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During her keynote this morning, Forrester’s Sucharita Mulpuru outlined why e-commerce is “the bright side of retail” and what, specifically, it’s been doing right.
“How is it that web retailers have managed to outperform so many other sectors?” she asked. “The easy answer is that we have lower prices or smaller bases to work with, but I think those are cheap shots…not to mention outright wrong.”
Here are the six things Mulpuru says online retailers have done right:
1) Reset their goals. Times have changed, she said, and companies realized that “to arrive alive at the end of this downturn was the best way to grow in the long run.”
2) Redefined their competition. From McDonald’s venture into coffee to Netflix’s focus on long-term growth, retailers are taking a close look at their competition and a new approach to what’s next. “While bricks and mortar is fighting the competition in the rear-view mirror, the competition is looking years ahead,” she said.
3) Respected IT. Web retailers spend seven percent of revenues on IT, while retail as a whole spends about two percent, she said. “The delta really lies in the innovation within e-commerce, enabling people to pay online without credit cards or zoom,” she said. “We cannot understate the value of making these investments.”
4) Reinforced their partners. Consumers are brand-loyal and love their favorite manufacturers, she said. “Manufacturers realize the web is a bonanza, and the web empowers them.” By her estimates, about a third of e-commerce spend is generated directly on manufacturer’s websites or is closely influenced by them, so “smart manufacturers realize it’s important to do things like offer an extended assortment or provide value-added content.”
5) Reacted to people power. Over half of retailers who participated in the State of Retailing Online have engaged in social media, though 66% say return is unclear and half of companies say they are just doing it because everyone else is. That said, about a third of online retailers say social marketing initiatives have helped them grow their business. “Companies that have found value in social marketing have found value in the ways that companies find value in market research,” she said. “Social media is an opportunity to engage in customers in a way that helps you over a period of time.”
6. Recognized the mobility revolution. “If there was one product that was recession-proof, it was the iPhone,” she said. “And companies that certainly recognized that were a step ahead of others.” While the number of consumers accessing the Internet through mobile devices is growing, it remains relatively small, she said, but those people are actually buying through their mobile devices. If you’re too focused on email to think about mobile, Mulpuru offered a caveat: more seniors use email than Gen Yers, who are too busy texting, she said. “Email is web retailers’ best friend, but it’s not the future.”
The online retailers that are also bricks and mortars are making a mistake if they are not also simultaneously prominently branding their local presence
Mulpuru gives great insight on the infinant possibilities of e-commerce sites that are adapting to the global economic change.
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If you want a really scary thought, it would appear we are entering a nexus of increasing gasoline prices and more demand for “good deals” driven by the new frugal consumer (post Great Recession). I wrote about this very issue in my blog post this month, “The Price of Cheap: The Hidden Cost of E-Commerce”. In short, this is how I see it:
The Los Angeles Times reports in a March 2010 article that oil industry analysts foresee the retirement of the baby boomers and fuel efficient cars as cutting demand PERMANENTLY. So after all these years of claims that we needed to become energy independent via more domestic oil refining capacity, the industry is already, quietly so, in the process of selling off or shuttering facilities.
Gasoline prices will hurt online commerce. But it will also increase the price to haul goods into traditional retail stores. So the good news is that the Internet is going to look increasingly attractive. The bad news is that the good deals will likely dry up in time. State legislatures are going after the likes of Amazon, and others, who do not charge sales tax. Traditional B&M retailers are increasingly expecting shoppers to settle for limited inventory and/or shop their websites, and manufacturers will find it increasingly tempting to sell direct to a bargain-starved public searching for a way out of the inevitable INFLATION to come down the pike.
The Internet has displaced a lot of things. We no longer buy Compact Discs at music stores. Napster and later iTunes revolutionized that, leaving the “dedicated storefronts” nearly extinct from the market. Same is happening with video rental stores. Video-on-Demand services, Netflix and other options aren’t just competing; they’re putting the competition out of business one store closure at a time. Now if you want to hit “fast forward” on where this Internet economy is taking us, I foresee ALL THE MIDDLE MEN cut out. Sure there will be your local bars, fast food joints, dry cleaners, grocery stores. But just about everything else will be manufacturer direct. Because for one thing, traditional retailers don’t want to occupy their square footage with items that they can’t be sure there is a demand for. So the answer is to put increasingly more and more online, and less and less in stores. So eventually we’ll see a lot of Big Box retailers close up. If it’s bad for the Big Players, think what that is going to do with the Mom & Pops and for the small e-tailers whose customers don’t want to pay steeper shipping costs, etc.
