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September-October 2022
Once again, it’s time for Gartner’s Top 25 supply chains, the annual list of the 25 supply chains that have made it to the top, plus five Masters that have consistently outperformed year after year. You can read the article, along with some web-only material on scmr.com, to find out what it takes to become a supply chain leader. Last year, I was struck by how the leaders were embracing ESG, or Environmental, Social, & Governance. That has only been reinforced in this year’s report. In fact, ESG has been on the agenda of every event I’ve attended this year, including the keynote address at this year’s ISM conference. Whatever is the… Browse this issue archive.Need Help? Contact customer service 847-559-7581 More options
This represents my sixth column about the evolution of consumer-based e-commerce. Their purpose is to chronicle the evolution of e-tailing from the eyes of a supply chain analyst. And they are primarily focused on the battles between the heavy-weights, brick-and-mortar Walmart and e-tailer Amazon, as a reflection of what has been happening in the industry.
My last update was almost two years ago in the November 2020 issue of SCMR. Titled “Annual e-tailing update: COVID-19 virus shakeup,” I concluded that the pandemic had greatly disrupted the e-tailing market, making the stronger players stronger and the weaker players weaker. Perennial leaders Walmart and Amazon played to their strengths to bolster their leadership positions. In the case of Walmart, it was the ability to offer store pickup, while Amazon leveraged its extensive home delivery network. They both had the resources to put in place incentives and workplace safety measures to keep their employees working through the pandemic.
This column assesses where the overall market is today from a demand-side as well as a supply-side perspective. It also discusses the evolution of Amazon and Walmart since the last update. It concludes that e-tailing grew more rapidly during the pandemic as more consumers chose the convenience of ordering on-line when stores closed down. However, brick-and-mortar retailers are beginning to win back some market share from e-tailers through innovation. Still, uncertainties abound with respect to what recent trends will continue and how to capitalize on them.
Demand-side news
In putting these articles together, I rely heavily on news reports of what’s happening in the e-commerce world. On the demand side of e-commerce, three Wall Street Journal (WSJ) articles caught my eye since the last update. Apparently with the rapid growth of e-commerce during the pandemic, retailers incurred significant increases in the costs of returns. One article that carried the tag line “Retailers have a new message for consumers looking to return an item: Keep it,” noted that Amazon, Walmart and other companies “are using Artificial intelligence to decide whether it makes economic sense to process a return.” According to Narvar, Inc., which processes returns for retailers, the number of e-commerce packages that were returned in 2020 jumped 70% from 2019, and half of the increase was estimated to be due to higher e-commerce sales; while more than a quarter due to the shopper not wanting to return on-line web orders to physical stores. A second article tag-lined “The pandemic accelerated our acceptance of everything from curbside pickup to virtual fittings rooms. Which of these changes will last?” predicted that retailers like Lord&Taylor and J.C. Penney might not last, in part because big companies such as Walmart, Target, Amazon and Home Depot had consolidated their power.
This article discussed whether the following six trends that emerged during the pandemic will stick in the long run.
- “Holiday shopping won’t be the same.”
- “Malls will be back—with a new look.”
- “Retailers will rely less on discounts.”
- “A store is no longer a store.”
- “Curbside won’t get kicked to the curb.”
- “Shopping will become a virtual reality.”
The third article was headlined “In-Store Shopping Cuts into Online Revenue,” and noted that some consumers appear to be returning to stores. “Consumers are spending freely on sporting goods and kitchen appliances,” the reporter observed, “but they are doing more of their shopping in stores than they did last year when COVID-19 restrictions upended the holiday shopping season.” This supported the premise that, at least at the time of publication, store retailers were clawing back some of the gains won by e-tailers during the pandemic.
Supply-side news
There were also five supply side WSJ articles that caught my attention. The first had to do with how parcel carriers like UPS were responding to the unprecedented growth in home delivery. In an article about UPS’s decision to sell its freight business, the logistics leader had decided to “stick to the knitting” and focus on its network for parcel deliveries. Other reasons for the shift are likely the result of Amazon increasingly doing its own deliveries as well as competitors expanding into the shipping business. For example, another article reported on the acquisition by Uber Freight of Transplace, a technology-focused logistics services provider, noting that the deal “extends the ride-hailing giant’s reach into the U.S. domestic shipping market.”
