Online retailing expanded by close to a third (32%) in 2020, with further growth expected in the coming years, however operators in this sector will need to invest in order to continue to reap rewards, a new report has found.
The report, by The Economist Intelligence Unit, anticipates that online sales will almost double their share of total retail sales from 10% in 2019 to close to 20% by 2025.
However, online retailers will need to 'devise winning strategies' in three areas in order to ensure continued profitability: adoption of next-generation technologies; warehousing and fulfilment; and harnessing a new generation of digital entrepreneurs.
'Winners And Losers'
"In a fiercely competitive sector, there will be both winners and losers from the market transformation, depending on retailers' ability to shift online and retain customers," said Barsali Bhattacharyya, manager of industry briefing at The Economist Intelligence Unit.
"While companies race to capitalise on the opportunities thrown up by the shift online, many will struggle to be profitable. Besides using the latest technologies to keep a finger on the consumer's pulse, companies will need to explore which markets offer most potential, all the while navigating increased regulatory barriers, as well as cyber-security and labour risks."
The pace of growth in online retailing is expected to slow between now and the mid part of the decade, the report stated, however the sector will continue to expand – with much growth coming from Asia, Latin America and the Middle East.
Online food and grocery delivery grew by 5% last year, despite a 4% decline in global consumer spending, making it one of the biggest beneficiaries of the COVID-19 crisis.
'We expect online grocery to retain its momentum over other categories of goods until at least 2023, when non-food retailing will start to accelerate again,' the report authors stated.
Maintaining Profitability
For those already operating in or thinking of entering the sector, maintaining profitability is expected to be a major challenge facing online retailer, along with data security. Labour relations and increased regulatory scrutiny also threaten to increase costs, the report said.
Competitive product positioning and pricing strategies, user-friendly digital platforms, efficient inventory management and fast and efficient fulfilment processes are among the factors that are likely to underpin future success in this area, it added.
At the same time, amidst the opportunities thrown up by online retailing, some operators are likely to lose out from this transition.
Franchise operators may face challenges as retailers step ip investment in digitalisation, as 'the need to cut costs elsewhere will require many to adjust their physical footprint', according to the report, including pulling out of unprofitable markets or developing stores catered to more personalised experiences.
The changing landscape is also likely to lead to lay-offs among retail workers, as well as job creation in associated markets – for example, in 2020, some 751,000 retail jobs were lost in the US 2020, while warehousing and courier services gained 115,000 and 124,000 jobs, respectively.
A separate recent report by McKinsey and EuroCommerce found that health, value and online services are likely to be important factors for shoppers in a post-COVID world.
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