Are the easy online gains over?
According to a report from Shop.org and Forrester Research Inc., e-commerce growth appears to be plateauing for some retailers.
The report, “State of Online Retailing 2016: Key Metrics, Business Objectives and Mobile,” shows online sales in 2015 were flat for 17 percent in a survey of 195 retailers, versus only three percent of operators in last year’s report.
“Much of this is due to more retail competition than ever before,” wrote Sucharita Mulpuru, VP at Forrester Research. “More than 800,000 online stores in the U.S. alone are now vying for recognition, market share and relevance with assortment.”
Mobile conversion rates are low: While 65 percent of merchants report gradually improving conversion rates (orders divided by sessions), 59 percent still have mobile conversion rates under three percent, a figure that has held steady for over a decade.
Online consumers are dependent on promotions: Consumers are still spending cautiously and are as influenced as ever on deep discounts. On days like Thanksgiving and Cyber Monday, more than 90 percent of shoppers purchased with some deal or promotion like free shipping or a discount, according to a fourth-quarter survey by Forrester and Bizrate Insights.
Overreliance on standard practices: Many retailers, particularly the smaller ones, rely on tried-and-true online tactics like live chat and paid search marketing. Only a few, mainly the bigger ones, are exploring new technology developments like Periscope or same-day delivery, in-store innovations and alternative payments.
Scale is elusive: While easy to launch, scaling online is “extremely difficult” due in part to high customer acquisition and shipping costs. Plus, expenses are rising. According to the survey, retailers now spend nine percent of online revenues on information technology, up from five percent in 2013. The average marketing cost per order is $20, with 49 percent of those surveyed indicating it has increased in the past year. The average cost to fulfill an order is $10, with 27 percent indicating it has increased over the last year.
While Amazon’s dominance is “a factor” in new online pressures, many respondents were marketplace merchants, and they’re still struggling. Ms. Mulpuru wrote. “You can’t blame Amazon for everyone’s woes.”
- The State Of Retailing Online 2016: Key Metrics, Business Objectives And Mobile – National Retail Federation
- Shop.org, Forrester Research Find Smartphones Top Tablets as Driver of Sales, Traffic for First Time – National Retail Federation
- Despite e-retail growth, many retailers struggle to grow online – Internet Retailer
- E-commerce grew this holiday, but not everyone basked in big increases – New York Business Journal
- More Americans Are Shopping Online, So Why Are Digital Retailers Struggling? – PYMNTS.com
- It’s Amazon and Also-Rans in Retailers’ Race for Online Sales – The New York Times (Tiered sub.)
Is online entering a phase in which the big get bigger and the small get smaller? What do you see as the newer challenges now facing smaller players and e-commerce overall?
Join the Discussion!
14 Comments on "Are the easy online gains over?"
You must be logged in to post a comment.
You must be logged in to post a comment.
It’s hard for small retailers to get noticed, especially as consumers begin product searches on Amazon rather than search engines like Google. In addition, it’s hard for small retailers to gain economies of scale to drive down the cost of pick, pack and ship. Large public companies with deep pockets like Amazon can continue to innovate and find ways to attract consumers. Smaller players in e-commerce can hope to develop niches that draw business and challenge many of the big guys through better website design, better content and better customer service.
EVERYTHING is on the inevitable lifecycle. Ideas are launched, they grow, mature and die. Unless they are reinvented — and the time to reinvent is during the growth phase, not as they are on the downward slope to demise. In other words, both the big and the small will get smaller. It’s time to reinvent!
Gallup reports that 32 percent of online shoppers are “disengaged” retail shoppers. That seems to mean that while they are in your online store, they don’t want to be. Of all shoppers it’s 25 percent who are disengaged with the retail environment.
Each year competition only gets more fierce. The benefits go to the early mover (Amazon) and sets the rules upon which all must compete — existing players as well as new entrants. This is a natural path for new industries.
Challenges facing smaller players? It’s all about raising awareness with their target market and scaling their business while simultaneously lacking the deep pockets of bigger players. But the one key challenge for online retailers of all sizes is understanding how consumers use different devices and a mix of online shops, social media networks and physical stores to explore, research and make purchases. This enhanced understanding is likely to shed light on current metrics such as the notoriously low mobile device conversion rate.
