Braintrust Query: Why You Should Abandon Having an Online Retail Store
Commentary by Bob
Phibbs, The Retail Doctor
Through
a special arrangement, presented here for discussion is a summary of a current
article from the Retail Doc blog.
With the struggling economy,
I hear a lot of independent bricks and mortar stores saying they need to build
an online store. The image is millions of people perusing your products, shipping
to exotic locales like Pacoima, Paris or Peru; a website delivering the amount
of customers you lost in the last two years with low overhead.
Here’s the reality:
major brands are segmenting visitors to their websites by person; they are tracking
where you the customer went to customize their banner ads and even which page
you will see when you return. They have a valuation for each consumer relative
to each SKU. They know how the consumer will react, to which offerings and
when, how fast they’ll shop and what percent they’ll have to eat in returns.
They
can connect the dots of a customer’s age and past purchases with other online
sites, household income and spending patterns. They know what the consumer
zoomed in on, what they reviewed, with whom they have social media influence,
and what they researched on a page but purchased on another. They can track
back their online wardrobe purchases from the past six years and build a virtual
closet of what the customer owns.
How do I know this? At the National Retail
Federation’s Big Show, Nielsen said it tracks 5.55 million transactions a day
worldwide and it slices, dices and resells that information to major online
sites.
Here’s the point, if you can’t be as committed
as Amazon, Best Buy, Toys “R” Us, and the big boxes to deliver a seamless experience,
then don’t tip-toe around it. Oh and one more thing: to build fans, many of
these big guys are selling merchandise online at a loss. Take a look at today’s
price for Sarah Palin’s Going Rogue. List price is $28; Amazon has it
for $9.98.
The easy money online has passed. If you want
to have an online store presence, you need to invest the money to be at least
as good as the big boys. Just like an independent coffeehouse has to be at
least as clean as the local Starbucks, with a speed of service no slower and
with a product at least as fresh, you have to meet the competition’s standards
just to be in the game.
If you can commit to making your site vibrant –
not just a discount place but also offering unedited reviews of your products,
number of items in stock and online chat – have at it! A better use of your
money is to make your website a draw to customers, then give them a reason
to come into your store so you can stand out, sell more and develop a relationship
built on something other than low price.
Discussion
Questions: Is the e-commerce technology gap between independent
retailers and major retailers too wide? What should independent retailers
be doing with their websites in order to compete?
I agree with The Doc in terms of what’s out there and available to internet shoppers. I do believe that having an online presence is important to any size retailer. Having a shopping cart or online store is easy for any merchant to set up. Most web hosting companies will provide you with a basic cart that can do the job minimally.
The guts of the site is what’s important. Aside from shopping, what else are you offering? If you go to BB or Amazon, you will see a wealth of resources designed to inform the shopper about products and services. Independents should focus more on content and value instead of e-commerce. It’s all about connecting to your customer on a different level. Even if they are in Pacoima.
I think Bob’s article answers the question–yes, the gap is probably too big for all but the most committed of new players. That doesn’t mean you can’t use a website effectively.
I find myself looking for some basic info when going to a local company’s website–where are they, when are they open, what do they carry, can I talk or email someone to find out if they have what I want? A good simple website can do all this without the need to become an online store.
To the contrary, independents have a great opportunity to compete successfully online. The key is to complement the in-store experience with the online. For example, a local chain of beauty salons offers online appointments, online clinics on the latest beauty tips. It reaches out to regular customers and prospects through active social networking. It targets clients based on their demographics and shopping tendencies. This information can be just as available to an independent as it is to the giants.
But there are far fewer layers and approval steps between the owner and shoppers. Innovation should be easier and response more nimble as a consequence.
This same kind of connection can be established with any independent store, provided the store has a unique and compelling value proposition. Properly done, online extends the in-store experience and makes it compelling in between store visits. It should be a cornerstone strategy for every independent store.
I have long been an advocate of online presence, but I also believe that there are far too many independents that have grandiose ideas about the possibilities. The message that I would send is to remain realistic and to offer convenience to existing customers, and not attempt to compete with online behemoths.
