The Art And Science Of Retail ECommerce

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For EBusiness & Channel Strategy ProfessionalsThe Art And Science Of Retail eCommerceExecutive Overview: The Retail eCommerce Playbookby Fiona SwerdlowDecember 16, 2016Why Read This ReportKey TakeawaysAs retail eCommerce sales continue to climb,eBusiness executives must check all the boxesto ensure that they are not missing eitheropportunities for direct online sales or ways thatthis touchpoint affects others, such as stores.This playbook explores the overall state of theindustry, best practices, technology partners,benchmarks, and recommendations to continuedriving digital commerce growth.eCommerce Is Critical To Digital BusinessTransformationUS eCommerce continues to grow at a doubledigit pace every year, taking share from physicalretail stores bit by bit. It is not uncommonfor retailers to see 15% to 20% of their salescoming via the web, with significant year-overyear growth. Retailers must embrace digitaltouchpoints, or they will struggle to adapt andgrow their business to meet rising customerexpectations.This report is an update to the report of the samename published on September 30, 2015. We’verefreshed the data with our latest forecasts.Companies Need Adequate ResourceseCommerce teams must secure adequatetechnology, merchandising, fulfillment, customerservice, and marketing support to drive salesefficiently, even with a limited pool of resources.Strong eCommerce Execution Is Now TableStakesConsumers are now more likely than ever to visita website prior to transacting in any channel.Retailers that haven’t continually been improvingand investing in the basics — a comprehensiveview of inventory, easy search and navigationfunctions, and simple checkout — will risk losingtheir shoppers to competitors that are a moreeffective go-to destination for web

For eBusiness & Channel Strategy ProfessionalsThe Art And Science Of Retail eCommerceExecutive Overview: The Retail eCommerce Playbookby Fiona Swerdlowwith Stephen Powers, Martin Gill, Sam Wolken, and Christine TurleyDecember 16, 2016eCommerce Drives Growth In RetailAs more consumers gain access to the internet and own a variety of devices (e.g., smartphones andtablets) that enable them to access web content continuously, the steady shift to web-based andweb-influenced transactions will continue.1 In 2016, 98% of US adults with broadband internet accessat home reported going online at least daily.2 Furthermore, three-quarters of US online adults use asmartphone and about half use a tablet, meaning that consumers are accessing the web at home, atwork, and on the go; they are no longer tethered to laptop and desktop computers to research andcomplete purchases.3So what’s the impact on retail sales? Forecasts show total retail sales growing 3.5% in 2016, whereaseCommerce is growing at a double-digit clip: By 2016, we expect that 11.6% of total US retail saleswill occur online, climbing to 15.4% in 2020.4 All told, in 2016, digital touchpoints are forecast toinfluence almost half of this 3.4 trillion market.5 With more consumers online and using more devicesthan ever before, eCommerce is fundamentally reshaping the retail sector:›› The web is altering channel preferences. Consumers increasingly have an “online first” mentalityin their shopping journeys: They begin their research online and supplement their search with webresources but may complete transactions either online or in-store. For example, in 2016, 48% ofUS online consumers reported that they read online product reviews at least weekly, comparedwith 21% in 2013.6 Almost two out of three (65%) US online adults purchase physical goods onlineusing a PC, smartphone, or tablet at least once a month.7 Digital impacts nearly half of total USretail sales in some way: In addition to the 11% of US retail sales that consumers complete directlyonline in 2016, online research is influencing an estimated 38% of offline sales.8›› Retailers realize that a powerful transactional presence is a competitive advantage. Retailhas historically been constrained by square footage in stores and inefficient inventory managementsystems. Effective web tools now enable retailers to pick web orders from stores where inventorymay not be moving quickly or save the sale when a shopper may not be able to find the particularitem she is looking for in-store. These features boost overall sales, increase margins, and drivecustomer satisfaction and loyalty.Forrester Research, Inc., 60 Acorn Park Drive, Cambridge, MA 02140 USA 1 617-613-6000 Fax: 1 617-613-5000 2016 Forrester Research, Inc. Opinions reflect judgment at the time and are subject to change. Forrester ,Technographics , Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of ForresterResearch, Inc. All other trademarks are the property of their respective companies. Unauthorized copying ordistributing is a violation of copyright law. [email protected] or 1 866-367-7378

