I worked in retail when I was in my first year at university, every Sunday at a light bulb shop in Christchurch – by myself. It was mind-numbingly boring. Some days only two or three people would come in, which meant for 95% of the time I didn’t even need to be there. I got paid, so that was OK, but it struck me as an incredibly inefficient way to do business. After that year I resolved never to work in retail again.
My next experience in retail was 15 years later when my wife and I launched an online children’s clothing shop. Compared to the light bulb shop, it was great. Instead of waiting around hoping someone would turn up, I got to build a shopping website with a shopping cart, discount codes, email newsletters, and credit card payments. Once the stock was photographed and loaded onto the website, most of the work consisted of making updates to the site and sending out promotional emails. It was a real thrill getting our first orders, and then seeing the revenue turn into something we could actually live on.
But like most businesses, it hit its limits pretty quickly. Revenue just didn’t get any higher, and eventually the suppliers we were buying from realised what we were doing and stopped selling to us. So we started creating websites for other people. As they say, the way to make money in a gold rush is to sell shovels.
The e-commerce gold rush is still going, with no sign of slowing down. Global retail e-commerce sales are growing at 25% per annum, and accounted for 2.3 trillion US dollars in 2017. Those are awesome numbers. Now that e-commerce is firmly embedded into our way of life, I thought I would run a quick audit of the pros and cons of this way of doing business, and it might help you decide what approach you should take for your organisation.
Benefits for consumers
First of all, e-commerce has some pretty massive benefits, especially for buyers. Online shopping offers incredible choice. If you want it, you can almost certainly find it for sale online. Amazon.com started off by offering the widest selection of books in the world. Suddenly, every bookshop in the world was in dire trouble. Bookshops that had survived by specialising in obscure niches suddenly had a global competitor who had access to just about every book ever published.
It’s also made buying a lot cheaper for consumers. The huge number of e-commerce website means that competition is fierce, and the incredible logistics systems that these sites use mean that you can find what you want at a price that any local physical retailer will struggle to match.
You’ll also receive the product really quickly. In the case of digital downloads like music or video, you can listen or watch instantly. That’s why you don’t see record shops or rental video libraries any more.
Benefits for businesses
E-commerce also offers benefits to businesses. Because it makes it much easier for shoppers to browse from home, retailers don’t need large shops in every town and city in New Zealand, so they can save costs. The low setup cost of an online-only business means that starting a retail business is within the grasp of a lot more people. If you’ve ever wanted to set up a designer jewellery business, now you can do it.
But there are downsides to e-commerce too. In most industries, power and wealth tend to accumulate in a small proportion of industry players and e-commerce is no different. E-commerce is largely dominated by Amazon.com, which reported revenue of 177 billion US dollars in 2017. If you are going to succeed in e-commerce you need to either offer products that Amazon cannot, or provide a customer experience that is so amazing that your community of users will stick with you.
The idea of customer experience is becoming vital for brands in the age of e-commerce. When everybody can buy the same thing at the same price from a dozen different websites, what hope have you got of getting them to buy from yours? When your customer buys from your website, it can be very difficult to establish an emotional connection with them. At least when I was in the light bulb shop, I had a chance to talk to every person who came in, answer their questions, give them advice, and even help them take to their new lampshades to the car.
The equivalent of the casual chat these days is social media. Love it or loathe it, social media is one of the few ways to foster a connection with your customers, which means a successful retail website is always going to spend a significant amount of time and money on social media marketing, in addition to Google Ads, search engine optimisation, and email marketing. Some brands are even going back to opening physical stores to rekindle the customer experience which has gone missing in the rush to digital.
Another casualty of the e-commerce boom is the shopping mall. Once the centre of the social universe (having taken that crown from the city centre) the shopping mall finds itself unvisited and unloved. I recently visited an enormous mall in Austin, Texas on a Saturday morning and there was almost no-one there; a far cry from the Saturday shopping crowds in the 80s and 90s. So what? you might say. Who needs malls anyway? I worry that as people go out less and stay at home staring at a computer screen, the social fabric starts to fray. We don’t see strangers as much, we don’t get to see products that we aren’t searching for in Google and Amazon. We don’t even get to see buskers! (and how do buskers even make any money now that no-one carries cash?) In short, we lose touch with our fellow citizens. That can’t be good. But that’s a different discussion.
Security can be a serious problem with e-commerce. Just about every week we hear about another website which has been hacked, with millions of customers’ credit card details going into the hands of the evildoers. And that’s just the big ones that you hear about. Online transactions have opened up a whole new world of opportunity for the devious sociopaths among us.
Finally, if you are going to make the move into e-commerce you need to be realistic about the opportunities that are available. Most niches have been filled. There is always room for new entrants, but the prospects of quick wins and rapid, vast growth are vanishingly small. The low barriers to entry mean that there are literally millions of shopping websites, bidding up prices for ads in Google and Facebook, crowding out the search engine results, and flooding your customers’ email inboxes and Facebook news feeds. How are you going to cut through?
Don’t let me put you off, though. E-commerce is here to stay, and you cannot ignore it. If you are going to do it, you need to do it well. If you want to find out more, we have plenty of case studies on the Mogul website, as well as how-to guides in our blog.
Enjoy, and remember the customer is always right.