How Amazon took 50% of the e-commerce market and what it means for the rest of us
Jun-Sheng (Jun) Li is an Executive in Residence at Canvas Ventures and was the former senior vice president of Walmart’s global e-commerce supply chain.
As SVP of Walmart’s global e-commerce supply chain for five years (until 2018), I had a front-row seat to how brick-and-mortar retailers were responding to Amazon’s dominance in e-commerce. Most of us were alarmed. And who could blame us? Today, Amazon has nearly 50 percent of all e-commerce trade.
The way I see it, if you are a brick-and-mortar retailer, you either embrace a digital strategy to become omnichannel or do nothing and become irrelevant. To fully appreciate the gravity of the situation, let’s step back to understand how we got here. And importantly, start with what I believe is the single biggest challenge for retailers today.
Holy Grail: become truly omnichannel
Omnichannel retailing has become the goal that every retailer is aiming for — but few know how to achieve. In a nutshell, omnichannel simply means providing customers a seamless, continuous experience wherever customers would like to shop — across any device or store location — with a unified brand experience.
For example, I can buy a pair of shoes from Nordstrom using my smartphone and choose to pick up my purchase at a store or have it delivered to my home. If I want to return the shoes for any reason, I can do so by mail or return them at a store. My interaction with Nordstrom consistently flows from one channel to another.
But from a brick-and-mortar retailer’s perspective, that’s easier said than done.
A lot more moving parts
They say the “devil’s in the details,” and I would add the “details are in the supply chain.” And today’s supply chain is more complex than ever — especially if you’re a traditional, brick-and-mortar retailer striving to transform into an omnichannel. To start, you have to get your head around doing things very differently. You will be:
Distributing products to millions of homes instead of hundreds of stores.
Managing millions of SKUs (stock keeping units) instead of thousands.
Shipping to homes in parcels (including last-mile delivery) instead of truckloads to stores.
Running fulfillment centers (FCs) in addition to distribution centers (DCs). FCs ship goods directly to customers. DCs ship goods to stores.
Want to be an omnichannel?
Be ready to add “fulfillment centers” to your existing mix of “distribution centers.” The level of complexity will increase by orders of magnitude.
Three key challenges to omnichannel excellence
These are the top-three most intransigent challenges you will face in your omnichannel quest:
Organizational and management constraints.
People can be resistant to change. Many find it hard to think in new paradigms.
Different business units have different processes, KPIs (key performance indicators) and incentives.
Sharing of assets across all channels can be difficult. For example, how should you allocate warehouse space and balance the availability of products (i.e. inventory) between online and in-store sales?
Process and systems challenges
First you need to plan: you must aggregate demand forecasting and planning for both physical and online sales by channel.
Then figure out what you have: Determine product assortment across all channels: DCs, FCs, your own stores and even third-party locations like a marketplace vendor.
Lastly, you need to know from where to ship your products. You must instantaneously track what was sold against a global inventory spread across myriad locations.
A brick-and-mortar retailer will need to continually learn new processes and technologies that impact your supply chain. For example:
Learn new processes when integrating FCs into your supply chain network. This includes new ways to receive, sort, store, pick, pack, ship and house products in lockers or stores for drive-through and pick-ups. These processes are completely different from what is used at traditional DCs or stores.
Keep abreast of packaging technology, both the method of packing (optimizing how much you can fit into a package) and the materials (consider what’s best for long distance, the environment, costs and the protection of the product, especially if it involves home delivery of groceries with thermal foam or totes).
Meet the demands of home grocery shopping and “last-mile” deliveries. In addition to delivering goods in full truckloads from DCs to stores, you must learn how to operate so-called “milk runs” from stores to customer homes. When delivering groceries to a home, you must adhere to certain time slots and sometimes make “live deliveries” to ensure perishable goods are received promptly and safely. This entails a constantly refreshed and technologically modern TMS (transportation management system).
Amazon had a wide-open field
Going back to the headline of this article, how did Amazon become the e-commerce behemoth that it is today with seemingly little resistance from traditional retailers? Were the brick-and-mortar executives asleep at the wheel? To answer that question, some historical framing could help:
The four waves of e-commerce
So what’s a retailer to do?
I think we’re at the point of no return. The omnichannel train has left the station. What would I do if I ran a retail business today? First, I would accept the fact that customers now love to shop both online and offline, and they expect two-day shipping for certain products and near flawless execution. The bar has been set high by Amazon. Then I would create a game plan that leverages my existing physical assets like warehouses, distribution centers and stores to offer new services like ship-from-store or pickup-at-store. I would also build new fulfillment centers specifically to fulfill online orders and ship to customers’ homes.
Although Amazon dominates e-commerce, there are multitudes of department stores and retail brands with successful digital platforms. I was on the Walmart team from 2013 to 2018 when Walmart invested heavily in their omnichannel strategy.
On February 19, 2019, Walmart announced their FY 2019 Q4 results, which showed the company grew e-commerce sales by 43 percent year-over-year in its last quarter, blowing past estimates for the holiday season.
Of course, many factors go into an effective omnichannel strategy. The biggest factor, in my mind, is simply to gather the corporate will and get started.