For EBusiness & Channel Strategy ProfessionalsDecember 16, 2016The Art And Science Of Retail eCommerceExecutive Overview: The Retail eCommerce Playbook›› New retail forces are shifting industry dynamics. The continued growth of large pure-playpowerhouses such as Amazon has also shifted retailers’ focus to the web channel. Not only arecompanies like Amazon increasingly a gateway to product research, but they have also introducednew ways to think about retail success: providing onsite advertising modules, selling competitivegoods through lucrative marketplaces, investing heavily in logistics and operations, and leveragingshipping as a marketing program.9eBusiness Executives Need To Continue Gathering Resources To GroweCommerce is two decades old, so retailers broadly understand best practices, and a substantialecosystem of technology partners now exists to support eBusiness executives’ merchandising andmarketing needs. But to grow effectively, companies need to dedicate the appropriate resources andtake additional measures to ensure that they put their best foot forward. They need to secure:›› Funding to support site development and marketing. In a 2016 survey, 54% of US marketingdecision-makers noted “limited budget” as a top organizational barrier to achieving their marketingpriorities, more so than any other challenge.10 To run their businesses today, retailers must engagethe appropriate technology partners and also ensure that they have hired strong technology talent— and gained budget to secure that talent. In a web world that is far more crowded than anyphysical retail destination, even the most popular branded retailers need to secure and harnessinteractive marketing budgets to ensure that their companies are top of mind when consumers areat an early point in the purchase cycle.›› Talent to manage an effective eCommerce presence. eBusiness leaders have grown theirheadcount on digital teams for years — though this trend appears to be evolving. Digital headcountin 2014 and 2015 plateaued at an average of 94 full-time employees who are dedicated to theironline division worldwide.11 eBusiness pros feel the talent pinch throughout their organization: IT(27%) and business analysis (22%) top the list of areas where they feel understaffed, but marketing(13%) and customer experience (13%) are pain points, too.12›› Senior-level support to eliminate channel conflict. Savvy retailers are gradually blending digitaland traditional teams in marketing, merchandising, supply chain, and store operations — andtapping their vendor partners to help. Companies with the strongest eCommerce organizationshave digitally fluent C-level executives who champion and allocate resources to digital touchpoints,knowing they benefit overall sales. Firms must do more than pay lip service to digital/physicalintegration: Appointing an innovation officer can be a trendy bolt-on, whereas assigning executiveaccountability to manage the relationship between digital and physical channels signals a morefundamental change. Today, we see digital leaders taking on broader roles: Walgreens promoteddigital head Sona Chawla to CMO before she vaulted to COO at Kohl’s, and Sephora promotedBridget Dolan to VP of its Innovation Lab after she successfully led its interactive marketing team.13›› Smart cost management. Shipping costs have compressed margins for many web retailersin recent years, and innovative retailers have resisted passing those costs on to consumers by 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright [email protected] or 1 866-367-73782

For EBusiness & Channel Strategy ProfessionalsDecember 16, 2016The Art And Science Of Retail eCommerceExecutive Overview: The Retail eCommerce Playbookseeking out creative solutions (such as making shipping a marketing expense), allying themselveswith retail consortia to drive some economies of scale (such as fee-based shipping clubs), orproviding shipping benefits as part of a fee-based loyalty program.A Rock-Solid eCommerce Presence Is Now Table StakeseBusiness executives must have the appropriate tools and knowledge to execute a strong webpresence that showcases their brand, helps shoppers research and buy, and enables store associatesto assist those shoppers. As recently as 2015, some retailers that have been busy managing their storehypergrowth have only recently entered the eCommerce fray alongside the many traditional enterprisesthat are still catching up in digital.14Consumers are constantly connected and research products online before completing purchasesmore often in every sector. This research often occurs in physical stores: 19% of online adults usedsmartphones to compare prices while in a physical store in the past three months and 17% to lookup product information.15 We crafted this playbook to address all the key elements of success. Thisplaybook helps you (see Figure 1):1. Discover the importance of a best-in-class eCommerce business. This playbook provideseBusiness executives with insight into the opportunity for eCommerce, its growth trajectory, andthe current landscape that retailers face as they continue to navigate this channel.2. Plan to deliver retail eCommerce excellence. We help you determine which features andfunctionality are critical to success, which metrics are most effective to measure a strong channelpresence, and which elements are essential to continue to grow digital touchpoints.3. Act effectively to deliver retail eCommerce success. While getting started is a challenge initself, it’s just as critical to maintain success and continue to execute effectively in a constantlyshifting retail landscape. To this end, we provide overviews of the eCommerce technology stack,the vendors that best help support those goals, and the organizational best practices that drivesuccess in best-in-class eCommerce companies.4. Optimize for continued eCommerce growth. For several years, Forrester has collected industrybenchmarks to support executives in their road maps. We lay out critical benchmarks as wellas how various companies in different sectors should think about interpreting those figures sothat they are relevant to their businesses. We also analyze new and emerging components ofeCommerce strategies, such as responsive design and mobile-first initiatives that take into accountthe continually evolving landscape of devices and internet connectivity. 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright [email protected] or 1 866-367-73783

For EBusiness & Channel Strategy ProfessionalsDecember 16, 2016The Art And Science Of Retail eCommerceExecutive Overview: The Retail eCommerce PlaybookFIGURE 1 The Retail eCommerce anizationPerformanceManagementLandscapeStrategic PlanProcessesBenchmarksBusiness CaseRoad MapTools AndTechnologyContinuousImprovementEngage With An AnalystGain greater confidence in your decisions by working with Forrester thought leaders to applyour research to your specific business and technology initiatives.Analyst InquiryAnalyst AdvisoryWebinarTo help you put researchinto practice, connectwith an analyst to discussyour questions in a30-minute phone session— or opt for a responsevia email.Translate research intoaction by working withan analyst on a specificengagement in the formof custom strategysessions, workshops,or speeches.Join our online sessionson the latest researchaffecting your business.Each call includes analystQ&A and slides and isavailable on-demand.Learn more.Learn more.Learn more.Forrester’s research apps for iPhone and iPad Stay ahead of your competition no matter where you are. 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright [email protected] or 1 866-367-73784