Big things are also happening on the warehousing side as distribution centers are transformed into fulfillment centers. One article reported on Prologis’s $23 billion deal to acquire Duke Realty, highlighting a widening gulf between those who think e-commerce growth has a long way to go and those who think it is running out of steam.”
An article titled “Instacart Expands into Warehousing” reported on the grocery delivery firm’s decision to enter the warehouse business “to expand into an increasingly competitive food delivery market.” Instacart’s fulfillment centers will use robots to pull items from warehouses, rather than send shoppers into grocery stores to pick them from the shelves.
Lastly, now that demand is picking up for different items than those routinely sold during the pandemic, retailers are left with increasing inventories in concert with product shortages. “Retail Lead Times Spur Inventory Woes” described how long production cycle times were leading to a pileup of merchandise for many chains. According to the article: “Factory closures, shipping delays, port backlogs and other supply-chain bottlenecks wrought by the COVID-19 pandemic are prompting chains …to start designing and placing orders with overseas factories further in advance. Making it harder to match supply with demand.”
What about Walmart?
While much is written about Walmart, I’ve chosen three WSJ articles that discuss strategic news about the retailer. Two in particular were telling: The first, published in January 2021, reported that Walmart’s e-commerce chief was set to exit at the end of the month. A second article, published in January 2022, reported on the exit of another e-commerce chief. The first stated that Mark Lore, the outgoing e-commerce entrepreneur who oversaw Walmart’s “counterattack against Amazon.com,” had pushed Walmart since 2016 “to increase its online offering, including adding more web inventory and distribution centers. But in recent years many of his areas of oversight had been combined into Walmart’s store operations.” Casey Carl, a former Target executive who was Lore’s replacement, stayed just one year.
In short, Walmart’s powerful store operations won the battle and eventually subsumed all of the e-commerce operations. A peek at where store operations is planning to take the business was reported in early 2022 in an article titled “Walmart Revamps Delivery Options.” In order “to keep the e-commerce party going,” Walmart “is building more automated fulfillment centers attached to existing stores, experimenting with autonomous trucks, using its own workers to make deliveries and expand a service where staffers leave packages inside homes.”
What about Amazon?
In 2021, the New York Times published “People Now Spend More at Amazon Than Walmart.” That article noted that the online future had arrived because “the biggest e-commerce company outside of China has unseated the biggest brick-and-mortar seller.” According to Wall Street estimates compiled by FactSet, people spent more than $610 billion for the 12 months ending in July 2021 with Amazon, while Walmart posted $566 billion. “In racing past Walmart, Amazon has dethroned one of the most successful—and feared—companies of recent decades,” the Times reported. “Walmart perfected a thriving big-box model of retailing that squeezed every possible penny out of costs, which drove down prices and vanquished competitors.” This was a watershed event in retail history, that demonstrated that the “quest to dominate today’s retail environment in being won on the Internet.”
Two other WSJ articles provide a peek into Amazon’s potential future. One article titled “Amazon Plans Expansion into Department Stores,” reported on Amazon’s plans “to open several large physical retail locations in the United States that will operate akin to department stores, a step to help the tech company extend its reach in sales of clothing, household items, electronics and other areas, people familiar with the matter said.” This will help Amazon get closer to its “Holy Grail” of satisfying customers who want immediate gratification by getting the goods right now. The bastion of the brick-and-mortar stores that Amazon has been competing with.
More recently, WSJ reported that “Amazon.com Inc. has started drastically reducing the number of items it sells under its own brands and has discussed the possibility of exiting the private-label business entirely to alleviate regulatory pressure, according to people familiar with the matter.” As of 2020 Amazon‘s private-label business offered 243,000 products competing with other sellers on its website.
Looking forward
Looking over the news from the last two years, it’s clear that the e-tailing market grew faster during the pandemic. In general, retailers have had to alter their supply and demand operations under the adverse conditions it caused.
Brick-and-mortar retailers are not going to sit back and watch from the sidelines. They are planning to win back in-store customers through innovation. However, uncertainties abound with respect to what trends will continue and how to capitalize on them. I expect there’ll be quite a few interesting things to report on in my 2023 e-tailing update.
SC
MR
Sorry, but your login has failed. Please recheck your login information and resubmit. If your subscription has expired, renew here.
