Digital’s disruption of the consumer goods and retail industry, already severe, will only increase in speed and magnitude as annual worldwide e-commerce revenues double to $1.5 trillion by 2015. New levels of connectivity, the proliferation of new technologies, the rapid growth of new business models, and the rise of advocacy marketing and social shopping all add fuel to the digital fire. These changes are creating enormous value for some players—online marketplaces such as Amazon and Taobao, for example—while putting others, on both sides of the retailer-supplier equation, under acute pressure to adapt.
This article, the first in a series on what these developments portend, looks at the changes under way—as well as those on the horizon—and the challenges and opportunities they present.
The retail industry and its consumer goods suppliers are nearing the apex of the third of four overlapping waves of e-commerce development and disruption. The first two groundswells have already led to a significant shakeout. The third is causing further widespread upheaval, and the fourth, which has yet to approach critical mass, has the potential to be the most disruptive yet.
In the first wave, long-tail catalogs of products with hundreds of thousands of SKUs—music, movies, books, video games, software, event tickets, and the like—moved online. Consumers jumped at the convenience and selection as retailers such as Amazon, Napster, and eBay provided significantly broader assortments at much lower distribution costs. Many brick-and-mortar retailers, including household names such as Blockbuster and Tower Records, closed up shop. Media publishers retooled their product offerings—often reviving back catalogs—and revamped distribution to fit a digital world. New partnerships between these content suppliers and electronic distributors and retailers took root. The digital retail revolution was off and running.
Wave number two saw the online migration of a broad array of general merchandise, such as electronics, computers, toys, office supplies, and specialty goods and apparel—easy-to-ship products selling at price points of $20 or higher. Pure-play e-commerce companies expanded into multiple categories, and online specialty retailers such as Zappos started to take share with such policies as guaranteed satisfaction and free returns. In the brick-and-mortar world, so-called category killers felt the impact, and showrooming took hold, especially in electronics. Many traditional retailers began to invest in multichannel operations to protect market share. Manufacturers of consumer goods in these categories established full-scale distribution partnerships with online players, and some, such as Nike and Victoria’s Secret, launched their own direct-to-consumer e-commerce businesses, which became big successes.