Online Retailing Comes of Age 228
The final Christmas shopping figures for 2001 are not in, but some industry analysts believe the new savvy and sensitivity of online retailers might have rescued the U.S. Christmas shopping season in the wake of September 11, when a lot of people either stayed home or tightened their belts. "I can't be quoted on this until the figures are finished," a friend and research analyst e-mailed me, "but I believe online shopping really saved retailing last year. The sites and service are getting so much better, and consumer confidence in them -- especially among women -- is skyrocketing. Online retailing is not only on the rise, it's really getting to be fun and easier. More importantly, they grasp customer service, something almost no software or hardware company yet does."
If that's so, and it definitely matches my personal shopping experiences, it's huge news for the Net. Consumers, chronically abused by the software and hardware industries, were initially anxious about buying things online. They worried about hackers, crackers and security; they faced poor customer service and complex downloading and other problems. But those problems -- unlike similar headaches in the larger computer industry -- are being addressed.
Retailers competing online this holiday season were a lot shrewder, says a story on About.com about the online retailing industry.
About.com cited a survey of 63 retailers who found a successful holiday season marked by a surprisingly effective combination of widespread promotions and discounting. Most consumers hate spam, but it doesn't bother them so much if it's about things they want, and if they're getting something for the attention. Both multichannel and Web-based retailers seemed to have learned a lot from past marketing missteps. The Shop.org/Boston Consulting Group (BCG) found that more advanced retailers, after carefully studying the economics of each online and offline promotion, are finding ways to offer the minimum discounts necessary for increasing sales volume and ways to deliver targeted promotions to the more than 100 million consumers estimated to have used the Net over the holiday season.
Besides that, sites have radically improved their graphics and visual representations of products. As fears about theft and security have subsided, companies have radically upgraded their customer service. This is in striking contrast to tech industries which sell products that are confusing and difficult to use, and either makes themselves unavailable to confused or outraged customers or charge them extortionate fees for "priority service," which is really just the service they would be entitled to for free in any other business.
If you want to see smart web businesses, I'd cite two in particular -- L.L. Bean and Pet Food Direct. L.L. Bean's site architecture is brilliant -- well organized, easy to navigate. It shows clear pictures of all of its products and allows easy customer access to account information, while still providing security. More interestingly, the site offers customers several ways to get instant help -- phone, instant messaging, nearly instant e-mail response. If you're encountering problems, you can simply e-mail or call and a human will respond promptly. This support is crucial to building consumer confidence. A shopper is much more likely to risk buying something online if they know they can get help with any problems. Tech shoppers are among the most distrustful on the planet after years of confusing products and poor service.
Pet Food Direct also offers a different kind of targeted retailing, e-mailing customers weekly about specials, sales and promotions on the products they have already demonstrated they want and use regularly. This isn't quite like spamming, since it's stuff the buyer needs. And the sharp discounts have a way of offsetting any irritation. The site isn't trying to be funny or cute. Rather than promoting a silly sock puppet, it offers heavily discounted pet food and reminds pet owners when they are apt to need it. It also offers sophisticated graphic renderings of products and instant customer service both online and by telephone. The purchase takes seconds. The discounts are heavy enough to attract shoppers attention, but apparently not so heavy to erode profits. One reason is that the site, like L.L. Bean, gives the consumer a variety of shipping choices, from regular mail to next day air. And the customer pays for shipping, choosing exactly how much of a discount he or she wants. In both cases, the sites don't spam -- they target people who have bought and need their products.
Dozens of other sites have similarly polished their presentation, honed their sense of marketing and discounting and, most importantly, invested in tech support and customer service. Shoppers feel secure not only through repeated use, but through the sense that somebody will speak to them if problems arise.
This is something that, alas, computer and software companies still haven't learned.
umm. (Score:2, Insightful)
A bit too early? (Score:3, Insightful)
This is what happened with the dotcom hype. People jumped on the bandwagon too early, and got shot down. I'd be interested in seeing a report on ecommerce in like 2-5 years.
It's a miracle Amazon is still in business (Score:5, Insightful)
In the crazy times of the last few years Amazon overpaid for the land where the warehouses are based, and for the warehouses themselves. I've heard that they are only at 30% of capacity or so year round except for the holiday season. Instead of being high tech, Amazon has had to master such things as distribution channels and inventory management. Concepts that are decades old and have been perfected by old time competitors suchas Wal Mart.
Then there is the debt. Around $2 billion worth. If Amazon can convert the debt to stock then it would free up tens of millions in free cash flow and really let them invest in the business and grow.