All in all, I see us moving toward an increasingly “efficient” economy wherein the manufacturer can accept orders direct from the public thanks to the Internet. In effect a Manufacture On Demand or Build It To Order paradigm shift. Right now there’s a middle ground where e-commerce thrives. But when the loopholes that allow customers to obtain better deals out of state via the web are gone, the familiar name brand stores and their web-based presences will be the go-to destination for shoppers who see no reason to patronize the lesser recognized “little guy” with his somewhat higher prices.
Let’s not kid ourselves that customer service makes much of a difference, either. The web is a solitary shopping experience almost by definition. It allows consumers to transverse such great distances — international borders, even — that there is less and less reason to patronize a middle man at all. Consequently, eventually the products we consume will not be produced at all unless there is already a buyer lined up in advance. This would eliminate once and for all the overstock stores, the closeout deals, the red tag sales and the like. Why? Because those types of discount commerce opportunities are based on too much product having been made, after which it is sold off at the end of the season to the likes of Overstock.com or a TJ Maxx, Marshalls or Ross. The truth is, those days are going the way of the Drive-In Movie Theater.
As drop-shipping to the customer’s doorstep will become the New Norm. For the time being, Old School B&M retailers have figured out they need a web presence, this venue, in turn, has allowed them to increasingly shut down the mediocre stores because they can always advertise their online alternatives. But has the small-time Internet entrepreneur realized that he/she will eventually be cut out of the process by these market forces too?
Lets not forget that all of this is motivated by consumers’ desire for a “better deal”. Perhaps bargain hunting, when it is taken to the point where profit margins are totally eroded, is actually dangerous to a healthy economy. You won’t hear economic experts talking about it, but perhaps it is the Old Economy problem of generating too much supply, a little waste here and there that creates opportunities (both jobs and products). When all that “excess fat” is trimmed out of the shopping equation, consumers won’t be doing business with retailers of any kind — they’ll be placing their orders via catalog with the manufacturers and producers of those services directly.
And the worst part? The more “efficient” this Internet economy becomes, the fewer people it will take to run anything. One office with 200 employees will be able to run an entire company without much of a town-by-town presence whatsoever (but for the people employed at the drop-ship warehouses). All this means fewer local shopping options, and perhaps even fewer sales tax revenues to support cities, public safety, parks. That, in turn, will probably translate into more commercial real estate vacancies. In short, a downwardly mobile economy that is only going to make demand for those “manufacturer direct deals”. In short, the very thing shoppers are presently doing now to save a few bucks here or there will become an essential economic survival tool in the future when the jobs — even the low level retail variety — are fewer and further between even as fuel prices, shipping costs and the price of everything else begins to see massive inflation.
If the High Tech economy were portrayed as a dragon, it would be a dragon consuming its own tail. Sometimes technology takes us SO FAR that we’re not likely to appreciate the consequences until it is too late.
My point in contributing this comment is in the hope that people will begin to take a long view — and to wake up while there is still opportunity to “shop local” and support local parks, public safety, schools and jobs. There’s a place for online shopping, but we’ve got to be careful what we wish for or it will be the only venue left to us and at the same time not offering the novelty or the good deals we associate with shopping online today.
Good read.
When comparing online retail to brick and mortar, obviously online will have lower overhead. That and there are very few barriers to entry to get started online. So with all that extra competition, and lower overhead there are very few brick and mortar retailers that can compete on price.
But the real big advantage that online retailers have is their ability to directly the effectiveness of their online marketing campaigns, the effectiveness of their webstore’s layout, and all sort of other minute details that they can help improve their sales. The cost to do A/B testing online is just significantly cheaper and quicker.
Online retail will continue to grow as more and more people feel safe to complete transactions over the internet.