VideoExecutives who think that the dot-com collapse, channel conflict, and consumer fears of identity theft have combined to make E-commerce strategy a low priority should think again. Ten years after Amazon.com and eBay made "E-tail" a household word, companies in many industries are taking a second look at E-commerce, and finding ways to overcome old problems and tap new opportunities.
Last year, E-commerce sales hit $69.2 billion, and while that equates to less than 2 percent of all retail sales, it is a startling 23.5 percent jump from the previous year. Analysts believe the online channel may account for 7 percent of all retail sales by 2010. That's a potential increase of nearly $200 billion, which means companies that were turned off or got burned the first time around have plenty of incentive to try again.
And many are. No longer seen as a separate entity (with its own dreams of IPO glory), today's E-commerce effort is framed as an integral part of a multi-channel sales-and-marketing strategy predicated on giving customers what they want the way they want it. That means company strategies vary widely. One retailer's Website may sell a fraction of the inventory displayed at its stores, while another may sell quite a bit more. Some see their E-commerce platforms as the carrot enticing customers into their shops — or, if they are manufacturers, into the shops of their channel partners. Others see E-commerce as a way to reach customers who can't, or won't, shop any other way. Rather than build dot-coms because their competitors have them — often the motivation 10 years ago — companies today think deeply about the purpose of their E-commerce effort before giving it life.
They are also thinking about how to give it life, and again the lessons of the past are proving invaluable. Many companies have learned that they don't need to build their own Websites or conduct postsale order fulfillment, inventory management, or customer service. If a business is built around shipping palettes to Nordstrom stores rather than shipping individual products to customers' homes, why should it restructure its entire operation to accommodate the E-tail channel? There are a host of companies that will provide everything from Website software to logistical support to customer service — and some even provide it all. The upshot is that, far from worrying about being "disintermediated" by new Web companies, old-line firms can partner with these service providers and maintain their dominant positions.
"What's really startling is that E-commerce is being dominated by traditional retailers, and not by entrepreneurial companies and travel Websites," notes Bart Weitz, a professor and director of the Miller Center for Retailing Education and Research at the University of Florida. "During the last ten years, traditional retailers have learned how to use the Internet as a tool to develop better relations with their customers, to really know their [buying] preferences. When I walk into a store, nobody knows who I am. But when I venture into a company's virtual store, I am a known entity with specific preferences. This information now carries over into all my interactions with that company."
But plenty of credit is due to Amazon.com and eBay, the pioneering dot-coms that essentially defined the space by encouraging consumers to confidently key in their credit-card numbers and trust that the merchandise would arrive on time. Both companies built a consumer-value proposition based on reliability and dependability. "They created trust, and that was a huge thing in a self-regulating environment," says Patti Freeman Evans, retail analyst at Jupiter Research.
Reason to Believe
According to Erik Brynjolfsson, director of the Center for eBusiness at the Massachusetts Institute of Technology, they also proved that the Internet is an extremely effective low-cost channel. "It is too expensive for me to sell my aunt's old chair in the attic to someone in Idaho," he says, "but thanks to eBay, I can do that very cost-effectively. Transaction costs on the Internet are but a fraction of what they would be offline."
And while current investment in E-commerce technology is lagging the growth in E-commerce sales, analysts expect companies to soon wake up and realize that the potential for solid ROI is there. "Companies have learned that the Web is a very profitable channel," says Carrie Johnson, principal analyst at Forrester Research. "After the bubble burst, it didn't look as though most companies believed the Web could actually become profitable and contribute to the bottom line. Now we know the majority of online sellers are profitable and there are ways to do business economically that satisfy both Wall Street and internal P&L objectives."
Increasingly, companies are discovering that in order to be a successful online seller, you must first be a savvy buyer. Sorting through the many outsourcing options can be daunting, but companies say it's worth it. And often they speak from painful experience.
A case in point is Linens 'n Things. With its 500th store recently opened, the $2.7 billion retailer has a solid brick-and-mortar presence on which to build — or rebuild. When the company launched its first E-commerce platform five years ago, it handled order fulfillment in-house and operated its own call center. It then decided that E-commerce wasn't its core competency. "We looked at where we could gain some opportunity and decided to outsource parts of our E-commerce strategy," says Kathy Kimple, vice president of Internet operations. "We evaluated all the permutations out there. For example, we played with keeping the Web design and the call center, and outsourcing the fulfillment piece. We talked to Amazon.com, to Fry, to fulfillment companies like SubmitOrder and ClientLogic, and before long, it started to look like a menu from a Chinese take-out. Ultimately, we decided to outsource the whole kit and caboodle to GSI."
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