Peter van Stolk

The figures are jaw-dropping. E-commerce sales were rising steadily pre-COVID; however, they accelerated dramatically as the pandemic forced lockdowns and store closures across the United States. In fact, consumers went online for extra purchases to the tune of an additional $105 billion revenue last year, resulting in $790 billion total sales, according to Digital Commerce 360. This was a 32.4% increase over 2019 — representing the highest annual online sales growth ever, the U.S. Commerce Department reported.

Results from the first quarter of 2021 reveal a continuation of the trend across retail verticals. According to the U.S. Commerce Department, online sales were up a whopping 39%, likely due to the disbursement of stimulus checks and the purchases of products for the return to the office and vacations. Drug store chains saw similar figures, often making up for the slowdown in categories like cosmetics. In fact, online prescription orders were up more than 1,000% at CVS for the quarter ended March 31 2020, Larry Merlo, CVS president and chief executive officer, reported during the company’s first quarter 2020 earnings conference call. Merlo also reported a fourfold increase for the same period in the number of shoppers adding general merchandise items to their prescription deliveries.

With all this growth, there are three natural questions to ask:

• How well can drug retailers’ existing e-commerce platforms handle the surge?
• How can the customer experience of online shopping and the operational aspects of taking and fulfilling online orders be improved?
• How will any solution today meet the changing demands of the consumers in the future?

These questions are critical, because it has been widely reported that traditional retailers’ e-commerce operations are not profitable due to the labor costs of selecting orders from store shelves and delivering orders — particularly when these activities are conducted by a third party.

Major health care and beauty retailers started their e-commerce odyssey more than 20 years ago with a catalog approach — now they have slowly moved to emulate Amazon. They have almost exclusively used their existing stores as fulfillment outlets to enhance convenience and get the product to the consumer as economically possible. While automation is being deployed for prescription fulfillment in a limited number of markets by the biggest retailers, add-on merchandise is still selected at the stores.

However, this model doesn’t make financial sense and isn’t sustainable even in the midterm. Why? Shoppers, both online and in-store — for pickup and delivery — want to get through their lists ASAP. Retailers want to accommodate that wish while simultaneously creating an opportunity for curated upselling and cross-selling. The increase in online orders of fresh products, which is an example of the ever-changing consumer and the expectations they have for the retailer of the future, can lead to shrink issues. And perhaps most important: Retailers are far from consistently delivering “a perfect order,” as substitution rates of 15% or more are very common.

In-store shoppers can more easily create “a perfect order” since they will typically select a like product that meets their needs. However, Amazon’s success in delivering exactly what the customer wants when she wants it has raised the “perfect order” bar for drug store chains. Meanwhile, Walmart is working aggressively to capture that share of wallet as well.

To gain profitability, retailers want to reduce the cost to fulfill online orders compared to manually picking click-and-collect or delivery orders from their own store shelves. As online volume grows from a few percent of total sales prepandemic to 10% to 15% now and 20% or more in the coming years.

Drug store retailers need a solution that’s not capital intensive and gives them as many options as possible going forward. They need the ability to quickly grow capacity for online order volume, to meet consumer demand, and to move manual pickers off the store floor so they don’t interfere with the profitable self-service channel. The solution that meets the unique needs of the retailer includes fulfilling from store shelves, warerooms, dark stores and central fulfillment centers; home delivery (route based or point to point); click-and-collect at stores and dark stores. And this needs to be accomplished without causing any disruption to current operations.

This tall order requires a comprehensive e-commerce platform — one that is cloud-based, scalable and cost effective. These all-encompassing flexible solutions provide all necessary tools needed to engage the shopper, take an order, fulfill that order for pickup or delivery from a retail location or dark store, replenish stock, confirm receipt, interact with payment systems, and accommodate automated or manual processes along the way. Overall, the system needs to be able to support a performance-driven journey from retailers’ current situation to where they want to be in five years.

Deploying an e-commerce platform that meets the diverse and changing needs of all customers starts with convenience. Shoppers want to get their orders delivered — or pick them up — when and where they want them. In both cases, shoppers are demanding as close to a perfect order as possible — without unapproved ­substitutions.

Convenience also means mobile. Retailers need to base their offerings on the understanding that consumers are mobile-enabled — smartphones have trained shoppers to buy online. A bad interface will lead to defections.

The intended goal is to help all customers buy all wanted products at all times while improving engagement during the shopping experience. It will help level the playing field with competitors, especially Amazon and Walmart.

Retailers implementing a comprehensive e-commerce platform see immediate improvement in store operating efficiency, enhancements of loyalty and customer services, better allocation of shopper marketing resources, speed and velocity improvements, higher financial performance, and higher return on capital. It also helps reduce labor costs.

Most importantly, a comprehensive, integrated — and cloud-based — e-commerce platform creates a sustainable business model for online fulfillment. This integrated platform can manage all product ranges and scale to replicate the in-store experience online, which also reduces shrink levels. In fact, shrink in integrated environments is often less than 0.5%, making them 10 times more sustainable (and less costly) than most retail locations.

Other benefits include the ability to expand delivery market areas, which enables retailers to service more customers. Plus, retailers don’t need big tech departments to support and extend the systems, as all updates are completed online.

Deploying the most practical and cost-effective technology is always a goal for retailers. For drug store retailers, with the market’s tremendous competition and more digital-only competition expected in the future, it has never been more important to adopt a comprehensive e-commerce platform.

Peter van Stolk is chief executive officer of FoodX Technologies, a leading end-to-end e-grocery management solutions provider. He is also CEO of Freshlocal Solutions Inc., which operates the SPUD.CA, Blush Lane and Be Fresh banners.