In the last 18 months or so, the influence of digital has grown disproportionately. But there is a key difference between digital sales and “digitally-influenced” sales.
As a thumb rule, mobile phones and wearables still dominate the bulk of all consumer durables sold online. With several brands offering variants of the same products online, such sales are speeded up. Small appliances with a ticket value that could be considered as an “impulsive purchase” are also picking up.
However, as the ecommerce market matures, sales of bigger and pricier appliances such as TVs, washing machines and ACs have also started to shift online. Rising smartphone usage and a decline in their prices are prompting the consumer shift to online.
Brands and distributors would realise that when it comes to buying goods online in the consumer durables category, the trend so far is shoppers prefer pure-play ecommerce aggregators like Amazon and noon more than brand or distributor websites.
When we start looking at ecommerce stats for consumer durables, they significantly understate the role of digital, it is important to note that a larger percentage of people are influenced online.
Over the next three to five years, it is estimated the percentage of those who will be influenced online is likely to be over two-thirds.
What then happens to the brands and distributors who have, and continue to invest, in physical infrastructure? They would have to increase their spending on digital ads for the mind share of click-happy customers. Hence, it is essential to look at a re-allocation of the cost budget from distribution to ads and promotion spends.
Withered physical reach
For a long time, physical distribution competency has been a benchmark to gauge a brand or distributor’s dominance. The larger or deeper the physical distribution network, the higher a brand ranks on competitive positioning. This is likely to change.
Many large retailers focused their efforts on expansion of both storefronts and square footage. Some well-known names went insolvent in recent years, and many others cut back and/ or announced store closures.
The lack of willingness to adapt to a fast-changing environment can result in serious trouble for large and small retailers alike, regardless of how successful they have been in the past.
Consumers have easy access to real-time information about products, pricing and quality, and social media enables them to amplify their options and complaints. Price transparency made available to consumers by online retailers maintains pressure on margins along the whole value chain. Additionally, margins are being squeezed by more frequent markdowns combined with constant discounts, as consumers expect year-round discounts.
Adapt even with squeezed margins
Consumer durables’ distributor and retailer success increasingly depends on their ability to adopt new strategies. This requires a willingness to change as well as investments - a most difficult task in times of tight profit margins.
One thing coming out clearly is this. Brands and distributors would need to spend more on digitally influencing their sales. They should not get overly focused pushing more digital online sales through their own websites.
Even in the next couple of years, the aggregate global digital online sales may not cross more than 25 per cent of the aggregate retail sales by value. For brands and distributors selling through their online sites, their strategic benchmark may need to be lower than this figure.
Their focus would need to be on reducing or rationalizing their brick-and-mortar investments, and increasing their digital influencing costs. The timing is just about appropriate. Strong distributors should ensure that they are financially prepared to pounce on an M&A opportunity when it arises—specifically, by reducing debt and freeing up cash.
They should evaluate their portfolios more than once a year, close deals quickly, and build robust integration capabilities. With tech platforms empowering users to control campaigns, companies will be forced to reimagine the costs of their digital campaigns.