Supply chain disruptions, store closures, fluctuating product demand and rapidly changing consumer behaviours have significantly altered the retail landscape since the onset of the Covid-19 pandemic, with a larger proportion of sales moving online than ever before. According to McKinsey & Company’s Adapting to the next normal in retail: The customer experience imperative report, e-commerce sales for apparel, beauty products and department stores have increased by almost 10 per cent this year, while e-commerce penetration in the grocery sector rose from three per cent up to 10 per cent during its peak.
Shanthi Rajagopalan, worldwide retail and consumer packaged goods (CPG) business strategy leader at Microsoft, says the rapid acceleration of e-commerce has been a challenge (and an opportunity) for retailers and CPG companies.
“Retailers that previously had e-commerce platforms have seen demand surge – some of our customers say they’re experiencing the volume of traffic they’d typically see on a Cyber Monday on a weekly basis now,” she explains. “Meanwhile, others have been forced to quickly develop and roll out e-commerce capabilities to ensure they can continue serving customers and remain competitive and profitable while their physical stores were closed.”
To ensure success in the e-commerce world, retailers must be able to identify and cater to the individual needs, preferences and expectations of all their customers. Rajagopalan recommends they achieve this by building a 360-degree view of their customer. To do this they can deploy a customer data platform (CDP) with built-in analytics, machine learning and artificial intelligence (AI) capabilities, such as Amperity.
“CDPs consolidate data from disparate sources – such as e-commerce sites, social media and point of sale – into one centralised platform, so retailers can analyse it and identify market trends to better understand their customers. she explains. “They can also accurately forecast product demand, optimise pricing, personalise customer interactions and ensure they are delivering relevant product recommendations, marketing messages, promotional offers and much more.”
Another key element to e-commerce success is the ability to meet consumer demand for same-day or next-day delivery. This is requiring both retailers and CPG companies to rethink their approach to order fulfilment. According to Rajagopalan, they can start by implementing a solution that aggregates all their inventory, fulfilment and customer location data in a ¬single platform.
“This will give retailers accurate real-time visibility into their inventory and end-to-end supply chain, allowing them to quickly direct product to where it is needed most,” she explains. “It will also enable them to develop new order fulfilment services, such as home delivery and buy online pickup in store.”
US-based supermarket chain Kroger, for instance, has harnessed the power of OneView Commerce’s headless-retail-as-a-service platform and transaction engine running on Microsoft Azure to build a new kerbside pickup service at its own stores, as well as for Kroger product collections at Walgreen’s pharmacies. This has expanded Kroger’s store footprint for pickups, allowing it to fulfil online orders quickly and easily for customers across the country.
Other retailers are turning to micro-fulfilment centres (MFCs) to expedite the online order fulfilment cycle.
“Most retailers take one of two approaches to fulfil online orders – they either have employees picking items from within the store, or they operate large, centralised warehouses where orders are picked and then delivered to stores or customers’ homes,” says Rajagopalan. “The problem with the first approach is that it’s difficult to ensure stores have sufficient inventory available for both in-store and online customers. The problem with the latter is that centralised warehouses require significant real estate, so they are expensive to build and often located far outside of urban areas, which increases delivery time and costs. Now MFCs are offering automation to expedite order picking and they’re built using rows of compact vertical storage shelves, so they’re small enough to be installed at the back of store or other urban spaces that are close to customers.”
Israel-based start-up Fabric, for example, has developed a micro-fulfilment solution that can run on Microsoft Azure and uses robotic pickers to select items from vertical stacks of totes and place them in self-driving carts that deliver the complete order to an employee for distribution. Israeli drugstore chain Super-Pharm already uses Fabric’s technology to process more than 400 online orders per day in an MFC spanning just 6,000 square feet. Elsewhere in Tel Aviv, Fabric has created an MFC in an 18,000-square-foot triangular space under the Shalom Meir Tower for a grocery retailer which aims to fulfil all online orders in less than a day and, for some customers, within an hour. “Fabric’s automated MFC system reduces picking errors and makes it easy for retailers to significantly increase the number of orders they fulfil in a day,” says Rajagopalan.
MFCs are also making it easier for CPG companies to develop their own e-commerce platforms for the first time.
“Traditionally, CPG organisations manufacture products and leverage well-established supply chains to distribute and sell these items via retail partners, but this model has left them vulnerable during the pandemic,” says Rajagopalan. “Consequently, many are now exploring the benefits of a direct-to-consumer (DTC) sales model, where they sell some products directly to end users themselves. Innovations such as MFCs can help them fulfil orders rapidly and cost-effectively because they don’t need to invest in building expensive centralised warehouses for what may be a small DTC product range.”
Moving to a DTC model with the help of technologies like Episerver’s e-commerce platform allows CPG firms to ensure their products still reach end users without needing to rely on retail partners. “Not only does this boost sales, but it also allows them to create an instant digital relationship with every customer and capture previously inaccessible data throughout sales and after-sales processes so they can unlock valuable new insights and better understand their target demographic.”
Rajagopalan predicts that as they plan for 2021, retailers and CPG companies will prioritise investments in technologies that will make their supply chains more agile and open up faster and more cost-effective order fulfilment options. She also expects more CPG companies will implement DTC models – at least in the short term until shopping in physical stores can resume properly but most likely in the long term too. As part of this, both CPG companies and retailers will also focus on finding ways to better integrate digital payment services into their e-commerce platforms or roll out fully contactless payment solutions in physical stores.
“Microsoft will continue to collaborate closely with our partners to ensure we can equip our retail and CPG customers with the innovative tools and technologies they need to easily adapt their operational processes and services and keep pace with rapidly evolving market trends and customer needs and expectations,” she says.
We asked selected Microsoft partners how they are using Microsoft’s cloud technology to help retailers and CPG vendors reimagine business operations and improve customer engagements. Below are extracts from their responses, which you can read in full from page 141 of the digital edition of the Winter 2020 issue of The Record.
Kyle Fugere, global head of ventures and innovation at dunnhumby, says: “In September 2020, we launched dunnhumby Model Lab, an application that empowers data scientists to create models and deliver customer insights rapidly and efficiently on Microsoft Azure.”
Nate Barad, director of product marketing at Episerver, says: “Our Commerce Cloud lets retailers create commerce experiences quickly and optimise as they go.”
Yoni Friedman, director of DataGrid and partnerships at Amperity, says: “Amperity makes understanding consumers a reality for Michaels, Lucky Brand and [other] brands by leveraging powerful Microsoft services such as Azure Blob Storage for storing a complete historical and predicted view of every customer, Azure Compute to run patented machine learning-based models aimed at accurately resolving individual identities, and others.
Abhijit Killedarm, chief technology officer at OneView Commerce, says: “The OneView Headless Retail Framework gives retailers the control and agility to transform their store services and extend into digital from a single commerce platform.”
Steve Hornyak, chief commercial officer at Fabric, says: “Fabric’s purpose-built micro-fulfilment solution leverages cloud technology to enable retailers to fundamentally transform their business in the post-pandemic world.”
This article was originally published in the Winter 2020 issue of The Record. To get future issues delivered directly to your inbox, sign up for a free subscription.