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4 big ways e-commerce is transforming retail supply chains

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E-commerce has dramatically reshaped retail supply chains – and that transformation is poised to grow at a rapid rate.

A fictional marketing maverick from one of TV's hit drama series once said, "Advertising is based on one thing: happiness. You know what happiness is? Happiness is the smell of a new car. It's the freedom from fear. It's a billboard on the side of the road that screams reassurance that whatever you are doing is okay. You are okay."

With virtual dressing rooms, "returns will go down over time because people will be better able to predict needs." – Bala Ganesh, senior marketing director for the UPS 2020 Team.

While the plot and character are fictional, the message rings true for retailers in the real world. But instead of conveying happiness through glossy billboards, daily newspapers ads, mailed circulars and charming window displays, it's the bright and blaring "FREE SHIPPING!" banner ads, customer-friendly return policies and clickable e-mail blasts that are eliciting positive emotion and enticing consumers to purchase online.

According to emarketer.com forecasts, e-commerce sales will eclipse nearly $1.3 trillion worldwide this year. The mobile portion is really taking off, with sales via mobile devices accounting for 11 percent of e-commerce sales in 2012 but forecast to account for nearly 30 percent, or $104 billion, in 2015, according to internetretailer.com.

Thanks to innovations like the tablet and smartphone, it's easier than ever for consumers to browse the web for the best deals in a matter of seconds – making it imperative for retailers to keep their e-commerce strategy competitive with flexibility and convenience.

Shifting retail supply chains

As the annual UPS Pulse of the Online Shopper™ report suggests, today's shoppers are more sophisticated and empowered than ever, equipped with purchasing know-how and a knack for finding the best deals. They routinely look at detailed product information and photos, scan reviews, review the retailer's reputation and compare delivery and return options – often before buying anything, the report notes.

Bala Ganesh, senior marketing director for the UPS 2020 Team, says that elevated savvy has big implications for retailers, both from downstream and upstream perspectives.

"On the downstream side, the need to meet consumer demand for convenience has led retailers to offer both ship-to-store and pickup-in-store options," he says. "In our surveys, 38 percent of online shoppers say they will use ship-to-store or pickup-in-store to save shipping costs, which can be a plus for retailers, because nearly half of those who picked up an online purchase at a store bought something else while they were there.

"Many brick-and-mortar retailers are also using their stores as virtual distribution centers, for much faster delivery to customers."

On the upstream side, these changes call for increased coordination and communication with suppliers – especially when it comes to gearing up for peak season – and tighter control over inbound shipping.

"You need to use technology wisely for better forecasting of inventory needs, both online and in-store, to prevent stock-outs that disappoint consumers and cost sales," Ganesh says.

What's next for retailers?

Retailers should keep a close eye on four of the biggest up-and-coming e-commerce trends that could potentially affect their business models, Bala says:

  • Nontraditional products online. A century ago, consumers could buy a house, lumber precut to size, standard doors and windows, and step-by-step instructions for assembly – all from a catalog. That may not happen again, but Ganesh says many products not traditionally considered viable for online sales will move online. "You can count on many consumers buying home goods they would commonly buy in-store now online, like appliances and furniture. As e-commerce sales in these items increases in popularity, retailers will have to figure out how to get them delivered," he says.
  • Virtual dressing rooms. Apparel and footwear sellers will be offering sizing guides that give online shoppers more confidence when ordering, Ganesh says. One example: The True Fit®  Discovery Engine™, an online analytical tool that combines data about popular brands with a consumer's body type, and then fits preferences to build a personal profile that gets smarter the more you use it. "Returns will go down over time because people will be better able to predict what they need," he says.
  • More delivery, pickup and return options. "We are already seeing a variety of options for home delivery of groceries to consumers," Ganesh says. "Some retailers are already testing satellite stores or kiosks, as well as drive-thru locations where online buyers can pick up or return online purchases."
  • Customization and personalization. Designers and manufacturers will move toward just-in-time manufacturing and 3-D printing, Ganesh says, as well as near shoring to move production closer to the consumer. "For retailers, this will mean reduced inventories, more designs and more fashion cycles," he says. "Today you have to plan a line a year or 15 months ahead of time, but when you are manufacturing in real time and closer to the customer, those time frames go way down. The payoff for retailers: a shorter, less complex supply chain, and the ability to predict and control inventory more effectively."

It's time to get closer to customers

Holding on to the past – whether it's a tried-and-true marketing strategy or heavy brick-and-mortar reliance – is the quickest way to alienate new, more empowered consumers. That, says Ganesh, is the key to understanding today's empowered digital consumers – and eliciting the happiest buyers.

"Act now to develop a deeper understanding of your customers, so you know what they buy, when they buy and how they want purchases delivered," he says. "That will give you the insight you need to quickly respond to their needs. Getting closer to the customer is what will give you an edge over your competition in the future."

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