Thomas Makey explains why businesses able to support retailers in the shift to e-commerce are now in such a strong position
The COVID-19 pandemic has driven a remarkable shift to online retail over the past few months.
Data from IMRG CapGemini shows online retail sales in the first week of June were up by more than 40% on the same week of 2019.
This trend is not new or temporary – before lockdown, the rise of e-commerce already seemed inexorable – but COVID-19 has been a remarkable accelerant; we’ve seen the equivalent of three years’ worth of e-commerce growth in the space of two months.
Nevertheless, for those retailers yet to fully engage with e-commerce, the pandemic has created a burning platform.
Almost all retailers have now had to embrace online sales, whether they were pure bricks and mortar businesses with no digital presence or whether they had already made some tentative steps.
For many retailers, that will be a daunting prospect. Online isn’t simply one direct to consumer channel to be compared with other routes to market.
Rather, the online market is now diverse and extensive: retailers hoping to build e-commerce revenues have hundreds of channels to sell into, all over the world, each one offering a different type of opportunity – and posing different challenges.
Indeed, the world of e-commerce is no longer just a choice between selling from your own website or through an Amazon or eBay store – there are hundreds of marketplaces around the world. Each one provides access to a slightly different subset of consumers – in some cases small but highly profitable – many of whom businesses cannot reach for themselves in a cost effective way.
For this reason, we believe some of the biggest winners of all in the shift to e-commerce will be found amongst the growing number of firms able to help retailers adjust to the demands of digital trade. Exploiting new technologies and service models, these firms can unlock the potential of online retail for their clients.
Breaking down the barriers
Such firms span a multitude of competencies, leveraging technology in different ways to support their clients. What they share in common is a value proposition based on helping retailers to overcome the barriers to successful online trading. Examples include:
Stock management Online retailers selling across a number of channels – and possibly in-store too – need sophisticated real-time inventory management solutions that provide a single view of what stock is available and where it is. For example, how do retailers avoid selling an item to a customer on one channel that has just been bought by a customer shopping elsewhere? Online retailers may want to manage challenges such as fulfilment and returns handling for themselves or they may choose to move towards a more wholesale model, supplying products via distributors and similar platforms. Either way, they will require support.
Financial management Competencies such as transaction management typically require specialist expertise. Retailers will also need help as they shift to new types of business model; some may choose to operate sale or return arrangements with wholesale partners, while commission structures may be more appropriate in other cases.
Management information E-commerce offers opportunities for retailers to constantly refine their strategies based on what their data tells them about, for example, which channels are working most effectively, where marketing spend is paying dividends, and what customers are saying. But such opportunities are only open to retailers able to secure this insight in a timely manner and in a format that delivers insight.
People management and outsourcing Retailers need to decide who will manage e-commerce on their behalf. Do they recruit new expertise into the business with a view to running e-commerce in-house, or operate a fully outsourced model? Could closer integration with a key channel be the best approach?
Sales and marketing Last but not least, there is the small matter of attracting and retaining customers, and building brand. Online retailers will need help to work out how best to take their product to market – and how to evolve that approach over time.
In each of these areas, the opportunity is huge for businesses able to provide online retailers with the expertise, skill sets and technologies they need.
There are a range of different models for providing this service. Some firms provide close to full-stack technology solutions that enable retailers to seamlessly integrate with particular channels, while others offer specific tools. Some offer fully managed services while others effectively operate as software-as-a-service providers. The competition in this area is stiff, but these firms are rapidly developing new competencies.
As an example, in performance marketing there are three core elements – attracting customers to a website, converting them to a sale and retaining them for future sales. Optimising the first element of the equation (such as search engine optimisation and pay per click advertising) has traditionally been the focus, but many online businesses under-perform because they don’t truly understand their customer economics.
They therefore do not know how much they should spend to attract a visitor (especially as this is likely to differ across different channels).
Many technology and service providers are now adding specialities in “lower funnel” activities – converting and retaining customers – as this compounds the benefits of “top of funnel” customer acquisition initiatives.
The key for such businesses is to be able to clearly demonstrate their value. The best of these firms will prove their worth by helping retailers to increase profit, rather than simply cannibalising existing sales or attracting unprofitable customers.
Some will leverage their own expertise in online retail to help others scale.
For example, Gresham House Ventures portfolio business SilkFred is an online marketplace in its own right, providing a route-to-market for more than 800 independent brands; but it also provides a wider range of services to these brands outside of being a shop window.
Others will focus purely on building technology platforms to allow others to address their customers.
Our portfolio company Moteefe is a technology platform that empowers merchants, influencers and brands to further monetise existing traffic, access new channels and to produce and sell products on demand whilst reducing wastage.
The merchant focuses on attracting the customer and engaging audiences, whilst Moteefe handles all the operational heavy lifting of e-commerce on its behalf.
The bottom line is that in this accelerated shift to e-commerce, retailers will need specialist support if they are to avoid being left behind. Those businesses able to provide that support now have a once-in-a-lifetime opportunity to help their clients make the leap.
