3 reasons for getting serious about online retail now!

Most manufacturers I speak to don’t have a strategy for developing online retail channels. Very few have a dedicated team working on online at all and even fewer take online retail seriously as a sales channel. For most online retail is just too small, perceived to be irrelevant or it’s considered as ‘being done’ as part of the management of key customers who already sell through web-sites. But here are three reasons why you need to get very serious about online retail very quickly.

1. Online retail can grow exponentially

Let’s learn from ‘digital’ history. The social media explosion of the last 5 years demonstrates very clearly that the rate of change online is rarely linear – in point of fact it’s often hugely exponential. A recent IGD study suggested that grocery retail sales could grow at a whopping 15.8% CAGR. But this study suggested a linear growth. Actual performance in the UK during the last quarter of 2011 showed online sales for retailers like Waitrose and Debenhams’s and nearly doubling! Both have made serious, focused investments in online and these have delivered startling growth. The potential for what is now small to become very significant, very quickly should be clear. Those who have a strategy for exploiting this change may find new growth in markets once stymied by overbearing mega-retailers.

2. Shopper marketing potential

I blogged last week about the potential for digital and shopper marketing to combine, this potential is greatest in online retail environments. Amazon shows how product ranges offers and suggestions can be personally tailored to individual shoppers. The opportunity this presents is that, for the first time in history, the potential to apply a personal marketing mix to change a targeted shopper’s behavior now actually exists. Ultimately by combining digital tools with online retail the age of superfluous marketing spending may be at an end. In anticipation of this, begin work now defining the role of online retail environments for key target shoppers and start developing clear investment strategies for the web.

3. The potential response of big retail

Major bricks and mortar retailers have been slow to embrace online. Some (eg. Blockbuster, Borders) have been blindsided completely. Others have selected markets where a strong competitive position and high Internet penetration makes online retail an effective competitive strategy (Tesco in South Korea and UK). But in the main uptake has been slow and in many cases, reticent. This is for good reason – the retail business model is one which depends on return on capital employed. What happens do you think, to those millions of square feet of real estate when 20% of your sales go online? Now you own millions of square feet of warehousing in prime retail space – not a great way to drive returns. When online retail explodes those retailers caught napping may have to do some radical business re- engineering. This is going to have a major impact on their suppliers. Retailers under pressure are dangerous beasts: they will seek to enhance profitability by seeking greater contributions for vendors and concurrently make radical cuts in ranges to improve efficiency. Anticipate these shifts now and factor this into customer prioritisation for the future.

Of course things could move slower than I’m suggesting, but I doubt anyone would argue the fact that online retail will be a significant part of consumer goods sales sooner or later, so it’s worth being aware of the costs of not being proactive now. Firstly, your competitors have the same information as you have and the same pressures so if you don’t act they probably will (or are already). Next consider the implications of the rapid demise of a key customer or the rapid escalation of costs that a struggling customer can force you to incur – can you afford reduced margins on a smaller turnover base? Last think about the opportunity cost, digital offers the opportunity to exploit a new, highly attractive channel; one which has a high impact of targeted shopper’s behavior but which is currently low cost to manage: few channels would meet these criteria so not embracing this opportunity leaves you competing in sub-optimal spaces.

Don’t get left behind! Make online retail a part of your channel strategy now, include online environments in research programs and seek to develop talent in this space ahead of the curve.

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5 thoughts on “3 reasons for getting serious about online retail now!

  1. Pingback: Does China’s E-commerce rise signal the future of bricks and mortar globally? « Shopper Marketing

  2. Pingback: What Wal-Mart’s Latest Acquisition in China Tells Us About The Future of E-commerce « Shopper Marketing

  3. Pingback: Does China’s E-commerce rise signal the future of bricks and mortar globally? - Toby Desforges

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