We’re good at measuring discrete metrics such as conversion rate but lag in assessing the influencers and contributors to that conversion.
As we noted a few discussion ago, Amazon Prime membership increased by over 3,000,000 people. From a behavioral point of view, that means that 3,000,000, more people are likely to go to Amazon first to do their online shopping. If they do and if they find what they want, they will go no farther. The loser will be the guy who used to win by the online shopper searching and exploring. That window seems to be closing.
E-commerce increased over 20 percent. If the small guys are staying flat, the big guys are getting the business. Remember, two of the key components for shopping online are convenience and speed. If the shopper can get it done with one site, it is all over for alternative sites.
Ian Percy talks about disengaged shoppers. I believe we are going to see the percentage of disengaged shoppers continue to rise, both online and in stores. Retail continues to become more functional and less emotionally satisfying. So we feel less. Feel nothing, do nothing.
We have to have supplies, so we shop. But, in the end, if we don’t really care, retail brands become meaningless. And there are fewer and fewer retailers who have the strength and the financial power to really differentiate. The whole cycle frankly makes me sad.
It’s hard to be absolute with a survey like this — situations vary so widely from retailer to retailer. But fundamental marketing has always indicated that online purchasing was important, but restricted by shopping behavior. So what’s reported here comes as no surprise.
This past year we even saw the limits on e-book sales appear as those sales flattened. (Electronic reading is only good for a portion of books.)
It’s striking that rather than acknowledge that there may be fundamentals of consumer behavior behind this, Forrester suggests it’s an executional problem. This is a disservice to retailers.
Retail’s biggest opportunities remain in the store as always. The last thing most retailers need to do is continue to be distracted from their big opportunity to seek tiny gains in online business.
I read somewhere that there are 800,000 online retail sites. That’s crazy. We went from the brick ditch to the clicks ditch. Recently, some of these sites closed or sold because they had hit the wall on growth. As in the past, a specialty chain struggled to surpass $1 billion in sales. Online sites struggle to scale up too.
There will be consolidation so some will get larger as some go away. As is always the case, relevant differentiation is the challenge.
Or as is often heard in the c-suite these days, “retail ain’t for sissies.”
The issue is market need and product differentiation. There is virtually no opportunity to sell another slightly differentiated product online, just because you can sell it online.
The elephant in the room though for the online (e-commerce) specialty retailers is teaming up with their brick-and-mortar cousins to do omnichannel. The smaller e-commerce company wins by lowering customer acquisition costs, and the brick-and-mortar retailer wins by not having to build out and maintain their own e-commerce capabilities.
Limits are seldom included in forecasts involving online retail. Maybe there’s a perception that the Internet can reach everyone everywhere all the time. Well, that’s not right.
And just how many retailers can you fit out there? That might be unlimited, depending on how you define “retailer.”
And finally, what portion of the massive consumer product catalog will consumers buy online?
Would love to hear answers, but I’m pretty sure no one knows these things. Maybe we’re entering an era where growth is more influenced by dillution than it has been since the first online sale. And when/what was that, btw?
I think innovation is the key to continued growth. Amazon’s fearlessness has kept it at the front of the pack and made it top of mind of consumers.
The biggest issue that online retailers are facing is differentiation. If consumers don’t know why they should choose you over your countless competitors, then they won’t. It’s a matter of sticking out with unique products, great prices/policies, and helpful customer service or risking getting left behind.
I suspect the economic factors of maintaining a web presence and the increasing practice of vendors not selling to internet-only sellers will narrow the playing field, giving more market share to those remaining. Most likely the bulk of that will go to the big guys as it is a lot easier for them to get attention in cyberspace.
I have the pleasure almost every day of watching all ages of consumers use an assortment of communication devices and software to find what they want immediately. It is most interesting how social media and Google are eating away at the large e-commerce companies dominance in the market. Instead of visiting sites and struggling with a search the consumer simply asks social media colleagues or Google where they can get a whatchamacallit or a needed service. This leads to almost immediate response with very precise “where to find it” results.
Always remember that in any aspect of information technology dealing with large amounts of information and data, it is speed and powerful easy-to-use software that is the key to the consumer’s reliance and continuing use. And 21st century consumer reliance now owns more customer memberships than loyalty programs, word of mouth referals and name/brand recognition.