September-October 2022
Once again, it’s time for Gartner’s Top 25 supply chains, the annual list of the 25 supply chains that have made it to the top, plus five Masters that have consistently outperformed year after year. You can read… Browse this issue archive. Access your online digital edition. Download a PDF file of the September-October 2022 issue.This represents my sixth column about the evolution of consumer-based e-commerce. Their purpose is to chronicle the evolution of e-tailing from the eyes of a supply chain analyst. And they are primarily focused on the battles between the heavy-weights, brick-and-mortar Walmart and e-tailer Amazon, as a reflection of what has been happening in the industry.
My last update was almost two years ago in the November 2020 issue of SCMR. Titled “Annual e-tailing update: COVID-19 virus shakeup,” I concluded that the pandemic had greatly disrupted the e-tailing market, making the stronger players stronger and the weaker players weaker. Perennial leaders Walmart and Amazon played to their strengths to bolster their leadership positions. In the case of Walmart, it was the ability to offer store pickup, while Amazon leveraged its extensive home delivery network. They both had the resources to put in place incentives and workplace safety measures to keep their employees working through the pandemic.
This column assesses where the overall market is today from a demand-side as well as a supply-side perspective. It also discusses the evolution of Amazon and Walmart since the last update. It concludes that e-tailing grew more rapidly during the pandemic as more consumers chose the convenience of ordering on-line when stores closed down. However, brick-and-mortar retailers are beginning to win back some market share from e-tailers through innovation. Still, uncertainties abound with respect to what recent trends will continue and how to capitalize on them.
Demand-side news
In putting these articles together, I rely heavily on news reports of what’s happening in the e-commerce world. On the demand side of e-commerce, three Wall Street Journal (WSJ) articles caught my eye since the last update. Apparently with the rapid growth of e-commerce during the pandemic, retailers incurred significant increases in the costs of returns. One article that carried the tag line “Retailers have a new message for consumers looking to return an item: Keep it,” noted that Amazon, Walmart and other companies “are using Artificial intelligence to decide whether it makes economic sense to process a return.” According to Narvar, Inc., which processes returns for retailers, the number of e-commerce packages that were returned in 2020 jumped 70% from 2019, and half of the increase was estimated to be due to higher e-commerce sales; while more than a quarter due to the shopper not wanting to return on-line web orders to physical stores. A second article tag-lined “The pandemic accelerated our acceptance of everything from curbside pickup to virtual fittings rooms. Which of these changes will last?” predicted that retailers like Lord&Taylor and J.C. Penney might not last, in part because big companies such as Walmart, Target, Amazon and Home Depot had consolidated their power.
This article discussed whether the following six trends that emerged during the pandemic will stick in the long run.
- “Holiday shopping won’t be the same.”
- “Malls will be back—with a new look.”
- “Retailers will rely less on discounts.”
- “A store is no longer a store.”
- “Curbside won’t get kicked to the curb.”
- “Shopping will become a virtual reality.”
The third article was headlined “In-Store Shopping Cuts into Online Revenue,” and noted that some consumers appear to be returning to stores. “Consumers are spending freely on sporting goods and kitchen appliances,” the reporter observed, “but they are doing more of their shopping in stores than they did last year when COVID-19 restrictions upended the holiday shopping season.” This supported the premise that, at least at the time of publication, store retailers were clawing back some of the gains won by e-tailers during the pandemic.
Supply-side news
There were also five supply side WSJ articles that caught my attention. The first had to do with how parcel carriers like UPS were responding to the unprecedented growth in home delivery. In an article about UPS’s decision to sell its freight business, the logistics leader had decided to “stick to the knitting” and focus on its network for parcel deliveries. Other reasons for the shift are likely the result of Amazon increasingly doing its own deliveries as well as competitors expanding into the shipping business. For example, another article reported on the acquisition by Uber Freight of Transplace, a technology-focused logistics services provider, noting that the deal “extends the ride-hailing giant’s reach into the U.S. domestic shipping market.”
Big things are also happening on the warehousing side as distribution centers are transformed into fulfillment centers. One article reported on Prologis’s $23 billion deal to acquire Duke Realty, highlighting a widening gulf between those who think e-commerce growth has a long way to go and those who think it is running out of steam.”