FrontLine's "Dot.Con" edition had some numbers (Score:3, Insightful)
I suppose it could be that there is enough room for a few big e-retailers since the really big ones get free customer awareness since they have more mind share, but those numbers speak to a real difficulty to get a sustainable business online due to low customer loyalty inherent when there is no geographic locality and hence no physical reality to such retailers. It could be that Amazon is merely reaping the high advertising costs in previous quarters and will tank once that mind share that cost so dearly to develop wears off.
Re:In case you hadn't noticed.... (Score:0, Insightful)
More spin. I can hear the suits now
One wonders where Wall Street would be right now were it not for the fairy tales of pro forma earnings and the distored reality of earnings reports. It's like this sick joke we all have to "believe in", otherwise our world (and dependance on wall street to bring love, peave, and freedom to the world) isn't quite so rosy.
Wow! Capitalism works, after all! (Score:2, Insightful)
This is the nature of the capitalist system. It adjusts and adapts to profitability, and is essentially agnostic regarding the means. Internet, fax, mail-order, customer service, whatever you need to do to sell your product or service.
When you boil it down, Jon Katz is telling us something that we all know, which is the basic fundamentals of a capitalist market system. Will he next go to the hospital maternity ward and tell us how "An amazing revolution is taking place where humans are reproducing other humans. My worries that the species will go extinct are over!"
Re:"Death" of Retail (Score:3, Insightful)
While I doubt all retail will die, I can see certain branches of it dying.
For instance, I used to be such a regular customer at EBX that the sales staff knew me by name. I do appreciate that personal relationship and the customer service... but why should I spend 40 minutes driving to and from the mall (which is now farther away thanks to moving a few miles to a new house) when I can go Click, Click, Boom and have the same game delivered to me two days later? The wait is worth the convenience. I haven't been to EBX in awhile, as a result. Amazon gets my buys.
Packaged goods, things that don't change in quality (CDs, books, movies, consumer items, and such) are simply easier to obtain over the web. No need to inspect the box; reviews and opinions are online and the item you buy is the same as the item anyone else would buy. The Yes/No buy decision doesn't need to be compounded by the hassles of real-world consumer retail.
Amazon is still WAY in the red (Score:3, Insightful)
Re:sigh. (Score:2, Insightful)
I also think the article is pretty optimistic about how well non-computer retailers "get it." For example, Mrs. Dew is with child now, and I made the mistake of ordering some clothes from A Pea in the Pod's online presence. Handy tip to online retailers: if *you* send the wrong merchandise, you'd better fall all over yourself to make it right, because otherwise, we won't be buying your overpriced swag again.
On the other hand, I've dealt with a few small businesses whose web sites weren't exemplary, but were adequate to get me engaged, and whose customer service made me a very happy customer. These include non-computer businesses such as Sunburst Shades [sunburstshades.com] and computer businesses such as Delta Marketing Group [dmgi.net].
While Jon seems to be claiming that peddlers of general merchandise are doing better than peddlers of computers/software, I don't think this conclusion is at all borne out in my experience. The industry or vertical market a business is in seems to have little bearing on how positive they make their web shopping experience.
Anecdotal statistics (Score:3, Insightful)
Yes, people are stupid that way just as before they argued, on slim evidence, that online retailing would change everything.
The final Christmas shopping figures for 2001 are not in, but some industry analysts believe the new savvy and sensitivity of online retailers might have rescued the U.S. Christmas shopping season in the wake of September 11, when a lot of people either stayed home or tightened their belts.
Ahhhh, I see, so the same idiots who wanted to predict the future and have been wrong in the past, are now pontificating on how they were wrong (again) and that they have a new prediction. Tell ya what. How about we wait for a few quaters of profitability (nay, a few years) before we start spouting off on how in the future, all work will be done by shiny metal robots before. Until then, I'm not devoting anymore cycles to analysts, futarists, pundits, Jon Katz or any of the other self-important wankers whose parasitic existence distract those of us who actually, ya know, DO THINGS WITH OUR LIVES!
Re:Amazon.com (Score:0, Insightful)
It's not just pro forma profit but real profit!
Re:It's a miracle Amazon is still in business (Score:3, Insightful)
Re:In case you hadn't noticed.... (Score:3, Insightful)
The model for retailers seems to be a couple of mediocre quarters, with a big profit during the holidays. Amazon seems to be on their way there, as the losses have been slowing down, but the next year is really the make-or-break year for them, I think.
If their model is to be a catalog reseller, they're screwed. Just look at Fingerhut as a good example. One day they were the shining e-commerce wing of a major brick-and-mortar retailer chain. Now they're being shut down.
