At a time when many believe that e-commerce is eating the world and brick-and-mortar retail is dying a slow death, it may be hard to believe that some rather large retailers are just now exploring this new-fangled thing we call online shopping.
Just two weeks ago, Marshall’s finally launched e-commerce. The off-price retailer is but one of the brands in the TJX portfolio that has approached the era of digital disruption at a snail’s pace. At Home Group, the value-oriented home decor chain that has nearly tripled its store count in the past five years, is at long last considering launching e-commerce in the face of competitive headwinds. They join a pretty long list of retailers, from Walmart to Pier 1 to TJMaxx, that were slow to fully embrace online shopping.
Having worked for two retailers that launched e-commerce in the 1990s–including one (Neiman Marcus) that now derives about one third of its business online–this is all rather mystifying to me. But aside from my (arguably) idiosyncratic corporate experience, those that essentially watched the last 20 years happen to them got a few things fundamentally wrong, And they are now scrambling to catch up.
Misunderstanding the customer journey. Nearly 20 years ago, when I was responsible for multichannel integration at Sears, we noticed a meaningful percentage of our appliance customers were researching online and buying in the store. Several years later, I witnessed the same (and growing) phenomenon in the luxury fashion business. Data from Deloitte, Forrester—and quite a few retailers that shared their data publicly—suggested that, in many categories, the majority of transactions consumers made in a physical store were started in a digital channel.
When we don’t fully realize the role of a brand’s website in engaging the customer throughout the customer journey, even if more than 95% of all transactions may ultimately occur in a physical store, we are very likely to fail to show up in remarkable ways in the moments that matter. And, rather unsurprisingly, the customer goes to the brands that do.
E-commerce is not a channel. Many retailers established their online business as a separate entity with its own profit and loss statement. Over the years I have worked with several brands that launched e-commerce with very clear ROI goals. The only issue was the way they accounted for revenue and expenses guaranteed they would systemically under invest in all things digital. In a related view, as evidenced by the laggards referenced above, the application of channel-centric financial return hurdles can be used to justify a go-slow (or not go at all) stance.
This siloed thinking, management and measurement is at the heart of poor strategic choices, lagging in the digitally-enabled shopping journey and remains the biggest barrier to becoming truly and intensely customer relevant. Silos belong on farms.
The customer is the channel. As I have written and spoken about for years, the isolated profitability of an e-commerce transaction can be quite challenging. This is not because I have great and unmatched wisdom. This is merely a recognition of increasingly high online customer acquisition costs, downward pricing pressures and growing fulfillment costs, often attributed to online return rates in excess of 30%. But looking at channel profitability separate from overall customer lifetime value is a mistake.
Taken in isolation it’s not surprising that Walmart is now pulling back on its strategy that mostly served as a venture capitalist bailout fund. Despite the appeal of injecting “digital DNA” into the organization, Jet.com was always an exercise in lighting a big pile of cash on fire. It was also clear from the outset that the acquisitions of Modcloth, Moosejaw and Bonobos were unlikely to ever be meaningfully profitable. And don’t even get me started on JetBlack.
Yet credit should go to Walmart (and others) that were (and are) willing to try some radical things to accelerate the pace of innovation. Most importantly, they are working on those things that lead to overall customer engagement and profitability irrespective of how the customer chooses to browse, research, explore, transact, etc.
The legacy retailers that see their stores as assets and are now fundamentally embracing the blur that is shopping today. More and more, they see the customer as the channel. When a potential customer is pretty much tethered to a smart device 24/7, the store is wherever he, she or they happens to be and delineations between online and in-store become increasingly less relevant.
While there may once have been merit to thinking about e-commerce as a discrete business function that could be outsourced or–—as was done at two big retailers I worked for—set up literally and conceptually far away from the “core” business,” that approach today will only guarantee falling further behind on customer relevance.
Date: October 09, 2019