While the distribution industry, where the changes caused by the novel coronavirus infection (hereinafter referred to as COVID-19) are most clearly exposed, is experiencing great confusion around the world, global consulting company AlixPartners is one of the top 10 trends in the global distribution industry that should be noted this year. Announced.
In 2020, U.S. online distribution accounted for 21.3% of total distribution sales with an explosive growth of 44% compared to the previous year. This is the highest growth rate in online sales in the United States over the past 20 years. In Korea, online distribution showed a high growth rate of 18.4% compared to the previous year.
As such, companies around the world are experiencing a busier period than ever in all sectors such as’business operation’,’products and services’,’price’ and’consumer experience’ to respond to the rapidly changing environment. Alix Partners Predicted that these changes will continue in the future, and classified the top 10 trends in the distribution industry this year in consideration of two aspects of’consumer and business operation’.
Change to consumer focus
After the outbreak of the Corona 19 pandemic, many consumers have moved their purchasing channels online. While these massive changes may seem like overnight to retailers, consumers are already demanding an immediate and complete experience across all retail platforms. Alix Partners emphasized that in a situation where consumption behavior is rapidly changing and consumer expectations are higher than ever, distribution companies should make operational changes one step ahead of consumers. Furthermore, he predicted that he would expect more complete flexibility in all purchasing experiences, including pickup and delivery services, and presented his efforts to find that solution as follows.
1. Omni channel is required, not optional
With the advent of the untact era, it is essential to introduce an’omni-channel’ that increases the convenience of consumers by organically linking various channels in order for distribution companies around the world to become competitive this year. For example,’Curbside Pickup’ for picking up items from a parking lot or shoulder,’BOPIS,’ Buy-Online-Pick-up-In-Store, to pick up products offline after purchasing online, and And ship from store services. In the U.S., it is known that Apple and Wal-Mart have adopted the curveside method.In the future, instead of taking the time to fill the gaps between distribution channels that have already been hit, companies are thinking about how to apply this omni-channel method in the long run. You have to think about it.
2. Prioritized profitability
Since online sales have been proven many times in the retail industry that online sales can lead to a decrease in operating profit, the strategy that prioritizes product sales only as before will have to change in the future. Integrating and managing inventory so that companies can seamlessly move between various sales channels will play an important role in increasing margins, and the use of omni channels mentioned above also improves consumer convenience and reduces corporate shipping costs. It will be a win-win strategy for all.
3. New attempts to increase market share
This year, distribution companies are expected to expand their business areas by using more diverse channels beyond sales through their own channels. In general, consumers are more likely to buy on platforms that are already loyal or offer subscription benefits. Therefore, retailers will grow paid membership programs such as’Amazon Prime’ and’Coupang Rocket Wow’, which lead to repetitive revenue streams and increase the frequency of consumer purchases. Likewise, sales activities in channels such as SNS or live streaming platforms such as’Instagram’,’TikTok’ and’Naver Shopping Live’ are expected to continue to grow.
4. Importance of cost performance
Over the past year, Corona 19 has led to a negative economic growth and a decline in consumer sentiment. Many retail companies have been making efforts to reduce inventory obsolescence and maintain and improve sales profits by adjusting product assortment and reducing large-scale purchases in response to these changes quickly. In addition, it is expected that we will strive to develop our own branded PB products for consumers who value cost-performance and economics. In fact, in the past year, Korea also showed a remarkable increase in its own brand products. E-Mart’s’No-Brand’ is popular with consumers due to its low price and superior quality compared to general products and continues to grow, and Market Curly has also expanded its product lineup after first launching its own brand,’Cullis’ last year. have.
5. Refocusing on sustainability
In 2020, Corona 19 was a black hole for all issues, but this year, consumer needs for sustainability and transparency, which have been social issues before the pandemic, are expected to grow again. In particular, as consumers who value product sustainability and cost-effectiveness are driven to the second-hand market amid the corona recession, mobile second-hand trading apps such as second-hand country, lightning market, and carrot market are gaining sensational popularity in Korea. According to the mobile big data analysis platform Mobile Index, the carrot market attracted attention as it ranked first in the number of newly installed mobile apps last year. In line with this trend, it is predicted that future retailers will consider more resale options.
Changes in business operations
Alix Partners stressed that it is important for retail companies to predict the future and prepare accordingly, and explained that the agility should be developed throughout the organization in order to respond more flexibly to constantly changing consumption behaviors and industry trends. This means solving operational problems that have hampered corporate performance and profitability over the years.
6. Scientific approach to the distribution industry
With Corona 19 breaking old sales formulas, retailers can no longer rely on past performance to predict the future. In the future, companies are expected to go beyond nominal changes to broadly adopt data analysis, machine learning, and digital transformation to improve the overall structure so that they can have a real impact on business decisions.
7. Continuous change in the use of real estate assets
As offline stores closed due to the pandemic and online sales continued to increase, many retailers are actively promoting the disposal of inexpensive offline stores, that is, real estate assets, and this trend is expected to accelerate this year. For example, in order to minimize the bottleneck (bottleneck) in the delivery sector, the space behind some stores can be remodeled to be used as a mini distribution center. In addition, companies that previously cleared off-line stores and sold real estate will seek repurchase and reinvestment locations as real estate values decline.
8. Enhancement of Direct-to-consumer (D2C) model
The D2C model, which refers to the method of claiming and selling products directly to consumers by removing unnecessary distribution steps, has been mentioned many times in the distribution industry over the past few years, but it is now clear that it has established itself as a brand strategy rather than a simple sales channel. . Companies that reinforce the D2C model will use the department store as a marketing tool to communicate with consumers rather than simply regard it as a distribution channel to increase sales volume.
9. The need for logistics solutions
It is known that the online sales return rate is twice as high compared to offline. As online sales continue to grow, retailers are expected to seek more efficient return/reverse logistics solutions. Recently, various companies are trying to streamline return logistics through partnerships. Cole Haan has partnered with customer experience platform Navar and freight forwarder UPS to help consumers return purchases from UPS stores without boxes or labels. In the case of Amazon, it has collaborated with Kohl’s, one of the leading department store chains in the United States, so that products purchased from Amazon can be returned offline.
10. Careful cash asset management
Cash balances will run out as retailers make new investments to meet consumer needs. New investments and growing debt, combined with intensifying competition and low profitability, add to the burden on companies. In the future, many retailers with insufficient cash liquidity will face bankruptcy filings, while financially sound companies with excellent profit and loss management will be able to explore various M&A opportunities.
Young-Eon Park, Vice President of Alix Partners’ Seoul Office, said, “If 2020 was a year of unprecedented difficulties for all companies due to the Corona 19 shock, 2021 will allow companies to quickly predict and respond flexibly to future problems. It is a year to cultivate agility and resilience,” he added. “I hope that by understanding the trends in the distribution industry that should be noted this year, we will be able to explore various growth opportunities in a creative way without any business crisis or loss.
More information about Alix Partners can be found on the official website.
Online JoongAng Ilbo