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We rely on the weather for so many things, but at it's simplest, and for most people, we wake up hoping for sunshine. It just makes life easier. Too many days here in Ireland, we wake up robbed, not by the weather, but by the forecast. We are used to rain and wind and the land of 4 seasons in a day, but it is when we get our planning wrong, that it screws with the head. But, there is a phrase used here often, there is no bad weather, just bad clothes.
What the heck has this got to do with #ecommerce - forecasts. They are unpredictable but we use the unpredictable to forge our decisions when there are so many other scenarios we can plan for. Rick Watson scared the "bejesus2 outta me today - delinquencies on credit cards are at their height, since 2012. Cost of living is not leveling off and another Rick-ism shook me recently too - over 50% of US households could not sustain a one off $400 extra bill on a monthly basis. We are stretched, we are squeezed. Retail is already facing a crisis and we have not yet really spoken about it. The growth model is broken - too many costly stores and we, the consumer have enough stuff. Layoffs continue and yet we trudge on.
Two or Multi tier system of commerce developing
Just because you think you can box, doesn't mean you get in the ring with Ali (Mohammad Ali for those too young to know).
For the last few years I have watched how large ecommerce now dwarves the SMs from the SME sector. And it is tough going for those in that bracket, so much so that I am beginning to think the SM is for sado masochism. We tend to want to learn lessons the hard way. Let's look at this:
Amazon introduce free shipping.
Smallco Meeting - Monday 9am - " I see Amazon just offered free shipping. I think we should too. Their service is awesome." ... case closed.
3 years later
Smallco - Our cost base is too high. Free shipping our customers love, let's cut our brand video we were gonna shoot. Better yet, let's fire our brand manager.
2023 - Amazon increase shipping thresholds for free grocery delivery.
2023 - Amazon introduce 1.99 charge for same day service
2023 - Amazon earn approx $40B in ad revenue, new revenues, profitable, new revenue
This is a dumb scenario outlook but it is A-typical of we make decisions over the last 10 years or so
Strategy is wrong. We are diagnosing the wrong thing.
We don't need to panic. What is forcing decisions is largely cash flow and financing. Not shifting consumer behaviour (pandemics aside). Let's review this point.
As reported by Statista Market Insights, between 2017 to 2022, offline sales started at 90.6% and decreased to 86.4%, signaling a shift in shopping preferences. Meanwhile, online sales began their journey at 9.4% in 2017 and climbed to 13.6% by 2022.
The split of revenue pre and post pandemic is growing at a modest rate. What does that not tell us? It should be helping us understand that there will be a gradual shift into how and where people are consuming products over the next 4 - 5 years, similar to what happened pre COVID. Driving this are not really consumer behaviours, they are changes in the infrastructure of how we live.
For example, banks are reducing cash in circulation. More control, more room for product growth and more data to create better risk models (allegedly). But control is good enough. The ubiquity of the ways we can transact means banks have more opportunity to earn revenue in more places. The less friction in the tech, the less risk and greater margin and finally the greater the device growth, the better the distribution. This is why the constant but quiet story about the growth of Apple Pay is worth watching. It is an area Shopify are creeping into and something Amazon have muddled through, poorly for some time. They are surely going to make another stab at it, right?
Diagnose correctly - stop and think
I can now see I need technology to be better embedded in my business. But, do I need a $500K new shopping site or do I try and remove job friction, improve processes and reduce my tech cost base over the next 5 years. Oh, and use excess cash to pay for staff training.
Don't misquote me. eCommerce is growing.
But it is Amityville and we have no mayor so let's proceed with summer, but with caution. Let's dig some more.
Source - ecommercedb
The biggest eCommerce markets of Europe are the United Kingdom, Germany, France, Italy and Spain, which doesn’t come as much of a surprise since these countries also have the highest Gross Domestic Product (GDP) of the continent.
To grasp the shift in online and offline retail, we must examine the evolution of online shopping in these major economies, their current status, and future projections.
According to data from Statista Market Insights, a snapshot of Europe's top eCommerce markets shows that the UK led the way for online shopping in 2017, with 23.3% of consumers choosing to shop online. Germany and France followed suit, registering online shopping rates at 11.2% and 10.8% respectively.
On the contrary, Italy and Spain showcased a relatively modest inclination towards digital shopping, with figures standing at 4.7% and 5.5%.
According to multiple sources, (Klarna) sentiment is leaning towards online shopping. This is not a shift - trends are well, trends. Shifts take time. Shift, here, should be soon through the lens of economics. I should have majored in it so I could explain it better, but a shift is a definitive thing, with macro metrics. A shift is worth paying attention to.
We need our own version of ecommerce - Introducing the "Goldilocks Effect". This one tastes just right.
I won't go full Tom Cruise on this one - the man is pretty damn committed to his stunts. But he does, like me, think about them for some time. I have maintained, rightly or wrongly - probably righly, that because of the external forces we should now start developing roadmaps and plans to tie in with your strategy. Strategy needs to beyond sales numbers FYI.
