In Search of the Next Gen QVC
QVC is not revered as a juggernaut the same way Amazon is, nor does it get begrudging respect like Walmart, but it is a behemoth. With last year’s $2B acquisition of HSN, QVC became the 3rd largest eCommerce player behind Amazon and Walmart.
According to Liberty Media (QVC parent co)’s Q4 report: In 2017 in the U.S., QVC (without HSN) did $6.1B revenue, $3.4B from eCom (56% of total) with healthy mobile penetration (62% of eCommerce was mobile). This revenue was generated from 8.1M LTM active customers, implying $758 spend per customer per year, and a very healthy 14 orders per customer per year. A whopping 90% of sales come from repeat customers. In 2017 HSN did $2.3B revenue, $1.1B from eCommerce (47%), with 59% from mobile and 4.7M LTM customers ($498 12 month spend, 9 orders per customer per year).
While there’s no doubt QVC and HSN have created experiences which drive loyalty and order frequency numbers any startup should envy, the entity is by no means safe from disruptors. Neither QVC nor HSN is growing, despite the underlying tailwinds we see in eCommerce as a whole. HSN sales declined in 2016, and QVC sales have been flat for the last 5 years. The following forces are creating pressure to innovate, and I don’t believe the incumbents are well positioned to be the “Next Gen QVC”:
- Declining use of cable TV: Americans are increasingly cord-cutting or are “cord nevers”, never subscribing to cable at all. eMarketer estimates in 2018 there will be 27M cord-cutters and 36M cord-nevers. Today roughly half of QVC/HSN revenue comes from pay TV. This revenue is at risk.
- Aging Demographic, Not Winning w/ Millennials: The vast majority of QVC and HSN shoppers skew older (35 to 64) and the brand does not resonate with younger shoppers. They will need to figure out how to be relevant to younger audiences to make sure their future is safe (no small feat given their legacy brand creates a disadvantage here).
- Content Formula needs to Change: What got them here, won’t get them there… The same content formula that works on TV doesn’t necessarily translate online.
Major social platforms are all making a play for the “Next Gen QVC” title, with varying strategies and to be determined success:
- Instagram Stories — The number of daily users on Instagram Stories is now over 300M. One could argue, consumers are using Instagram Stories the same way we used to watch TV channels. Instagram’s introduction of “Swipe Up” URL links in Story posts has been a game changer for eCommerce brands. Now consumers can swipe straight to a product page for purchase. Some brands have seen conversion rates of 15–25%, making it an extremely effective channel.
- Instagram TV (IGTV) — Just launched in June 2018, IGTV is a new standalone app that allows videos up to an hour long. Unlike Facebook Live, Instagram’s live videos don’t live forever; they disappear after they air. This most closely resembles TV in format, though in some ways takes a step back from TV’s best new features (e.g., on demand & DVR).
- FB Live — Facebook Live allows livestreaming to a brand’s followers. As with all Facebook products, there is some risk that in the future this becomes pay-to-play (meaning brands have to pay to have their content reach their own followers). It’s worth noting QVC is embracing FB’s livestreaming capabilities.
- YouTube — TrueView in-stream video ads make YouTube videos shoppable by showcasing product details and images, as well as enabling viewers to click to purchase from within video ads.
- Amazon — While not a pure social network, Amazon has the highest number of shoppers and social review content, and has made moves that indicate interest in owning a piece of this space. Amazon experimented (launched and closed) StyleCode Live, a QVC-like shopping show. It also was rumored to be looking at acquiring Evine the #3 video-shopping player (behind QVC and HSN).
That said, the path to build a QVC competitor will be fraught with challenges. Blending content and commerce is tricky. Too much content and your conversion rate suffers — you can’t build meaningful enough commerce revenue and the media ad business is not a great place to be. Too much commerce and your content feels like ads, and you’ll lose the frequency of visit benefit that content can bring. Multiple past start-ups have tried to thread this needle and have failed (including my own 2012 start-up, Pickie). More notable examples include video-shopping site Joyus (raised $67M, pivoted away from video-shopping, and was rumored to be acquired by StackCommerce for <$50m).
I’m still optimistic there is a place for a start-up to become a major content + commerce shopping platform of the future. Here’s what I think it will look like:
- Influencer-driven: The selling power of influencers is unprecedented. For millennials, 92% of consumers believe an influencer more than an advertisement or traditional celebrity endorsement. Their trust levels are high, engagement is high, and this helps convert from awareness to purchase.
- Video is the format of choice: 70% of mobile traffic is video. If a consumer has watched a video about the brand or product, they are 64% more likely to buy. On average, videos perform 4x higher than static posts which is why Facebook & Instagram have made feature investments to attract more video producers to their sites. This is a form of communication on the rise.
- Mobile optimized, but NOT app exclusive: 55% of all videos watched are on mobile, making mobile an important channel… but not the ONLY channel. We get pitched a lot of app only concepts. Apps are great for your most loyal users, but being app-only is a huge barrier to adoption. You need to be omnichannel and omnipresent — be everywhere your customer is.
- Content will be live: There’s something special about the community QVC has built. On their live shows they field questions from callers and social media in real-time. Asynchronous internet shopping is valuable for convenience, but lacks social, human connections. QVC thrives and is differentiated based on this human interaction.
- Value: QVC stands for Quality, Value and Convenience. It’s not a coincidence that Amazon & Walmart share similar values. Value is one of the most powerful drivers of customer preference. This may be an opportunity for the flash sale format to make a comeback. It’s worth noting that 20–30% of QVC’s daily revenue is generated by TSV’s (Today’s Special Value); a specially priced item offered to the QVC
customer every day at midnight Eastern time.
- Exclusive merchandise: To avoid becoming a showroom for Amazon (meaning people view products and make a purchasing decision on your site but ultimately transact on Amazon) exclusive merchandise will be key.
- Owned platform & cart vs. built on FB or Insta or Affiliates: It’s impossible to build something big on someone else’s platform, you’re too vulnerable to disintermediation. And if you don’t own the cart, you lose control of the experience and the economics. I believe the winner in this race will invest in owning the end-to-end experience.
- Will target women: The categories most likely to succeed / most advantaged by the enhanced experience one gets via video are Beauty, Fashion and Home Goods (in that order), all categories dominated by female purchasers.
If you’re building something that resembles this, don’t be shy about reaching out to me, I’d love to talk.