Modern eCommerce, evolving from the 21st century, has undergone a paradigm shift in congruence with the exponential increase in internet penetration in the last five years [1]. The exponentially increasing number of users has encouraged organizations to shift their business online.
The Covid-19 pandemic skyrocketed this business disruption in the eCommerce industry. The pandemic devastated the traditional offline commerce industry by bringing businesses to a halt through multiple and multi-variant lockdowns. In addition, people are now extremely reluctant to leave their homes to go shopping. Standard operating procedures for physical shopping have been severely impacted, and offline sales have plummeted with customers only daring to venture out to purchase essentials.
Going outside has been fraught with danger, and this has resulted in an exponential YOY increase in online discretionary spending. While grocery eCommerce has been a key beneficiary, the entire eCommerce landscape is currently undergoing a power boost, with online spending reaching $82.5 billion in May 2020 — a 77% increase from 2019 [2].
As an increasingly more number of users have started to prefer online shopping, the Direct to Customer (D2C) eCommerce model has now become the success mantra for businesses with its numerous benefits. It provides businesses full control over the user experience and supply chain, while removing intermediaries and increasing product margins for the sellers. By marketing and selling directly to customers, businesses are able to get more reach with significantly less overheads. This has compelled legacy commerce brands to optimize their eCommerce strategies, and in many cases, create an eCommerce strategy. Optimizing online profits by removing intermediaries and selling directly to customers from a web store is one of the top priorities in the new normal. In a post-Covid-19 world, this leads to better margins in addition to providing businesses greater control over marketing and sales strategies. In essence, it throws open full ownership of the entire ecosystem to businesses – from manufacturing and marketing to last mile deliveries.
This has changed the goalposts for legacy brands such as Nestlé to move towards online sales and home deliveries, resulting in its acquisition of online meal-kits provider Freshly [3] in the US; in addition to acquiring a majority stake in Mindful Chef [4], a recipe box company in the UK[5].
The shifting business paradigm
While the benefits are massive, challenges faced by legacy brands are unique and strategic when compared to D2C upstarts. By sitting on a large profit pool and being ankle deep in existing ways of doing business, legacy brands are not pressurized to innovate as much as startups are. This was conspicuous when Dollar Shaving Club & Harry’s Shaving started selling razors online, disrupting the mainstay presence of a legacy brand like Gillette. This pushed Gillette to launch Gillette Shave Club, which follows a similar business model. Currently, Harry’s Shaving continues its online presence while Unilever has acquired Dollar Shaving Club [10].
Explaining this paradigm shift in the business landscape can never be complete without mentioning Warby Parker, the D2C supernova. The eyewear industry was expensive and monopolistic, with almost 80% of high-end eyewear owned by Luxottica, a legacy brand. The industry was waiting to be disrupted when Warby Parker started the fire. By selling from a digital storefront and with vertical ownership of the supply chain, Warby Parker removed the blockers of hefty licensing fees and retail distribution and passed on the benefits to its customers. Cut to today, and Warby Parker is valued at $3 billion and has revolutionized the eyewear industry. [11]
Download White Paper to read more
