The Challenge: Despite e-commerce sales doubling over the past five years and projections suggesting they will nearly double again by 2026, many companies remain anchored to an outdated view of e-commerce as an add-on to their primary business. This outdated perspective needs a significant upgrade, emphasizing a commitment to becoming indispensable to customers through deeper engagement both online and offline.
The Vision: To achieve this vision, companies must place digitally driven commerce at the core of their operations, orchestrating experiences that meet the ever-increasing expectations of customers. This new era, which we call NeXT commerce, is not a distant concept but a current reality. Some large companies are already generating significant value through their commitment to digitally driven-commerce. However, many others struggle to make the transition due to cost concerns or fears of channel conflict.
The Research: To understand the necessary shifts and how incumbents are adapting, we surveyed nearly 50 senior commercial executives, discussed the future of e-commerce with over 75 business leaders, and analyzed more than 1,000 digital-commerce programs implemented by our clients over the past three years.
Findings
Global Forces: Six major trends, from rapidly changing customer behaviors to new technologies, are putting immense pressure on traditional business models.
Customer Indispensability: Successful companies use digital strategies to go beyond basic transactions, offering experiences that address a broader range of customer needs.
Avoidance of Hard Choices: Many companies fail to make the necessary tough decisions due to internal politics, fear of channel conflict, and significant gaps in capabilities and technology, thereby missing out on potential value.
Why NeXT Commerce Now?
Recognizing that digitally driven commerce is the future of business, six critical trends are driving this shift:
- Accelerating E-commerce: E-commerce is expected to grow by over 12 percent annually through 2026. Executives predict digital revenues will increase from 20 percent to 31 percent of total sales between 2022 and 2024. There are at least 25 million "high-potential" digital customers in the US and Europe who tried e-commerce for the first time during COVID-19 but have not fully adopted it.
- Changing Customer Behaviors: Digital adoption rates doubled globally during COVID-19, with leading executives expecting this trend to continue. Social commerce is anticipated to more than double from 2021 to 2025.
- High Customer Expectations: Each digital innovation raises the bar for customer expectations. If companies cannot meet these rising expectations, customers will leave. For instance, 74 percent of B2B customers want online product availability, and 72 percent want the ability to purchase through any channel.
- Capital Market Expectations: The current e-commerce approach is unsustainable for many companies, particularly in consumer businesses. About three-quarters of retailers saw negative EBIT margin growth, even as e-commerce's share of revenue increased. The market is penalizing this strategy, with North American e-commerce companies experiencing an average decline of more than 10 percent in EV/EBITDA from 2018 to 2022, compared to a 2 percent decline for companies in general.
- Advances in Tech and Data: New technologies are accelerating scale and speed. 5G has improved data consumption for consumers, while the cloud offers substantial computational power at lower costs. Advances in AI and machine learning provide powerful analytical capabilities, and technology enables automation across operations.
- Competitive Pressures: Companies face intense competition from digital-first giants entering new markets and innovative start-ups with scalable business models. E-commerce start-up funding reached a record $54 billion in 2021, up from $19 billion in 2020.
