Is E-Commerce Worth It?

I am asked this all the time. E-commerce is a lousy standalone business model, so why should we do it? It’s a fair question…

E-commerce is expensive and messy (if you don’t believe me ask anyone in supply chain). It is disruptive of the time-honored relationships between retailers and brands, between brands and consumers, and between consumers and retailers.

But it happens anyway, especially if you have a more expansive view of e-commerce as including digital influence over in-store purchases.

The National Retail Federation reported that 2016 holiday retail sales in the US — collected during November and December — rose 4 percent over 2015 to $658.3 billion. Most crucially, this number includes $122.9 billion in non-store sales, which were up 12.6 percent over the year before.

It seems like the world of retail is finally getting the message:

There has been a lot of talk about online versus in-store retail in the past few months, but that comes from people who don’t realize that online and retail today are the same thing…In the new distributed commerce world that allows consumers to buy any product, anytime, anywhere, it really doesn’t matter whether a customer shops in a company’s store or on its website or mobile app. It’s all retail. Today’s retailers sell to shoppers any way they want to buy.

That last sentence is, unfortunately, a stretch. Today’s retailers want to sell to consumers any way they want to buy, but few are actually able to completely do so, because the business case appears not to be there. E-commerce revenues and — most crucially — margins are far lower than brick and mortar. Retailers have historically reported offline and online numbers separately so one doesn’t spoil the other.

Thus, while we read that e-commerce is the main growth driver in consumer shopping behaviors, it’s not that e-commerce will replace brick and mortar retail, it’s that consumer behavior (which I vigorously assert is driven my mobile internet availability) is blurring channels previously regarded as discrete.

Recent research from Forrester shows that 56 percent of consumers have used a mobile device to research products at home, 38 percent have used a mobile device to check inventory availability while on their way to a store and 34 percent have used a mobile device to research products while in a store.

These blurred lines compel purely numbers-based stakeholders to ask the question we’re addressing here: Is all the investment required to deliver a best-in-class consumer experience online worth it? A managing partner of a private equity group once asked me, “Is this really more than just people having smartphones? Is it really a behavioral shift, or can’t I just hire a really good e-commerce salesperson?”

Strategically this is problematic for most companies. Some companies do well selling only on T-Mall or Amazon, but most companies don’t want that much consolidation of their sales with one retailer. A really good e-commerce salesperson is chasing this quarter, not next year, because most companies compensate that way.

Grasping the importance of investment in an outstanding e-commerce consumer experience means putting a number to it. The fastest and most accurate way to determine the value of this investment is to compute the financial difference between your current share, and what your fair share should be.

Bypassing the equation to get to the result (see the link above if you want to watch the sausage being made) if you have a 35% market share that’s bringing in 100 million whatever, but your fair share should be at least 42% share, this is worth 20 million. Remember, you’re not talking about adding 7 points of 100, you’re talking about adding 20% of 35 — which is currently worth 100 million. Would you spend, say, 2 million if you could identify positively how that can return 20 million? My guess is, “Yeah, duh.”

It’s Never Too Late To Start Over
Financing a best-in-class digital presence requires institutional will, which means C-suite level endorsement and sponsorship. All of which leads to resource allocation that will be unfamiliar to — and probably uncomfortable for — the organization.

Start by identifying which parts of the operation are impacted by the consumer’s shift to mobile. These are the budgets that will drive the needed changes. There will be push-back (to say the least), but the right way to look at this is as follows: This impacts the entire company, so this approach gives everyone skin in the game. Plus if your department needs to contribute directly you can lend expertise to make sure it’s being done right.

It is important to note that this is not management by committee as much as subject matter expertise being leveraged to ensure the initiative is focused on the right things. Also important to keep in mind that this isn’t a “shared service” model. It is a decidedly outward-facing initiative designed to help future-proof the rest of the organization. Contributing departments aren’t the customers of this team, they are partners.

In some companies this can be a team drawn from existing marketing and IT talent. My experience, from over a decade of building such capabilities on both modest and very large scales, most of the time the CEO or Group President needs to endorse and sponsor creation of this group, and drive securing some outside talent. This can get hairy, but every effective senior leader I have ever had the pleasure of working for and learning from put change forward as more than an inevitability, but an objective.

That, ultimately, is why e-commerce is worth it: The consumer’s behavior has changed and continues to evolve. This brings a host of new opportunities for brands and retailers to evolve, to do more, to be better, and to grow. And growth is what it’s all about.