What does that mean? Offering an ‘endless aisle’ to match what the wholesaler’s inventory is comprised of rather than what fits in a typical brick-and-mortar is a good idea. To provide unique items that differentiate the independent from the big box is a good idea. To provide more checks and balances to ensure the items they are ordering are appropriate for their household (e.g., if it’s a drugstore and they are ordering something that interacts with a prescription, inform the patient that it’s not a good choice and offer an alternative; for the toy retailer provide customer service that advises against small parts that could pose a choking hazard to an infant). Now that’s informed customer service.
Would I advise an independent not to launch an online site? No. I would instead make sure their “great expectations” are tempered with a dose of reality.
I’m not really convinced that technology is what gives big retailers, on or offline, the advantage over the small guys–I think it’s mainly pricing power. The big guys will always have the best prices on the top selling branded items, of almost anything. And, it’s so easy to do a price search on the web now that I agree it’s almost fruitless for an independent retailer to try to compete on price on a top selling item.
But, I don’t think that means that independent retailers should give up on websites, or online stores, any more than they should give up on their physical locations. What they have to do is offer a unique selection, have a special niche, and offer terrific service. There are numerous specialty sites in areas such as gardening, pet supplies, clothing, etc, that do a nice job and presumably make money.
Finally, I don’t think the mega sites like Amazon, Walmart, or Best Buy do such a great job with their tracking, customization, etc, because even if they know what one has done on their particular site, they haven’t truly figured out how to use that information and they are missing at least some activity from other sites and all offline activity.
Great article Bob, but you missed one key element–product depth. I have personally worked with lots of online retailers that have experienced success due to the fact they carry really hard-to-find or unique products. Or have a great depth of products catering to a niche group.
Of course, as you say, these sites have to be professional, offering forums for buyer reviews, and backed with great service terms. But to make every retailer think they have to be on the same level as a Best Buy is misleading. There is still a lot of room on the web for mom and pop shops.
Depending on category, the gap is not too wide. Independent online retailers frequently offer better customer service and a better experience than major retailers.
All retailers need to keep their sites simple to make it easy for consumers to find what they want quickly. They should offer full product information, invite and post consumer reviews, and have a simple, quick checkout process. Many large retailers over think, and therefore overdevelop their websites.
It is possible for the little guys to compete. They need to be smart, nimble and focus on the customer experience.
Great comments by Bob, and by Doron above. Yes, a website is now a necessity, but independents are much further ahead to focus it on information and advice, plus use it to tell their ‘story’. The e-comm side is just too big for most to handle effectively. Their time, money and efforts would be better spent improving how they run their stores on a day in, day out basis.
Well, I have two thoughts on the matter. First, I frequently hear from big retail chains that all of the data they get from their online sites is not getting used to the degree that they would like. They may get the slices and dices of 5.55 million transactions a day, but that doesn’t mean they are driving any insights out of it, or even more importantly, that they are using those insights to influence customer behavior. Also, along those lines, a lot of the personalization capabilities, often as a plug-in to a site (“Just paste the code here!” the vendors say), requires resources to administer it, monitor it, and again, derive insights and then use those insights to influence behavior. So, don’t give more credit to the big guys than they’re due.
Second, while I agree that independents should not have wild expectations about what will happen when they open up an online store, I would also say that there is a legitimacy factor involved that should not be dismissed–if you have a “real” website, consumers are going to take you more seriously than if you don’t, and if more consumers are starting their shopping trips online, then if you want a shot at those customers, you need to be there. Also, as an independent, theoretically you can start out addressing the gaps that big retailers are struggling with right out of the gate. One customer database, accessible both online and in-store. One inventory database, shared between channels. One loyalty program, one customer care strategy. Addressing these things alone will give an independent a huge advantage over bigger competitors. And there is plenty of great data about customer behavior that independents can have, without a subscription to Nielsen. For example, huge online popularity from a region could suggest a new store location. And, as noted already, there are lots of opportunities to innovate, without the bureaucracy of a big company. Inventory strategies, testing assortment, providing unique content and expertise…. All of these are ways that an independent can make their online experience successful.
