To eCommerce, the pandemic was the shot in the arm we all needed. Now, we all are dealing with an equivalent of long term COVID. Traffic is down, (seemingly), costs are up (definitive), skills are lacking (for sure) and we just don't see where the growth is coming from.
"The eCommerce sky, said Chicken Little, is f*cked, it is falling down."
eCommerce in small open economies (Ireland, where I am writing from) is inequitable, unprofitable and most definitely not for everyone. However, the need to transition to digital technology, customer focus and consistent, focused and borderline obsessive marketing it a must. I want to qualify this. For 11 years, I have said that for an island like Ireland we need to have a centralised approach to ecommerce. The economies of scale for many (not all or not the majority, but many) do not add up. They never will. Here is why:
Ireland is an island with a population of approx 5M. - Your customer base will hit a glass ceiling - for 1 or 2 scaling #DTC brands I know, this meant they ran out of headroom and could not acquire more new customers during the pandemic - the only path to growth was through international selling. This, can be tricky.
The unit economics of advertising do not add up. I live in a big town in Irish terms - Tralee. Population approx 30,000 people - retail is the core activity. I have worked with the retailers and Chamber of commerce on many initiatives - they fall over, always. Why?
Lack of time
Lack of skills
Expense of competing in an ad market with Large, Dublin centric brands.
The impending shadow that is Amazon.
The advertising landscape is very fragmented and therefore in an island, which at its widest is 280km wide, and is approx the size of the state of Indiana for US readers or Greater Manchester for my friends over the pond. It is tiny. We had approx 5,000 new entrants to an already crowded ecommerce space over the last 2 years and they are competing directly in the same ad space as those who existed prior to the pandemic.
In the top 20 sellers (according to @Ecommercedb) from what I can see, 15 are UK companies selling into Ireland.
The biggest little country in the world - Ireland is exceptionally hard to get around and as a result expensive for a small landmass.
Ireland is a reseller market for many. There are 2-3 layers of margin built into product before we even try to sell it. I know the UK automotive marketers called Ireland Treasure Island - money for nothing as Mark Knopfler might say. This has us at a distinct disadvantage.
So where is the opportunity? Why the harbinger of doom.
I am not saying don't do it. But we should be smart. And this does not just apply to Ireland - other small open economies have a similar profile, think New Zealand. Also Australia, it suffers by a highly distributed population and high level of imports. We need to consider aggregating the process and service side of ecommerce. Consider the following:
Ireland has 4 ecomm service centres. In each centre you can :
Place stock and hold it here
Pick/Pack and deliver around the country
Customer service is split on a per contact basis and employees are flexible working staff who work across multiple accounts. (This is something Ireland excels at).
Returns are easier.
Ports/|Airports are close by.
Marketing contribution is made by every member per month
Marketing is managed through the ecomm centre.
Contracts are centrally agreed and the benefit is passed between all members.
This is the only way economies of scale (profit) can be achieved in these economic areas. This creates another problem - we are at arms length from technology and bury our heads in the sand on the skills we need to acquire. But... This model has a life span to a degree. We need a macro policy sitting on top of this to provide a long term ability to grow this part of the economy. Creating new revenue - a measure of wealth.
Development of an educational policy to properly equip school goers and graduates to be literate in the skills and the contextual reasoning on why and how to use technology. We are already good at it, picking it up midstream in Ireland. Imagine this was a real, inherent skill for our next generation.
Use technology to improve procurement directly into Ireland. Creation of better procurement means that we can buy better, smarter and more frequently. We have a tax structure that makes it easy for corporates to make long terms, certain profits ( a canon of taxation) but not for Irish manufactures or entrepreneurs.
Understand how tech can be used to reduce manufacturing lead times and costs in terms of new product development.
Ireland should be the conduit for US products to enter the EU market. We provide the tech and ops infrastructure for them to import, export and apply tax rules easily and clearly. And the opposite is true. We should be using Ireland as a launchpad for all US bound brands - using our new eComm structure with 24 hour handling and inbound shipping the norm - yes it is possible, it happens, just not at scale.
So all those smaller brands I work with, mentor help to grow. You are not wrong to try. You are not wrong to learn, in fact you need to. Your business needs to learn and understand these disciplines. Principles and how to get things wrong. Marketplaces and high traffic sites are your key to success and learning. They have less risk (not no risk). You can internationalise too. You can sell products you never did before and you can do it year round. Yes, people will argue the margin take - but look at the actual cost of being in eCommerce.
They are not the only way, but scale brings scale. Smaller, developing economies should look to this concept to develop smart ways to do business. We have long accepted that a 3% conversion rate is a good average. In 10 years time will that still be good enough?