E-Commerce and Retail: Competition to Coexistence

With the advancement of technology, the global retail sector has undergone a profound shift in the last two decades, defined by the rise of e-commerce. Once seen as a rival threatening the survival of retail businesses, e-commerce has now become a catalyst for transformation. On the one hand, e-commerce has changed consumer behaviour by making it more convenient.

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On the other hand, it has compelled retailers to restructure their strategies to sustain themselves in a highly competitive business environment. However, today it is not about retail versus e-commerce competition but about how both can coexist and complement each other. Online shopping was invented by Michael Aldrich in 1979 to facilitate online transaction processing, which grew into a major form of electronic commerce.

Through online stores, whether business-to-consumer (B2C) or business-to-business (B2B), customers can explore products as well as compare prices virtually. In contrast, offline shopping refers to the traditional mode of purchasing products from physical retail stores.

DISRUPTING TRADITIONAL RETAIL ECOSYSTEMS

E-commerce has brought a transformative change in people’s consumption style. The growth of e-commerce has brought shifts in the expenditure patterns of people, as well as in the employment dynamics. It has led to an increase in competition, resulting in price transparency and consumer behaviour, which in turn has affected the pricing techniques of retailers.

The McKinsey survey suggests that 75% of consumers adopted new shopping behaviour during the pandemic, and most of them intend to continue this behaviour.

Further, e-commerce has also influenced consumer behaviour as it focuses more on personalisation rather than prioritising a certain segment of customers, as in the case of retail, due to its in-person interactions. They also bridge geographic and demographic barriers, making goods and services accessible to everyone.  E-commerce often leads to a reduction in market shares due to a lack of online management and challenges in utilising AI.

Poor skills in understanding the online sector can lead to inconsistent customer experience and a mismatch in pricing structure, pushing consumers more towards the online sector. The global competition has also been intensified by e-commerce. For example, a local fashion store in Delhi is no longer just competing with its neighbouring stores but also with brands selling online.

The broadening of consumer choices has made it difficult for the local stores to survive without adopting digital presence. However, this has led to a digital transformation of retail as retailers have now been pushed to invest in digital channels.

It cannot be denied that e-commerce has led to a reduction in sales of the retail stores, as well as reduced their profit margins, as retailers lower the prices of their products in order to sustain competition. However, as many smaller retailers are unable to sustain such a competition, this would lead to a monopolistic or oligopolistic market, as there will be only a few competitors.  

FUTURE GROWTH TRAJECTORY OF E-COMMERCE

The growth trajectory of e-commerce is on a steady path. According to research by Boston Consulting Group, e-commerce growth is expected to reach 41% by 2027. India’s e-commerce sector is also showing sustained growth with INR 1,257,879 crore in FY24 and is expected to grow to INR 3,106,191 crore by 2030, with GMV projected to increase by 18% yearly to reach INR 14.5 lakh crore by 2030. 

There are certain factors which are driving this growth trajectory of e-commerce. Technological innovations play a significant role in driving this growth. AI-powered personalisations are transforming the customers' shopping experiences.

There was a time when online shopping felt risky, but today things have changed due to AI-powered virtual try-ons. With these tools, one can even check if a certain lipstick suits their face or not.  Further, there are AI stylists that can also recommend clothes and curate one’s wardrobe.  Markets like India are experiencing robust e-commerce growth.

While metropolitan cities contribute massively, the real picture is depicted by the Tier III cities, which recorded 21% YoY growth, demonstrating that India’s smaller towns are actively a part of this e-commerce growth.  Quick commerce has also reshaped customer expectations with fast delivery platforms. This helps in giving brands an advantage by offering instant delivery, increasing sales, and curating cross-selling opportunities.  

INTEGRATION TECHNIQUES  

In order to sustain the competition, traditional retailers are adopting ways to integrate with e-commerce. Cyber-enhanced retailing integrates e-commerce with traditional retail to curate a better shopping experience. As retail stores cannot relocate online, this strategy helps them to incorporate some digital tools in their stores, like kiosks, CRM systems, and recommendation engines.

Physical stores are also using the ‘ship-from-store model’ to ensure quick deliveries and enhance efficiency. Using this model, customers order a product directly from a retail store rather than a warehouse.

Further services like buy-online-pick-up-in-store (BOPIS) or buy-online-return-in-store (BORIS) can help in promoting more in-store visits. Small businesses can adapt to this omnichannel approach by using technology like inventory management and cloud-based POS.

Further, they can also utilise social media to engage with customers and implement CRM systems to provide steady customer service.  Using immersive commerce techniques like Virtual Reality, Augmented Reality, and virtual stores allows customers to have a better retail experience. For the consumers, this will give them a better, real digital shopping experience, allowing them to try the products before purchasing them.    

Finally, it is essential to train the employees so that they can smoothly navigate these digital technologies, foster seamless collaboration, and render customer service facilities.

POLICY RECOMMENDATION FOR INTEGRATION OF E-COMMERCE AND RETAIL

Smart policy choices can facilitate a symbiotic relationship with e-commerce and retail businesses. The initial step should be to invest more in digital infrastructure like high-speed internet, digital payment, and cloud systems. India’s initiative, like the Open Network for Digital Commerce (ONDC), showcases how public initiatives can democratise digital commerce by giving access to e-commerce and logistics to small retailers in order to ensure inclusivity. 

It is equally significant to create unified laws for retail and e-commerce to ensure consistency. Taxation policies are also crucial for ensuring fairness and sustainability. This will prevent conflicts and ensure competition between the domains.  

Another pivotal area is to undertake training initiatives for the support staff in order to make them experts in digital technology and hybrid work patterns. Government initiatives like Skill India showcase how governments can play a crucial role in equipping the workforce with skills to meet the demands of the changing industry needs. 

Sustainable practices should be the priority for such integration. Offering financial incentives to promote eco-friendly infrastructure should also be provided, like avoiding the usage of plastic packaging and resorting to sustainable packaging. This would not only reduce environmental hazards but also align retail and e-commerce integration with long-term sustainable goals.  

Finally, the e-commerce retail integration depends on consumer security. Policies to ensure safe payments, authentications, data protection laws, consumer awareness, and cooperative threat-sharing should be ensured for integrating e-commerce and retail. This will ensure that both retail and e-commerce remain safe and protected from cyber threats. 

CONCLUSION

To conclude, e-commerce is no longer just an alternative to retail but has become a part of the broader business ecosystems. It cannot be denied that e-commerce has disrupted the traditional retail ecosystem, but it has also given an opportunity to build techniques to amalgamate digital as well as physical presence. Such integration creates a more robust and dynamic ecosystem that benefits both the customers and the businesses by enhancing choices, prices, and experience.  

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BY ANUSHKA DHAR

TEAM GEOSTRATA

info@thegeostrata.com