For EBusiness & Channel Strategy ProfessionalsDecember 16, 2016The Art And Science Of Retail eCommerceExecutive Overview: The Retail eCommerce PlaybookSupplemental MaterialSurvey MethodologyForrester’s Consumer Technographics North American Online Benchmark Survey (Part 1), 2016, wasfielded in February and March 2016. This online survey included 60,049 respondents in the US and6,284 respondents in Canada between the ages of 18 and 88. For results based on a randomly chosensample of this size, there is 95% confidence that the results have a statistical precision of plus orminus 0.4% of what they would be if the entire population of US online adults (defined as those onlineweekly or more often) had been surveyed and plus or minus 1.2% of what they would be if the entirepopulation of Canadian online adults had been surveyed.Forrester weighted the data by age, gender, income, region, and broadband adoption todemographically represent the US and Canadian online adult populations. The survey sample size,when weighted, was 60,049 in the US and 6,276 in Canada. (Note: Weighted sample sizes can bedifferent from the actual number of respondents to account for individuals generally underrepresentedin online panels.) Lightspeed GMI fielded this survey on behalf of Forrester. Survey respondentincentives included points redeemable for gift certificates.Endnotes1Consumers sport personal networks of connected devices and live among a plethora of home technologies. Theyhave more choices, richer resources, and higher demands than in the past. These empowered consumers fuelthe age of the customer. We explored decades of data analysis to reveal five key forces for change in customerbehaviors, attitudes, and expectations that lead to customer empowerment. See the Forrester report “The Rise Of TheEmpowered Customer.”2Source: Forrester’s Consumer Technographics North American Online Benchmark Survey (Part 1), 2016.3Source: Forrester’s Consumer Technographics North American Online Benchmark Survey (Part 1), 2016.4Source: Forrester Data Online Retail Forecast, 2016 To 2021 (US).5Source: Forrester Data Online Retail Forecast, 2016 To 2021 (US).6With streams of information at her fingertips, the average adult consumes five times more content than she did 30years ago. However, empowered customers are not only exposed to more information than before, they are alsoreferencing more resources and developing greater finesse when navigating, evaluating, and discerning the value ofthat information. See the Forrester report “The Rise Of The Empowered Customer.”Source: Forrester’s North American Technographics Online Benchmark Survey (Part 1), 2013 and Forrester’sConsumer Technographics North American Online Benchmark Survey (Part 1), 2016.7Source: Forrester’s Consumer Technographics North American Online Benchmark Survey (Part 1), 2016.8Source: Forrester Research Web-Influenced Retail Sales Forecast, 2015 To 2020 (US).9For more information on the drivers of Amazon’s top- and bottom-line growth to date, how it has managed to achievesuccess and what that success means for retailers and eBusiness execs, where the firm is vulnerable, how otherretailers can effectively coexist in this new retail environment, and the strategic lessons other businesses can learnfrom Amazon, see the Forrester report “Why Amazon Matters Now More Than Ever.” 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright [email protected] or 1 866-367-73785

For EBusiness & Channel Strategy ProfessionalsDecember 16, 2016The Art And Science Of Retail eCommerceExecutive Overview: The Retail eCommerce Playbook10Source: Forrester’s Global Business Technographics Marketing Survey, 2016.The meteoric growth in digital team sizes has plateaued, and as line-of-business teams take on responsibility fordigital execution and technology management teams step up to manage digital development, the nature, makeup, androle of the digital team is shifting. For more on how digital teams are changing, see the Forrester report “Trends 2016:Staffing And Hiring For Digital Business.”1112Source: Forrester’s Q4 2015 Global eBusiness And Channel Strategy Professional Online Survey.13Source: “Kohl’s Announces Sona Chawla as Chief Operating Officer,” Kohl’s press release, November 17, corp/pdfs/2015/SonaChawlaRelease.pdf).Source: “Sephora Announces Innovation Lab to Usher in the Future of Retail,” Sephora press release, March 5,2015 etail-300046332.html).H&M, for example, launched its first US store in 2000; since then, it has opened over 500 stores in North America(as of November 2015), though it only rolled out its eCommerce site in 2013. Source: “Our History,” H&M e-and-history/history.html) and “H&M worldwide,” H&M urce: Forrester’s Consumer Technographics North American Retail And Travel Online Benchmark Recontact Survey1, Q3 2016 (US). 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright [email protected] or 1 866-367-73786

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Forrester research, inc., 60 acorn Park Drive, Cambridge, Ma 02140 uSa 1 617-613-6000 Fax: 1 617-613-5000 For EBuSinESS & ChannEl StratEgy ProFESSionalS The Art And Science Of Retail eCommerce Executive Overview: The Retail eCommerce Playbook by Fiona Swerdlow with Stephen Power