On the Power of Ecommerce

Update April 2012: Simple yet powerful statement from Jim Chanos during a Bloomberg interview:  “The Internet is the most efficient distribution network ever devised.  Anybody in the business of selling you a physical product that is digitized is seeing their margin collapse overtime.”

July 2011: The continued penetration of ecommerce and its scale and focus on the consumers means that anyone selling any non-exclusive physical product utilizing a pricing scheme based on limited local inventory will see their margins shrink over time and force a model change…just like those who faced the initial wave of online content – music and newspapers.   Companies not focusing on the customer “experience” and instead just the product or the store operating margin will lose.  This is going to move beyond office supplies, books and electronics, all of which have ecommerce as greater than 20% of sales, a tipping point.  The inventory of the world at your finger tips presents a huge challenge for traditional retail.  In addition, while the first three rules of retail are location, location, location, one could argue that it is even more important than before due to the added convenience and satisfaction levels of e-commerce.  Shopping is an experience, and part of that is not going “out of your way” to reach a certain store in a non-premium or stand alone location.  We expect the continued positive traction of higher end malls and full service (food, shopping and entertainment) shopping centers to force retails to pay up to be part of those experiences for shoppers.  This pattern of location issues has always been impactful for retail – think Circuit City vs Best Buy…sure the selling model was a little different, but mostly the stores were shinier and in new, more trafficked locations…so what location is better than in your living room, or office, on the palm of your hand?

Some observations to continue on…

The sense of brand has never been more leveragable or more important.  Your identity as a business and even as a person is now searchable and on display – you have to cultivate it and use it to your advantage.

From a retail perspective the concept of the “lifetime value” of a customer has taken on a new meaning… and will evolve even more.  There are real time conversations and interactions occurring.  A feedback loop that never existed before.  Brands are not perfect, and are not expected to be, but they are expected to be more transparent, thoughtful, and reactive now.  Increased amounts of data and analytics can influence these relationships for the better.

Realize there are no more lines.  People have the tools to sift through enormous amounts of information, and the speed to locate the best sources.  Being the best at what you do is vital, the next step is to be part of the network, you don’t have to BE the network, but you need to be on it.  Your product or service is potentially global the second you launch it.

Commerce will become social – in part because it already is in the off line sense, but more so because the network effect of data.   Both social activity and commerce (including media consumption) deliver valuable streams of data in isolation – but those backbones or vertical markets now mesh – presenting a cross data stream to be queried, driving ever more targeted results  and correlations.  Companies are very excited about this potential, and the potential to interact directly with their customers.  These actions stand to enhance my shopping experience and relationship with the brand.

Winners: Amazon, eBay (PayPal), Lulu Lemon, Chipotle,

Losers: Best Buy, Radio Shack, Office Depot, Staples