An article titled “Instacart Expands into Warehousing” reported on the grocery delivery firm’s decision to enter the warehouse business “to expand into an increasingly competitive food delivery market.” Instacart’s fulfillment centers will use robots to pull items from warehouses, rather than send shoppers into grocery stores to pick them from the shelves.
Lastly, now that demand is picking up for different items than those routinely sold during the pandemic, retailers are left with increasing inventories in concert with product shortages. “Retail Lead Times Spur Inventory Woes” described how long production cycle times were leading to a pileup of merchandise for many chains. According to the article: “Factory closures, shipping delays, port backlogs and other supply-chain bottlenecks wrought by the COVID-19 pandemic are prompting chains …to start designing and placing orders with overseas factories further in advance. Making it harder to match supply with demand.”
What about Walmart?
While much is written about Walmart, I’ve chosen three WSJ articles that discuss strategic news about the retailer. Two in particular were telling: The first, published in January 2021, reported that Walmart’s e-commerce chief was set to exit at the end of the month. A second article, published in January 2022, reported on the exit of another e-commerce chief. The first stated that Mark Lore, the outgoing e-commerce entrepreneur who oversaw Walmart’s “counterattack against Amazon.com,” had pushed Walmart since 2016 “to increase its online offering, including adding more web inventory and distribution centers. But in recent years many of his areas of oversight had been combined into Walmart’s store operations.” Casey Carl, a former Target executive who was Lore’s replacement, stayed just one year.
In short, Walmart’s powerful store operations won the battle and eventually subsumed all of the e-commerce operations. A peek at where store operations is planning to take the business was reported in early 2022 in an article titled “Walmart Revamps Delivery Options.” In order “to keep the e-commerce party going,” Walmart “is building more automated fulfillment centers attached to existing stores, experimenting with autonomous trucks, using its own workers to make deliveries and expand a service where staffers leave packages inside homes.”
What about Amazon?
In 2021, the New York Times published “People Now Spend More at Amazon Than Walmart.” That article noted that the online future had arrived because “the biggest e-commerce company outside of China has unseated the biggest brick-and-mortar seller.” According to Wall Street estimates compiled by FactSet, people spent more than $610 billion for the 12 months ending in July 2021 with Amazon, while Walmart posted $566 billion. “In racing past Walmart, Amazon has dethroned one of the most successful—and feared—companies of recent decades,” the Times reported. “Walmart perfected a thriving big-box model of retailing that squeezed every possible penny out of costs, which drove down prices and vanquished competitors.” This was a watershed event in retail history, that demonstrated that the “quest to dominate today’s retail environment in being won on the Internet.”
Two other WSJ articles provide a peek into Amazon’s potential future. One article titled “Amazon Plans Expansion into Department Stores,” reported on Amazon’s plans “to open several large physical retail locations in the United States that will operate akin to department stores, a step to help the tech company extend its reach in sales of clothing, household items, electronics and other areas, people familiar with the matter said.” This will help Amazon get closer to its “Holy Grail” of satisfying customers who want immediate gratification by getting the goods right now. The bastion of the brick-and-mortar stores that Amazon has been competing with.
More recently, WSJ reported that “Amazon.com Inc. has started drastically reducing the number of items it sells under its own brands and has discussed the possibility of exiting the private-label business entirely to alleviate regulatory pressure, according to people familiar with the matter.” As of 2020 Amazon‘s private-label business offered 243,000 products competing with other sellers on its website.
Looking forward
Looking over the news from the last two years, it’s clear that the e-tailing market grew faster during the pandemic. In general, retailers have had to alter their supply and demand operations under the adverse conditions it caused.
Brick-and-mortar retailers are not going to sit back and watch from the sidelines. They are planning to win back in-store customers through innovation. However, uncertainties abound with respect to what trends will continue and how to capitalize on them. I expect there’ll be quite a few interesting things to report on in my 2023 e-tailing update.
SC
MR
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About the Author
Larry Lapide, Research Affiliate
Dr. Lapide is a lecturer at the University of Massachusetts’ Boston Campus and is an MIT Research Affiliate. He received the inaugural Lifetime Achievement in Business Forecasting & Planning Award from the Institute of Business Forecasting & Planning. Dr. Lapide can be reached at: [email protected].
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