I can see LL Bean being a better example, but even they've had tough times. They recently laid off a couple of hundred people, and they've diversified into storefronts and alternative brands (like Freeport Studio for women) to keep the business going. And they're private - Wall Street isn't a factor for them, either.
Price comparisons (Score:4, Insightful)
The resulting price erosion decreases the e-shops profits.
In order two compensate for this, e-shops can take one of two paths:
- Reduce costs
- Compete on features - differenciate from the competiotion.
The first path is the one being taken by Amazon - they are trying to use their size to increase efficiency in the package and delivery (ie a small number of big warehouses with efficient - and expensive - automated processes) thus decreasing costs. Since they are competing on prices, prices cannot easily go. On the other end of the scale, it gets increasingly difficult to cut costs (the same rule as in software development applies - the first 10% of investment get you 90% of the improvment). Increasing profits in this situation is thus a difficult task.
The second option is to offer exclusive/improved features than the competition. E-shops have great difficulty in differenciating from the competition in anything other than prices. Site structuring is getting similar, and any e-shop with the necessary basic structure in place (web catalog with search engine) can compete in price with the greatest of the industry. Extra web-based-facilities like costumer reviews are in practice lightly-coupled to the buy - you can easily search books in Amazon, check the costumer reviews, and then go buy it somewhere else.
At the same time, differenciation in more physical properties (like fast deliver and swift costumer service) presents e-shops in a less then ideal light by comparison with traditional shops (the fastest delivery is going to a bricks&mortar shop, buy something an take it home)
In the end this will mostly be good for the consumer:
- The ones that are more interested in spending less money will find cheaper prices.
- The ones more interested in features will be offered all sorts of special (and as of yet unimagined) features by both b&m-shops and e-shops.
Are we there yet? I don't think so!
Here is where the real "TECH" happens (Score:3, Insightful)
When I left Kmart in 1990 we ordered stock by counting goods on the shelf. Those numbers where then entered on a paper sheet that went back to the office where a worker would enter the numbers into the computer...the next day.
Started at Wal-Mart 6 months later. Ordering new stock went like this. Look at the item on the shelf. Is the count less than low stock count set by the department merchandise manager? If so, scan the barcode label. The scanner then wirelessly sends that information to the computer in the office where an order is sent to Bentonville. About a day or two later new stock hits the shelf. Wham, bam, order placed. And their distribution warehouses...damn little stock. Most items go out just as fast as it comes in, the logistics are phenomenal. Lots of conveyer belts with scanners directing stock, leading from supply trucks to Wal-Mart trucks.
The late Sam Walton knew technology was important to stay ahead of the competition.
Kmart never got it. Now haven't they have filed for Chapter 11 protection? Needed to hire some 'puter nerds I guess.
One does not imply the other (Score:4, Insightful)
There are plenty of us privately-held small companies out here with revenues under 100 million making money consistently even in this economy with online sales - we're just not screaming FOR THE LOVE OF OUR STOCK PRICE LOOK AT US on the cover of (fill in trendy New Economy magazine). We left "dot coms" behind as a benchmark long ago - we were interested in growing a business, not getting a Webby. We do it from small towns you fly over and get no closer to Silicon Valley than changing planes in SFO on our way to meet with a new supplier in Asia. We like Amazon if it gets our customers familiar with the idea of using a website to place an order (and Amazon has our attention and respect by doing many, many things worth emulating in terms of providing service to their customers) - but as far as strategy and finance go, we have much better and suitable models to follow.
Those who have been successful see this medium as simply another another sales channel, a mechanism to reduce expenses (particularly in transactions and support), and the extension of an already successful business model. We did not need 100 million of venture capital, an instant army of programmers, content managers costing half a million dollars, and consultants selling us "solutions". Instead the many silent successful firms grew our online sales channel just as we grew the rest of our business. Small at first, learn and add as necessary.
Catalog companies like LL Bean or Lands End are successful because they have taken advantage of the medium, yes, but also because they already have a super-efficient logistics system in place. That's one reason I'm surprised Wal-Mart is not a bigger online player - distribution and logistics innovations are what made them untouchable in the traditional retail arena.
Amazon should provide more ecommerce outsourcing (Score:2, Insightful)
Amazon's strength is that they've figured out how to present a user experience that online shoppers like and will come back for. I know that Amazon now provides the Toys R Us store, and probably a few others (Borders, maybe?).
Amazon should outsource their warehouses, and get more bricks and mortars to outsource their ecommerce to them.
-jimbo