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Commerce & Sales Channels

COVID-19 Flipped the Script on Ecommerce vs. Brick and Mortar

Commerce & Sales Channels
September 23, 2020
7 min read
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The growing trend towards in-store fulfillment and staggering growth of grocery delivery illustrate a changing dynamic in retail prioritization of ecommerce vs. brick and mortar sales channels. Ahead we’ll discuss how SMB’s are uniquely positioned to leverage this new dynamic for multichannel growth.

Ecommerce Takes Center Stage

While online marketplaces like Amazon seem to be designed for the new digital-first model of commerce accelerated by COVID-19, some traditional brick and mortar retailers have proven their agility as they adapt their sales and fulfillment strategies to meet remarkable new levels of online order volume. These new strategies demonstrate an interesting evolution in the importance of ecommerce vs. brick and mortar sales, and while traditional retailers are optimizing their operations in support of ecommerce growth, their brick and mortar locations are certainly not dead. In fact, retailers like Walmart and Target have taken creative measures to make this network of physical storefronts a competitive advantage, and flexible small to mid-sized merchants have a unique opportunity to leverage this new dynamic for their continued growth as well.

Walmart and Target Leverage Brick and Mortar to Support Ecommerce

On September 15, Walmart launched its new subscription service, Walmart+, as a direct competitor to Amazon Prime. At $98 per year, the membership includes free unlimited delivery (with many items available for 1-day delivery), fuel discounts at Walmart and Murphy gas stations, and a contactless mobile checkout option for in-store purchases. Although Amazon Prime offers additional benefits like streaming content, the one major advantage Walmart has over Amazon is its 4,700 brick and mortar stores, 2,700 of which offer same-day delivery. 90% of the US population lives within 10 miles of one of those 2,700 stores, which immediately gives Walmart the upper hand in terms of delivery footprint and effectively transforms its retail locations into Walmart+ fulfillment centers. This move, combined with Walmart’s announcement of its Shopify integration earlier this summer, which allows customers to make in-store returns on items bought through third-party sellers on Walmart Marketplace, completes Walmart’s brick and mortar to ecommerce ecosystem and creates a true omnichannel retail strategy. This strategy is allowing Walmart to restructure its supply chain to meet the demands of the new digital-first economy without having to start from scratch. Its existing stores continue to make sales while also standing in as a nationwide fulfillment network for online orders.

Target, on a somewhat smaller scale, is taking the same approach, and by fulfilling 90% of their digital orders directly from stores, has cut their ecommerce order fulfillment costs by 30%. They began investing in more efficient ecommerce fulfillment long before the pandemic but were planning for growth another three years in the future. Instead, COVID-19 generated those three years’ worth of ecommerce growth in a matter of weeks. They’ve seen so much success with in-store fulfillment that they plan to test smaller fulfillment centers — stores about the size of a convenience store — located closer to end customers to cut down on transit times and expand their buy online, pick up in store offerings. Additionally, Target is expanding its third-party seller program, Target+, in which sellers fulfill and ship the products themselves, but customers have the option to return the items in-store.

Grocery: A New Frontier for Ecommerce vs. Brick and Mortar

Amazon’s grocery subsidiary and largest brick and mortar sales channel, Whole Foods, recently opened an online-only store. The brand converted 6 of their locations to “dark stores” during Coronavirus lockdowns and saw an opportunity to better serve Prime members in Brooklyn with free delivery through a permanent grocery fulfillment center. However, Walmart+ may have the upper hand in the grocery delivery market. Shoppers who might balk at Whole Foods notoriously high prices can shop Walmart’s low-cost grocery selection and even have a broad selection of home goods, office supplies, and the plethora of options Walmart’s inventory offers — all with a similar same-day delivery promise to Whole Foods. Whichever service comes out on top, one thing is clear, with three fold growth in grocery delivery demand year over year in the second quarter, even grocery shopping has undergone a digital transformation.

The Changing Face of Holiday shopping

In an early and decisive move, Walmart and Target (followed closely by several other big box retailers) announced that stores would be closed on Thanksgiving this year. This is a reversal of the quickly-growing trend to move Black Friday shopping closer and closer to Thanksgiving. It seems that most retailers will be open on Black Friday this year, but in an effort to keep crowds down in brick and mortar stores, will be extending Black Friday deals throughout the holiday season and making ecommerce sales eligible for Black Friday promotions as well.

The New Power Dynamic for Ecommerce vs. Brick and Mortar

In the past ecommerce was seen as an alternative sales channel, a necessary add-on, and ultimately a growth lever that served to expand brick and mortar sales. However, these trends show a direct reversal of that long-accepted model, leaving brick and mortar stores playing support roles to ecommerce in the form of stores turned fulfillment centers and return drop-off locations.

The distinct advantage of small to mid-sized businesses in this new retail model is flexibility. Many small to mid-sized brands are digital natives or are at least nimble enough to pivot quickly in response to a shift in the market. Our recent merchant survey revealed that 77% of merchants made a pivot in their selling strategy in response to COVID-19, and that actually 35% of merchants opened an online store for the first time. While some large retailers like Walmart and Target seem to be changing course in time to meet the increased demand for online offerings head-on, other retailers are floundering as their legacy sales channels and fulfillment models are upended. 

SMB’s are able to launch new sales channels quickly in order to compete, and as big box retailers recognize the importance of adding 3rd party retailers to their online marketplaces, smaller merchants can borrow the brand equity and marketing prowess of enterprise brands to expand their sales channels even further. Listing on these marketplaces gives merchants the added advantage of in-store returns and ship-to-store options that are a growing expectation for many online shoppers. At a time when consumers are hungry for more online shopping options, merchants’ only challenge is to tailor their fulfillment strategy to meet the demands of their digital sales channels.

Implementing a multichannel selling strategy may seem intimidating for many SMB’s that understand the complexities of inventory management and fulfillment across multiple channels. However, as online marketplaces and ecommerce platforms innovate to meet the needs of today’s digital economies, warehouse and inventory management technologies are keeping pace to digitize the day-to-day of supply chain operations. The omnichannel sales strategy is not the sole domain of enterprises like Walmart and Amazon, but through constant innovation and the democratization of ecommerce sales tools can be realized by merchants of all sizes.

To learn more about how Ware2Go is implementing fulfillment technology to level the playing for merchants of all sizes, reach out to one of our supply chain experts.

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