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At the NRF Big Show this morning, there was a very informative session, The Sky Has Fallen: Now What?, which included an amazing panel of experts including JC Penney CEO and NRF Chairman Mike Ullman, Mark Zandi, Chief Economist for Moody’s Economy.com, Peter Solomon, Founder and Chairman of Peter J. Solomon Company and Chris Donnelly, Executive Partner in Accenture’s Retail Practice. The panel explored the current retail economy in gruesome detail. The consensus advice for retailers in 2009 from all of the panelists is to get into survival mode and “harbor cash” by focusing on costs and cutting or eliminating capital expenditures.
Since this is the Shop.org blog, what does this mean to online retailers?
We’ve seen that nearly two-thirds of retailers saw growth over the holiday season and it’s reasonable to say that online remains a bright spot in retail. It’s hard to argue with such a wise, experienced, successful and smart group of people such as the panel. But, I’m going to stick my neck out on this one and suggest that if there is one area worthy of investment that it’s e-commerce. E-commerce investments aren’t nearly as expensive as those in physical stores. Additionally, these investments will enhance retailers’ online capabilities and allow them to adapt to tomorrow’s customers that inevitably will be turning to the Internet for their shopping more than today’s customers.
To be clear, investments should be practical and retailers need to be carefully weigh the value of investing in optimizing their existing infrastructure rather than adding unproven new features and programs.
What do you think?
I am with you Scott. Smart investments in certain e-commerce applications, and e-commerce in general, should pay much higher returns than physical stores in this environment.
Agree. As one of the top Retail Recruiters in the eCommerce space, I’ve been speaking with many senior executives who feel online retail is the place to be and the area on which to focus. Although the growth may not be as rapid as it was in previous years, many sites can still see increased traffic and sales by allocating smart resources to their online businesses.
Rebecca Bamman
Director, Retail Division
answerQUEST Executive Search
http://www.answerquest.net
There is absolutely no question about it. e-Commerce is the only sector in retail where the is growth and it comes at a fraction of the cost of traditional bricks and mortar retail. The reality is that both channels can drive one another; consumers use the web to research the products and services they are interested in and shopping online with companies one trusts saves time & money and it is generally more convenient. Personally I find it hard to take a retailer seriously if he/she does not have a decent online presence, it’s a big indicator of their commitment to their customers.
I fully agree with your statement as the investment in eCommerce infrastructure can pay many dividends. For example, by shifting a portion of your Inventory to a Drop Ship platform not only will it allow the Retailer to expand their assortment, it can also dramatically reduce the raising cost of their Inventory carrying costs. And with today’s technolog, the process in entirely transparent to the end customer.
Scott, you are absolutely right. It’s been proven over and again that E-commerce (e Tail) should be an integral part of most retail operations. Today business owners have so many choices, in no time they can deploy their entire retail store online! The key however, is making the investment future proof and think of it as an integrated business. People often go after stand alone software solutions – one for accounting, one for cash counters, one for purchasing/sales and a separate one for ecommerce. That’s where exactly most business fail when adapt ecommerce. It simply adds up to their existing operational burdens. So more than investing in ecommerce, I would rather re-phrase it to say invest in integrated solution to run both physical and online store from a single data source. It will payoff in no time.
http://www.everestsoftwareinc.com
Scott –
While some of our etailers saw a drop off in holiday sales from 2007, you are right that many including ProFlowers, B&H Video and Photo, and Birkenstock saw increases for the many reasons you discussed.
I think what our clients saw as important was figuring out how to get the greatest ROAS when using adwords/keywords on both general search engines and many consumer shopping engines, as Shopzilla, Proton, Like.com, etc…
One our clients was able to send their product catalog feed using our Web-based tool to over 15 marketing channels and saw a dramatic increase in ROAS, as they managed the data feeds and corresponding SKU level bidding each week from a simple tool…so that helped a lot. I think ecommerce will certainly grow and don’t forget about mobile commerce (mcommerce) as our wireless devices get more sophisticted! We saw tremendous growth there too and our products support mobile ecommerce stores too.
Best –
Chip Arndt
co-founder, http://www.MerchantAdvantage.com
“Take Control of your Marketing Channels”
Your comment on “unproven new features” is right on target. Of course every new feature is touted as “proven”. For context, we’re seeing solid results from features that enhance the customer experience and build trust including user reviews, customer ratings, up sell and cross sell tools, enhanced imagery and visual (internal) search. We see real ROI for these site features with multiple clients serving diverse product categories. The net effect is increased conversion that lowers the cost of customer acquisition and improved profitability. Not a hard investment decision to make if you’re serious about e-commerce.
True Scott. BUT even smarter companies will do what Panasonic has done and invest in Web-To-Store technology for their sites. This replaces their “old school” dealer locators and keeps brand shoppers in brand, all the way to real time availability at local stores. 95% of shoppers still go to the store to buy!
Local search is the way to go. At Krillion, we have that proprietary technology. Check out our whitepaper: http://www.krillion.com/xA-manufacturer
Agreed! Just as many third world countries skipped investing in hard wire telephony and went straight to wireless telephone because of cost savings, many companies will shift investment from brick and mortar to online infrastructure and promotion due to lower costs.
Just to build on Scott’s points about e-com investments, I’d add:
- Payback period needs to be quick. Given the economy, “quick” means within the calendar year.
