By Saurabh Kulshrestha
As we’re all aware by now, the global supply chain was interrupted by travel restrictions and lockdowns imposed due to COVID-19 that began in the spring of last year. Retailers have been facing many challenges since then, from late shipments to inventory issues and delays, as well as seasonal merchandise availability, missing sizes and so on. These challenges have been compounded by a surge of online orders, particularly from the United States, which have pressured internal supply chains. Many retailers were simply not ready to handle the sheer volume of e-commerce that’s been happening for over a year now.
Even Apple, the world’s most valuable company, has experienced road bumps of late. There has been a negative impact on iPhone production as parts were delayed. Worse, as Apple failed to meet customer demand, that demand began to wither. The White House has pointed to signs that supply chain is normalizing but other headwinds have presented themselves, including Omicron restrictions but also high inflation, salary cuts, fewer people in the workforce, air travel gridlock and shrinking disposable incomes. All could reduce future demand and even cause an unexpected glut–a reversal of our current supply chain shortages.
Yet difficult times remain the greatest opportunities in disguise. We have seen so many innovations over the past two years, from curbside pickup and the setup of regional fulfillment centers to the leveraging of physical stores to fulfill online orders. No doubt many more innovations will emerge before the crisis is declared over. Thankfully, most customers have accepted and even embraced the new normal.
The pressing question is, where does e-commerce go from here? Returning to the old days, at least in the next three to six months, seems to be getting farther away, not closer. In the meantime, we are all learning and discovering a new normal of sorts.
There has, for example, been an increase in air cargo demand but mainly as a stopgap measure. Going forward, retailers will need to evaluate the profitability of the product-line before getting more product via air cargo. This is a significant additional cost that must either be borne by consumers or by retailers. Gross margin is reduced if retailers absorb the additional cost, while demand and customer satisfaction both take a hit if prices are increased. Either way, increased freight charges are not helping retailers.
Holiday sales in the U.S. rose an impressive 8.5% over the holidays, including an 11% rise in e-commerce. Big-box retailers like Wal-Mart and Target have been resilient, underlining that in-store shopping is a unique experience that was missed during the lockdowns. In a store customers can feel and touch the product, as well as try the product before buying. It will take time to create a similar experience with e-commerce.
For now, it seems unlikely that Omicron will have much, if any, effect on in-store shopping–for now. But as we all know, things can change quickly. And although the trend for physical shopping is currently upward, e-commerce’s share of overall sales will remain higher than pre-pandemic days. Physical retailers will continue to up their omnichannel game to compete here.
In other words, there will be no 100% return to the old normal. Despite the supply chain issues, retail has got its groove back and there are ways to accurately forecast demand with acceptable tolerance. As the pandemic has changed business trends and practices, retailers have discovered the need to be innovative not just in fulfilling orders but in forecasting demand. Going forward, the industry must account for discrete, but still interlinked, supply chain issues taking different time frames to be resolved. More important than hatching quick fixes will be creating normalcy in the supply chain over the long term. “Resiliency” has replaced “just-in-time” as the new buzzword.
Of course, companies and consumers will make adjustments on a granular level. So too will the various cogs and wheels that form supply chains. Commerce is inherently flexible and innovative. Its ways can be unpredictable. Before implementing a new business model, however, every e-commerce platform should consider its customer base and their unique needs first.
Saurabh Kulshrestha is Managing Director & Country Head, India for Proxima360. He can be reached via LinkedIn at https://www.linkedin.com/in/saurabh-kulshrestha-5aa2621b/.