Bob gives (as usual) some important insights into the relative viability of e-commerce for most independents. In addition to the competitive realities and disadvantages, there are several key operational hurdles for a small independent which are generally not considered completely. These include:
– Who’s going to manage this function?
– How much additional inventory do I need?
– How much does this cost and what if it doesn’t sell?
– Who handles the shipping?
– What about returns?
– What about the varying tax laws across the country?
The list goes on, but you get the idea. This is a separate and incremental functionality for most independents. It entails significant costs and unknown returns. It is also a very large distraction for most independent managers.
In my view, the best use of a web site for an independent is to extend their 4-wall proposition to their local customer base via Social Media, blogs, Facebook, etc. This is a clear advantage the independents have over the big guys, who currently have little/no presence in this space and comes with nominal additional cost. It is also much less distracting than dealing with the issues above, and builds core customer loyalty and preference.
The good news here is that most of the comments state reasons why smaller retailers, independent or not, should have an online presence. Simply because the big retailers have big reach, doesn’t mean others shouldn’t play the game. With price still being the driving factor for consumers buying online, the very premise of product search efforts is to find a retailer who will give the consumer the best deal.
I bought a major appliance from an online store no one every heard of, that also happens to have a brick and mortar location in New Jersey. They got my $2000 because they had the best combination of price, no shipping charges, no tax and their own unique perks. All the big names had the same product, but this company got my business from across the country. And, yes, they made money on me.
I agree with Al McClain’s comment that it is strict management of the supply chain and purchasing power that is the principal advantage of larger online retailers over the little guy.
Although the data is being collected and sophisticated algorithms are available to fuel analysis, I am not convinced that the larger retailers are using the data in the highly personalized and granular way that the Retail Doc describes in this article.
Engaging in price wars is a losing battle for smaller retailers, but if they put the data they do have to use and organize the site to create community with customer engagement as the goal, the opportunity to compete effectively with the big boxes remains.
I would tend to agree with Bob that for most independent retailers is to use the website to draw new customers into the store. The key word is most. There are some with unique products and selection for which having an e-commerce approach makes sense.
As Bob mentioned, the online easy money is gone. It’s not the silver bullet it once was.
But at the same time, there’s a huge opportunity to promote the store. In the old days you looked things up in the Yellow Pages, and now you Google them. I’m always surprised with the number of retailer websites that don’t promote their store.
Anyone can promote a product at a low price. It takes an extraordinary retailer to promote what a fabulous store they have and then back up it with each and every customer.
Rule #1: you HAVE to have a web site if you’re a retailer, or for that matter, if you’re selling anything (and of course, in this country, we’re ALL selling something), you have to have a web site. So, given that, the Doc’s premise is correct–what’s your strategy? Is it for commerce or just for information? (This dilemma, btw, is a very hot topic for restaurants right now; how do we do online?) If your strategy calls for commerce, you’re going to spend more, obviously–fulfillment alone is science in itself.
Having said that, I believe retailers, big or small, should develop their strategies outside of the cost bubble, at least at first, and talk about execution in meeting B. There are a lot of great web consultants out there with very small companies that can deliver strong product for indie retailers, especially in larger metro areas. So, I wouldn’t say it’s out of the question until you really look into what you can and can’t do–I think you’d be surprised.
So, in terms of web, think ‘glass is half full’ and drive your brand’s strategy first. Every David needs the Goliath…it makes them better.
If a retailer has valid transaction history file and a product database (requisite for a good website) the technology is available to personalize your website, your email and even printed post cards for just over $3,000 per month. However, what you need to compete with the large brands is a unique reason that your customers continue to shop with you, offline or online. If that exists, you can leverage your current customer base and increase your customer LTV. Your biggest advantage–they already shop your store.
