be able to buy anything they want from anywhere at any time using any the means of their choice.  No longer are purchases restricted to storefront locations or shopping malls.  Now consumers are in the driver’s seat and they know it.

Enter the concept of “omnichannel retail”.  This multi-channel sales approach enables consumers to have an integrated shopping experience that is seamless through a variety of digital channels and in brick and mortar stores. Gone are the days of newspaper ads, printed flyers and the reliance on television and radio advertising.  Today’s shopper wants a plethora of options, top notch customer service and a consistent experience when shopping.

Testing the economic value of providing digital channels to traditional store shoppers has proved to be insightful.  In a 2016 study conducted by the Harvard Business Review and a major U.S. retailer that operates hundreds of stores across the nation, the shopping behavior of 46,000 consumers was studied.  Each had made a purchase during the 14-month period from June 2015 to August 2016.  73% of these consumers had used multiple channels during their shopping process.  These omnichannel consumers, used Smartphone apps, digital tools, made purchases online or bought in a store and had their purchases shipped.

Research revealed that the more channels that consumers use, the more valuable they are to the retailer. 

With every additional channel the consumers used, the amount of money that they spent in the store increased as did their loyalty.  This is important to note as retailers continue to try to find new ways to generate sales, keep brick and mortar stores open and to structure their supply chains for cost savings, efficiency and to meet consumer needs and expectations.

Why is This All Important and What Does it Have to do with the Supply Chain?

The supply chain was not designed to meet the needs of individual consumers.  It was engineered to cut costs, improve efficiency and move large quantities of bulk goods to distribution points and then to retail stores.  To service these needs, major changes are required in the current supply chain.

New Consumer-Centric Supply Chain Models are Needed

These Supply Chains Must be able to:

• Be highly flexible and responsive, able to deal with high volume, high velocity and at low cost
• Sense changes in consumer demand
• Synchronize planning, manufacturing, distribution and replenishment
• Improve on-shelf availability and reduce/eliminate stock-outs
• Reduce waste and stock holding

• Increase productivity and through-put
• Focus on real time store level perspective to consumer demand
• Use flexible planning cycles to hourly or possibly sub-hourly level
• Measure the supply chain on consumer impact
• Process returns easily

Consumers, Last Mile Delivery and Custom Logistics

The order and delivery process experience is often how consumers measure their perception of the retailer, supplier and the last mile delivery company.

Consumers are gaining even more control over the delivery process.  UPS launched its program UPS My Choice to enable consumers to receive home delivery of goods on the schedule of the consumers’ choice.  First, consumers register and select the delivery features they desire.  Next, mobile alerts notify consumers the day before packages are scheduled to arrive.

For optimal last mile delivery services to be able to meet consumer expectations, providers need access to real time information from the consumer and the logistics company, integrated to their IT systems.

It is critical that companies across the supply chain build collaborative trading relationships, share real time information, business practices and other data in order to gain insight and work to satisfy fickle consumers.