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Online Retailing Comes of Age
The final Christmas shopping figures for 2001 are not in, but some industry analysts believe the new savvy and sensitivity of online retailers might have rescued the U.S. Christmas shopping season in the wake of September 11, when a lot of people either stayed home or tightened their belts. "I can't be quoted on this until the figures are finished," a friend and research analyst e-mailed me, "but I believe online shopping really saved retailing last year. The sites and service are getting so much better, and consumer confidence in them -- especially among women -- is skyrocketing. Online retailing is not only on the rise, it's really getting to be fun and easier. More importantly, they grasp customer service, something almost no software or hardware company yet does."
If that's so, and it definitely matches my personal shopping experiences, it's huge news for the Net. Consumers, chronically abused by the software and hardware industries, were initially anxious about buying things online. They worried about hackers, crackers and security; they faced poor customer service and complex downloading and other problems. But those problems -- unlike similar headaches in the larger computer industry -- are being addressed.
Retailers competing online this holiday season were a lot shrewder, says a story on About.com about the online retailing industry.
About.com cited a survey of 63 retailers who found a successful holiday season marked by a surprisingly effective combination of widespread promotions and discounting. Most consumers hate spam, but it doesn't bother them so much if it's about things they want, and if they're getting something for the attention. Both multichannel and Web-based retailers seemed to have learned a lot from past marketing missteps. The Shop.org/Boston Consulting Group (BCG) found that more advanced retailers, after carefully studying the economics of each online and offline promotion, are finding ways to offer the minimum discounts necessary for increasing sales volume and ways to deliver targeted promotions to the more than 100 million consumers estimated to have used the Net over the holiday season.
Besides that, sites have radically improved their graphics and visual representations of products. As fears about theft and security have subsided, companies have radically upgraded their customer service. This is in striking contrast to tech industries which sell products that are confusing and difficult to use, and either makes themselves unavailable to confused or outraged customers or charge them extortionate fees for "priority service," which is really just the service they would be entitled to for free in any other business.
If you want to see smart web businesses, I'd cite two in particular -- L.L. Bean and Pet Food Direct. L.L. Bean's site architecture is brilliant -- well organized, easy to navigate. It shows clear pictures of all of its products and allows easy customer access to account information, while still providing security. More interestingly, the site offers customers several ways to get instant help -- phone, instant messaging, nearly instant e-mail response. If you're encountering problems, you can simply e-mail or call and a human will respond promptly. This support is crucial to building consumer confidence. A shopper is much more likely to risk buying something online if they know they can get help with any problems. Tech shoppers are among the most distrustful on the planet after years of confusing products and poor service.
Pet Food Direct also offers a different kind of targeted retailing, e-mailing customers weekly about specials, sales and promotions on the products they have already demonstrated they want and use regularly. This isn't quite like spamming, since it's stuff the buyer needs. And the sharp discounts have a way of offsetting any irritation. The site isn't trying to be funny or cute. Rather than promoting a silly sock puppet, it offers heavily discounted pet food and reminds pet owners when they are apt to need it. It also offers sophisticated graphic renderings of products and instant customer service both online and by telephone. The purchase takes seconds. The discounts are heavy enough to attract shoppers attention, but apparently not so heavy to erode profits. One reason is that the site, like L.L. Bean, gives the consumer a variety of shipping choices, from regular mail to next day air. And the customer pays for shipping, choosing exactly how much of a discount he or she wants. In both cases, the sites don't spam -- they target people who have bought and need their products.
Dozens of other sites have similarly polished their presentation, honed their sense of marketing and discounting and, most importantly, invested in tech support and customer service. Shoppers feel secure not only through repeated use, but through the sense that somebody will speak to them if problems arise.
This is something that, alas, computer and software companies still haven't learned.
....most wall street analysts panned the profits made by Amazon in the first quarter. As a retailer, the last quarter (Oct/Nov/Dec) is supposed to be their biggest quarter of the year, and by a large margin. Amazon barely made a profit that quarter. Sales for the next three quarters are going to be significantly lower for Amazon, basically until the holiday season begins anew. I seriously doubt Amazon will make a profit for those three quarters, and will still be a bad investment for the next several years.
Online retailing has not come of age.
Anyone who thinks Amazon is a high tech company is dreaming. It's nothing more than a catalog retailer like Fingerhut or LL Bean. Jack Welch, ex-CEO of GE even commented on this. Everyone thought that some of these .com's were tech when they were building warehouses to distribute books and CD's like many present day companies. And these same people were calling GE a dinosaur while they were researching the latest in plastics, jet engines and other high tech stuff.
In the crazy times of the last few years Amazon overpaid for the land where the warehouses are based, and for the warehouses themselves. I've heard that they are only at 30% of capacity or so year round except for the holiday season. Instead of being high tech, Amazon has had to master such things as distribution channels and inventory management. Concepts that are decades old and have been perfected by old time competitors suchas Wal Mart.
