During the early stage of the pandemic when people were cooped up at home, demand for at-home workout equipment went through the roof, with retailers running out of stock, and a single used barbell selling for $569 on a third-party retailer site.

Customers were waiting months for delivery of equipment as orders leapt by 220% from May 2019 to May 2020 and sporting e-commerce climbed from $32.7 million in 2020 to $36.4 billion in 2021. Companies had to race to keep up.

When vaccinations began and people returned to work and gyms, however, demand rapidly dropped off. In 2022, bike shops faced a deluge of excess inventory as orders placed earlier in the pandemic came in.

The whipsaw effect is not unique to fitness.

Many sectors within the consumer products (CP) industry saw a huge hike in e-commerce revenues during lockdowns, and faced subsequent supply-chain challenges as demand backed up all the way to China. This forced companies to take drastic steps to adapt operations, from stretching the supply chain, to expanding the supply base and changing operating models from make-to-order to make-to-forecast. When faced with prolonged traffic jams at ports and driver shortage, many companies also raced to add stocking locations and warehouse space, necessitated by a significant increase in last-mile delivery volume with a service level expectation that had been ratcheted up via the “Amazon effect.” 

The macro environment has since changed; CP companies are now dealing with the effects of inflationary pressure, rising interest rates, and downward pressure on discretionary spending.

As demand normalizes, companies are looking critically at supply-chain operations and fulfillment strategies, and need to ask what is necessary for success and margins going forward, and what needs to be relegated to the wastebin of the demand spike.

Fine-tuning to match current demand

Coming out of lockdown, the percentage of orders and revenues derived from e-commerce has continued to grow across most sectors, from around 10% pre-pandemic to just under 15% in Q4 2022, even as discretionary demand has softened. In essence, the pandemic hastened the 
e-commerce transformation.

So while operations do need to be recalibrated in light of recovering supply chains and diminished demand in some sectors, one of the biggest takeaways from our research is that companies are still falling short of consumer expectations.

According to AlixPartners’s 2022 Home Delivery Survey, consumers expect 3-day delivery for free, but only 34% of company executives surveyed said that the last-mile delivery was accretive to profitability, while 84% indicated their primary focus is on reducing delivery costs.

We expect that e-commerce will continue to gain retail share. As CP companies look at the new normal, they need to re-examine their supply chain and fulfillment strategies, and answer these questions:

  1. Does make-to-forecast still make sense, or do we need to switch back to make-to-order?
  2. Is most of our supply base still in China, or do we need to diversify into other southeast Asian countries? Do we look at nearshoring?
  3. Is our distribution footprint too fragmented, or do we need to consolidate stocking locations and streamline the footprint?
  4. Is our last-mile delivery meeting customer expectations and priced properly, or do we have the opportunities to improve the service and recover via the freight revenue?
  5. Is our customer care operation scaled up to meet increasing volume from e-commerce, or do we adopt the best practice to leverage low cost options and advanced AI technologies?

Strategizing for the long haul, not the short spikes

Following the lessons of the fitness sector, companies were focused in 2023 on addressing emerging consumer needs and interests, like virtual reality’s ability to create a more connected experience, corrective posture exercises and tools after the remote-work boom, and forms of exercise that focused as a mental health tool.

The lesson is that e-commerce is here to stay, and companies need to think in fine detail about how to serve the online consumer. CP companies need to build institutional capabilities and capacity in order to manage the complexity of this new era. That will involve making trade-offs, adapting operating models, and working with both supply-base and service providers in an agile and nimble manner to reign in costs.

The scariest peaks are likely behind us. Now is not the time to race to keep up, but to examine your game plan, and calibrate for a strong performance through the next stretch.

This is the fifth in our six-part e-commerce series. Read the other articles in the series here.