How can we shape these thoughts? Interesting report on Germany. A massive EU market. So different in its composition to the US and the UK. Yet a massive growth pillar for many folks. Germany has a rich history of multi generational, family run businesses. It makes decision making quick but gathering trust can be key. But many are built on solid financial foundations so the things that don't make sense, usually don't so don't happen. So when people say to me, "How is that feckin' possible?" you have go to ask yourself that actual question.
Entering the German market- Marketplaces
By 2020 Marketplaces accounted for 60% of all ecommerce transactions. In Germany, there were 3 dominant players, Amazon, eBay and Otto.
Amazon stood out with a staggering GMV of €46.2 billion, leaving eBay and Otto in its wake with their respective 2021 GMVs of €10.5 billion and €7.0 billion.
Were I in certain categories, I might enter the market via marketplaces first. Why?
Growth?
Price strategy?
Popular opinion - Amazon and ebay are just a race to the bottom.
Idealo analyzed more than 1,700 product categories to find out how often Germany’s biggest online marketplaces offer the cheapest price on the German price comparison platform idealo.de. Across all product groups, the “big four” Amazon, eBay, Otto and Kaufland offered the cheapest price in only 22% of cases. In a compelling 78% of cases, someone else had a better best price offer.
The biggest disparities are in drugs and health - to be expected the way cross border trade impacts. Interestingly, there is no single category in which the big marketplaces generally win the price battle. Yet there are some categories in which they at least hold their ground, such as the car & motorcycle category, where the big players offer the best prices in at least one third of cases. Another notable segment is the fashion & accessories category.
This is the only product category in which the gap between the leading players and smaller marketplaces is less than 20 percentage points: The “big four” secure 44% of price comparisons in the fashion category. (Source ecommercedb )
Automotive after market parts sales was dominated and grew from eBay. A category they know well. Were I to enter this market, I better be competitive with next day delivery and price on my mind. However, if I am in other categories, home, sports etc, I have a chance to make more margin on Amazon than say a specialist marketplace. Why marketplace? They get a lot of eyeballs. Simple. Eyeballs rely on levers such as trust to convert better and dain first party sales.
Predicting the weather is tough - but planned dressing we can do.
What channels to go after - Let's go against conventional wisdom here for a minute.
Let's go where our customers are. Let's foster loyalty. Customers (we) are not loyal. We make decisions on a whim. Depends on what we are presented with, how we are feeling at that time, external factors, weather, is it friday? will determine our steps, almost without consciousness. Brand marketing is so damn tough and the battle for attention is constant. (this is before we think about our teams and their skills to do all of this.)
Maybe, our job, is better distribution. Not to be everywhere, but to have a better footprint than competitors. Chances are if you are the following business with the profile attached, you will struggle to last beyond 2024:
UK pureplay seller
Revenue < £2M pa
Conversion rate 2.5%
Channels in play - Meta/Google
Not selling on marketplace
Data I shared previously from Conjura shows this segment shrinking. You cannot buy your way out of this interia.
But, maybe, just maybe you decide to reduce budget on these contracting markets for 2 years and focus on placing that budget into EU expansion. Many thoughts here (product curation, production etc) but let's look at the opportunity for a second. Let's see what our competitors are doing and what can we do to become front of mind in better way.
Channels
Multichannel strategies provide more room for growth. We can grow more in other countries to fuel our slow burn at home. Based on over 15,00 channels feeds, 50 countries and 20 sectors, we see 3 or more channels in use in more than 50% of brands. In a report by pipecandy in 2022, we saw that US DTC brands who engage in multichannel marketing and selling observe a 4X greater conversion rate than those in #DTC only.
Privacy and Retail Media
The two biggest shifts we face in the next few years. These are not negotiable, but remain navigable. But, we have got to plan for them. This means we will need the infrastructure to allow this to happen, easily, to fail easily and to move on with clear information.
Our large institutional platforms are under pressure for performance and will struggle to meet our growing demands. Is it too much to ask that, we as an industry surpass 5% conversion for the next 10 years? Instead we will meander at the same rates we have for the last 10.
We will need to learn new skills and all be adaptable. We will need to understand how to use rules to run technology, not how to develop. To do that, we need to be able to think as doctors do. We see the patient, we diagnose, we prescribe and sometimes we pray. We wait and check if what we prescribed worked.
Or maybe we need to think more like the Japanese who see doctors to maintain a position of health. This is where there is an understanding of what you need to do to stay healthy ( good processes, profits, right people doing the right things, change in mindset to a change culture) and not be caught in too much analysis paralysis. Seek advice, take heed and move on. Get help when needed, observe and repeat.
There is evidence of change all around us, there is evidence that informs me we need to make some change. There is space for tech to get this right and I believe this will come in discovery, manufacturing and production.
Big risks remain credit, security and cash flow for the small guys to just keep surviving. There is something about the next generation that tells me survival is no longer good enough to satisfy what makes us human. The next big risk of retail and commerce is in a more existential question - do we need consumerism at all?