Then there is the debt. Around $2 billion worth. If Amazon can convert the debt to stock then it would free up tens of millions in free cash flow and really let them invest in the business and grow.
One of my personal frustrations with some Internet shopping is how terribly some sites are put together.
.gif files, or anything that takes away from me *finding what the hell I want to spend my money on*.
In too many cases, it's an event of "I want to buy this - where do I go to find it?" And after wading through too many pages just to figure how how to buy an additional battery for a laptop, when all I should have to do is click on "laptops - maker - model - accessories" I'll finally give up and call my CompUSA (hey, not my choice - my company has an account with them) just to get the job done.
Then I go over the Amazon. And while I complain about the whole "targeted ads" market, I like how they do it. They show new anime titles I might not have heard of, or books that I may be interested in, and occasionally buy when I say "Hm...Niel Gaiman's American Gods - I've been wanting to read it anyway", filter out the ones I tell them I own, and generally make it *easy* to find what I'm looking for. I'll usually check them first even if I don't think they carry it, just in the hopes that maybe they do.
The most important thing any online company can do when selling products: Let me find what I'm looking for. That's all I ask for, and all I expect. I don't want shockwave, or animated
I just can't figure out why so many online stores are dead set on keeping me from buying anything.
Of course, I could be wrong.
52 Weeks, 52 Religions with John Hummel
>This is something that, alas, computer and
>software companies still haven't learned.
Gateway and Dell is a pretty big difference from Amazon, LL Bean, and pet food. People buy media, books, food, clothes on a monthly basis.
I mean, do you think Dell should send emails saying, "As someone who bought a hard drive in the recent past, you might be interested in our hard drive specials this week!"
Different businesses, different marketing. Then again, you didn't have to think about it because you're Jon Katz, and its been demonstrated that your articles don't have to make sense.
Amazon reported that it had finally turned a profit, something most of us thought we'd never see
I was pretty sure that I personally would see a profit this year, and I was right. Jon - are you projecting?
--
You're reading Managed Agreement.
1. The www has been pruned. A million tiny/rediculous e-tailers have all chapter 11'ed. echeesegratersolutions.com is no more. Consumers' online shopping has become focused.
2. Juggernauts like Amazon.com have weathered the storm and can finally mark up their goods a bit. They got our attention with low prices and cheap delivery, taking enormous losses. Now we're used to Amazon-ing all our Christmas presents and don't mind paying a little extra for it.
The failure of so many dot-coms is not an indication that selling on the Internet is doomed to failure. All that this shows us is that an ill-conceived business won't be made miraculously transformed into a success by simply registering a domain name and putting up a web site.
Look at some of the idiotic failures:
Pet food sold over the Internet. Pet food is normally about 35 cents per can. So people are going to order it over the Internet for the big savings?
The Netpliance i-opener Internet appliance is another great example. They were selling them for $99 and taking about a $300 loss and they intended to make all of that loss back up with subscriber fees to their Internet service. One problem: You could buy the thing and never sign up or decide to stop using it after a few months.
Then there were all of the sites that decided that they would provide expensive, high-bandwidth content for free and support themselves with banner ads. Great idea if you already have a HUGE user base, but pretty dumb if you don't.
Investors may be running scared, but a company with a desirable service or product that is priced attractively (and profitably) is still a good bet. And it doesn't matter if they sell in the mall or on the Internet.
From the article: "The arrogant, customer-abusive tech world could learn a lot from these people, who offer steep discounts, stand behind their products, and actually offer real and free customer support."
...Don't you realize that one of the cost cutting measures Amazon undertook over a year ago was to eliminate telephone customer support. To the contrary of what the article is trying to point out, I don't think it bodes well for ecommerce, when the larger player in the industry says "DO NOT CALL US".
Some other interesting post-Christmas tidbits are popping up, too
Yeah, at my house they're all the fucking Xmas presents that didn't show up in December.
-sk
When buying through the Internet, comparing prices is much easier than when buying in brick-and-mortar(-and-cement) shops. At the same time, as users became more experienced, they discover Price Comparison sites (to find beter prices) and search engines (to find other e-shops) - thus increasing the ability of finding beter prices.
The resulting price erosion decreases the e-shops profits.
In order two compensate for this, e-shops can take one of two paths:
- Reduce costs
- Compete on features - differenciate from the competiotion.
The first path is the one being taken by Amazon - they are trying to use their size to increase efficiency in the package and delivery (ie a small number of big warehouses with efficient - and expensive - automated processes) thus decreasing costs. Since they are competing on prices, prices cannot easily go. On the other end of the scale, it gets increasingly difficult to cut costs (the same rule as in software development applies - the first 10% of investment get you 90% of the improvment). Increasing profits in this situation is thus a difficult task.