If you want to compete, you need to be in every channel you can and everywhere your customer goes to shop. You may not have all of the bells and whistles but the small retailer can own the relationship on the web just like they do in the store by developing and maintaining a personal relationship compared to an automated one.
This is some of the oddest advice I have seen. One MUST have a web presence. What to do with it is the question, but to advise not to have it seems frankly unreal.
There are many ways to go as some of the other commentators have noted. For example, places like Amazon Marketplace give retailers access to the millions of Amazon shoppers. I personally know retailers whose whole business is playing off of this, and Amazon does the heavy technical lifting. The “long tail” of hard-to-find items or niches was also noted, and is a key play. How one could advise not having a place to buy on the web sounds like putting one’s head in the sand. Yes, it is hard, but that is why one makes money. A run away strategy is just kicking failure like a can down the road, and it will not work. Delaying learning what you need to do, the changes, the technical skill, and delaying of finding tactics and strategy will only make the gulf wider and deeper.
One only need look at Best Buy, who is also being challenged. Should they capitulate due to the fact that Amazon, Buy.com or others can expose their pricing? Or should they learn, develop a strategy, and compete? They are doing the latter. It is not easy, but it is necessary and not just for giants, but for all.
The independents STARTED the online business in the grocery industry.
Tools such as those offered by MyWebGrocer have recipes, online shopping, online pre-order deli, email promotions, the online circular and every other capability needed to compete with anyone of any size.
It is true that what the independent retailer does once the order is placed will set them apart…either in a good or a bad way. However, from a technology standpoint, the MWG toolset actually converts more customers than any online chain that has built its own systems.
Finally, I don’t think, at least in the CPG environment, that independents have much of a choice but to establish a presence.
This position completely misses the unfolding shift of computing from a capital intensive, proprietary resource, to a “Cloud” or “Software as Service” offering. What it does do is highlight some of the additional features an independent retailer should look for when choosing a “Store Front Service.” It must be much more comprehensive than just an online catalog. In addition to offering customer service, it must also offer the retailer customer insight.
If new shopping patterns are based on Internet research upfront, independents have to be in the game in order to compete. When the consumer has made their brand and model choice online and is searching for a source, the independent who appears able to meet their needs will win the business. The problem is that without a robust Internet presence they will not even be noticed. The good news is that with hundreds (or thousands) of other retailers sharing the same service in a multi-tenancy computing “cloud”, the independent retailer can roar just as loudly as the major chains.
Note: This was condensed from my longer blog post which said all retailers MUST have a website, some seem to have missed that. I am only referring to an online store where customers are supposed to point and click, like Amazon, not sites that have all the added benefits of recipes, tips, etc, which provide the agreed “stickiness” needed to get repeat visitors.
“All generalizations are false.”
Chain retail does not always enjoy a tech advantage over the independents. It is the siloing and budget restrictions of big organizations that limit the activation of the data. Also, older chains are faced with legacy systems that challenge the value of the information.
Independents with a flat organization might have superior customer insights to the chains. Plus they might enjoy greater customer centricity as key decision makers have daily customer contact.
In some categories, an online presence is now table stakes to be competitive. Certainly big ticket, with highly involved purchase paths, requires online presence to get engaged earlier in the “funnel.”
“Business done for fun is better left undone.”
However, the retailer who sets up a site and leaves it untended will only cause themselves harm. One has to “tend the garden.”
These are challenging times for retailers. Do more with fewer dollars. Each investment decision requires deep thoughts, courage to act, and fortitude to keep acting.
Or as we like to say, “Retail ain’t for sissies.”
First, I agree with Bob that customers expect a seamless experience online, regardless of who they are shopping. If that’s a barrier to entry for some independent retailers to build an effective online presence, then it’s a barrier to entry.
But I completely disagree that the big boys have it all sewn up, any more than the big boys have it all sewn up in the brick & mortar world. The opportunity lies in the Long Tail, those highly specialized products marketed to a targeted community of passionate customers. The opportunity lies in presenting those products to those customers online in a compelling and captivating manner that builds equity and loyalty.