- ROI targets need to be clearly stated upfront and then the e-com team needs to do the grunt work to meet or beat the ROI targets. “Launch it and leave it” was acceptable when a rising tide was floating all boats, but those days are gone.
Whether it is a feature, an approach, a program, etc., in this economy teams need to stay focused on retail execution vs. treating their business as a perpetual series of project roll-outs. E-com leaders and their teams traditionally spend an inordinate amount of time on building vs. running their stores. Could you imagine if offline store managers did the same? What if a good offline store manager was not the person who had maniacal focus on pricing vs. the local competition, the store’s inventory levels, taking care of customers, etc. but instead was spending meaningful time on the rollout of new “talking price tags,” reevaluating the opaqueness of the store’s windows, and so on? My comparison is a bit extreme, but only a bit. Hopefully the necessity of a shift to efficiently running our businesses will stick with us even when things turn around. That will be the difference in a tough climate to having investments payoff.
True. Even if consumers are buying less, they will still buy…thus competition for those dollars will only intensify. Smart investments in technologies that have a fast ROI and build upon existing assets will make a difference and will influence who makes it to the other side of the tunnel. E-commerce or multi-channel (if you already have stores) tied up with a good loyalty strategy and tools will help retailers gain and retain multi-channel shoppers which are the most profitable customers.
Julio de Villasante
President
EVT Solutions
http://www.evtsolutions.com
Want to know which large retailer grew the fastest in 2008? Amazon. By 2012, if it only grows at a 13% CAGR (half as slow as current growth mind you), the company will be as large as Sears Holdings (Sears + Kmart).
Certainly there is channel shift occurring, but consumers are voting with their wallets. And while online and offline work best together, the fact remains that e-commerce businesses provide a better return on investment in the current economic climate than capital spent on new or existing real estate. The head of ecommerce knows this; the CFO and CEO do not. While the upfront capital costs may be more than opening a single store (or even multiple stores), that investment pays returns the equivalent of 5, 10, or 20 stores. It also scales more easily and is more easily adaptable to meet consumers changing tastes. Margins are generally better, inventory costs are generally better, economics are generally better.
Sure, brick and mortar won’t go away, but with an over-stored retail landscape, it simply makes sense to a.) invest in the best locations, b.) shutter the worst locations, c) divert capital to growth and return. For item c), you have to argue e-commerce is the right investment ESPECIALLY in a challenging environment.
I completely agree with your points, Scott. To build a bit on BMAY’s point about Amazon, if multi-channel retailers don’t invest in their e-commerce operations this year, they will lose ground to to competitor pure-plays who will undoubtedly still invest, even if at reduced levels from previous years.
BMAY – great point about shifting money from underperforming stores to e-commerce.
[...] The overriding point is to save and harbor your cash for a rainy day…like now. Scott Silverman of Shop.org notes that online retailers should “get into survival mode…by focusing costs and [...]
Not only is eCommerce a great investment right now, I believe that the shear number of one-off third party applications, SaaS, and interfaces available today are allowing even smaller sites to invest in the latest web 2.0 and peer to peer functionality. In many cases these consumer focused apps take far less capital and are less resource intensive than more complex enterprise solutions that can actually put you in limbo for extended periods. This buffet of apps can, in many cases, be added to existing platforms along with redesigns for fast food prices.
Customers want the convenience of shopping online and will shop this way again and again with companies they can trust, are easy to communicate with, and give excellent customer service. One e-commerce company Gifts.TV hopes to emulate is Zappos.com. Every retailer wanting to succeed in ecommerce should look at Zappos.
Retailers should also look at using video on their sites and web advertising to further engage customers.
Ecommerce investment is a MUST. Many CEO’s fail to appreciate how much a world-class online experience can enhance and differentiate a retail brand. Weird, given that well-branded (ie, respected, trusted, and relevant) companies frequently enjoy greater asset turnover, wider operating margins, and have access to more and cheaper capital than their poorly-branded competitors. Mathematically, all of these things drive ROE — which, coincidentally, is the CEO’s job. You’d think CEO’s would make ecommerce their pet. But no.
In my mind, failing to invest in ecommerce is akin to neglecting one’s brand. Crazy, given the rise in adoption of internet technologies and how quickly those technologies change. And “When the rate of change outside the organization is greater than the rate of change inside the organization, the organization is in trouble.” -Jack Welch
[...] maybe there is a silver lining? Scott Silverman, Executive Director of Shop.org, summed it up with his post or you can view my presentation, which makes a case for a more strategic focus and investment in [...]
What about the store impact? Most of you know and understand how the website serves the brand and STORE traffic. Shop.org, Forrester, other expert surveys and retail proprietary tracking surveys continue reporting consumer online search behavior that leads directly to retail visits and purchases. I suggest you track your website traffic as well as your competitors to determine how this impacts total market share over time. Watch how this plays out as we weather these difficult times. Ron Ramseyer, Ramseyer & Associates, LLC, http://www.ramseyerassociates.com
I agree. E-commerce is absolutely investment worthy. E-commerce is on the rise, so much that two-thirds of online Americans have purchased a product online and countless new online payment systems have emerged. Alternative payments are popping up not just because the technology and innovation is available, but because of shopper demand. “Tomorrow’s” customers, as you cited, are here today.