The second option is to offer exclusive/improved features than the competition. E-shops have great difficulty in differenciating from the competition in anything other than prices. Site structuring is getting similar, and any e-shop with the necessary basic structure in place (web catalog with search engine) can compete in price with the greatest of the industry. Extra web-based-facilities like costumer reviews are in practice lightly-coupled to the buy - you can easily search books in Amazon, check the costumer reviews, and then go buy it somewhere else.
At the same time, differenciation in more physical properties (like fast deliver and swift costumer service) presents e-shops in a less then ideal light by comparison with traditional shops (the fastest delivery is going to a bricks&mortar shop, buy something an take it home)
In the end this will mostly be good for the consumer:
- The ones that are more interested in spending less money will find cheaper prices.
- The ones more interested in features will be offered all sorts of special (and as of yet unimagined) features by both b&m-shops and e-shops.
Are we there yet? I don't think so!
Amazon's likely inability to maintain profit is their own problem and not an indication one way or the other whether online retailing has "come of age" (whatever that means).
There are plenty of us privately-held small companies out here with revenues under 100 million making money consistently even in this economy with online sales - we're just not screaming FOR THE LOVE OF OUR STOCK PRICE LOOK AT US on the cover of (fill in trendy New Economy magazine). We left "dot coms" behind as a benchmark long ago - we were interested in growing a business, not getting a Webby. We do it from small towns you fly over and get no closer to Silicon Valley than changing planes in SFO on our way to meet with a new supplier in Asia. We like Amazon if it gets our customers familiar with the idea of using a website to place an order (and Amazon has our attention and respect by doing many, many things worth emulating in terms of providing service to their customers) - but as far as strategy and finance go, we have much better and suitable models to follow.
Those who have been successful see this medium as simply another another sales channel, a mechanism to reduce expenses (particularly in transactions and support), and the extension of an already successful business model. We did not need 100 million of venture capital, an instant army of programmers, content managers costing half a million dollars, and consultants selling us "solutions". Instead the many silent successful firms grew our online sales channel just as we grew the rest of our business. Small at first, learn and add as necessary.
Catalog companies like LL Bean or Lands End are successful because they have taken advantage of the medium, yes, but also because they already have a super-efficient logistics system in place. That's one reason I'm surprised Wal-Mart is not a bigger online player - distribution and logistics innovations are what made them untouchable in the traditional retail arena.
Why does everyone watch Amazon.com and Egghead.com and ... I've been happily shopping at Bookpool (they're limited to technical books, but I generally am these days, too ;-) for 4 years now, with no problems to report *ever*. Computers4sure (which has recently been bought by Office Depot, it seems) has filled many of my computer orders during the last 3 years, again with no problems *ever*.
Both have intelligently designed websites, good prices, good availability and, perhaps above all, reasonably priced and quick shipping. Both of these companies have been in business nearly as long (if not as long -- I'm just using my memory) as Amazon, without resorting to the bizarre expansions and gimicks.
Why we should judge online retailing by Amazon.com is beyond me. I suppose one argument is that Amazon sells a wide range of books, whereas Bookpool specializes in a niche market. I bevelive this is a bogus argument: the internet is all about niche markets, and attempts to use it otherwise are stupid. Television is a way to force your message down every person's throats. The internet is a way for people to find what they *want*.
The niche-nature of the internet has been demonstrated many times, perhaps foremost by Katz when releasing "Run to the Mountain" -- if I remember correctly, he even made it into Amazon's top ten for while. Certainly this didn't happen because of anything Amazon did (except to be known as a book seller, which they're leaving behind). It happened because of Katz's niche marketing.
Who cares if Sears fails online? I'll drive to their store and talk to their staff if I don't know which tool I need, but I need it now or want to see it first. If I know what tool I want, or I don't need it now or don't need to see it first, I'll research tools on the web, and then look for an online vendor with good prices and policies. Is Sears likely to be this online vendor? No. When shopping for computer parts, is CompUSA's online service compelling? No -- their prices are sometimes good, but their shipping is horribly slow (their best is "usu. w/in 2 days", as opposed to "orders by 3PST will be shipped same day").
Is Amazon likely to have the best price on technical books while Bookpool is around? No. Amazon seems to be aiming for "online Walmart" status. However, Walmart succeeded because they could keep their prices low and provide a little of everything (though most of nothing) to geographic communities. Online, geography is irrelevant (except when you ship ground, and if warehouses are distributed then even ground shipping can be fast). As a result, finding a sizeable customer base is easier. That means niche retailers can buy bulk and keep their prices down. Furthermore, niche retailers are likely to carry higher quality goods than Walmart and know more about their products than Walmart.
So why would you go to Walmart, unless they're the only store with what you wanted (which is unlikely)? I expect that if Amazon is still around in 10 years, we'll think of them like Walmart or K-Mart, except less convenient than these stores.
-Paul Komarek