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Insights / Blog / Business

E-Commerce? Yes! But the right way

July 20, 2015
Alain VeuveAlain VeuveManaging Director, AOE Switzerland

Why doesn’t retail learn anything? Reluctant investments in E-Commerce achieve nothing!

Every week I talk to companies about digital initiatives they’re planning. During the past two months I’ve dealt with two firms who couldn’t have differed more in their approach to “digital.” One company has the opportunity to make a go of it; for the other very little hope exists. A few thoughts to minimal investment budgets, solutions which promise success and technical alibi exercises. Once again, strategy and culture decide which companies succeed and which go into a slow decline.

To be upfront about it: I think that brick & mortar retailers especially are susceptible to making stupid investment decisions in the digital space. Both companies mentioned above have large retail businesses combining revenue of more than one billion with a large number of stores (500+). Every store requires an investment of approximately one to eight million euros, depending on size and configuration. The revenue potential of each store equals about three to eight million euros.

A Store for 100,000 euros

Why is it then that I receive a disproportionate amount of business requests from exactly such retailers requiring the implementation of an E-Commerce platform to cost no more than 100,000 to 600,000 euros? And why is it mentioned in the same document that the company intends to generate 50 million in revenue within three years through the “online channel”? And then some C-level person or other proceeds to tell me during a vendor briefing that the company is currently undergoing digital transformation and that E-Commerce has the highest priority. Really?

Anyone in such a company who would either plan or suggest a branch store with a mere 300K-investment, but an expected revenue of 50 million, would probably be fired post haste. But in the digital space such idiocy can be demanded – even at the C-level. Why is that?

“No Plan” and “Not Believing in Something” are closely linked

I think that, for the most part, it’s a combination of “not having the slightest idea about digital business models” and more or less secretly not believing in digital transformation in the first place. It’s usually a combination of both, as one is pretty much contingent upon the other. However, this doesn’t prevent these mostly high-level management representatives from ceaselessly (at least it feels that way) talking about the “digital shift.” If digital expertise were available (Btw: One doesn’t have to be a “Digital Native” for this, but simply an intrapreneur who is astute, eager to learn and willing to take risks), then someone in these executive management committees would recognize that one must invest in those issues that one deems important. And that “someone” would get up and say “stop.”

The “Theatrical Extras”

That such ventures are usually nonsense is actually common knowledge within any given company – at least most of the time. Generally, there is an employee (in this case the equivalent of a “theatrical extra”) who recognizes the mistake, expresses these concerns to us vendors, but has already resigned emotionally because the supervisors don’t listen anyway. Especially where investments are concerned. After all, those are always decided at the management level.

The Doomed Pilot

It gets especially tragic when the small investment is justified with a pilot project. Sort of like: We’ll open this little (i.e. extremely cheap) shop and analyze whether this E-Commerce thingy works for us. If it does, we’ll ramp up investments; if not, we’ll look for strategic alternatives (that is, we’ll create, e.g., a new design for the print catalog). This approach is doomed from the start. After all, it becomes a self-fulfilling prophecy: Since the investment is so small that it isn’t even possible to create a minimal viable product (as the online customer sees it) or only one with severe quality issues, it is a virtual guarantee that the online business will fail.

This doesn’t mean, however that retailer “XY’s” customers wouldn’t like to shop online, but rather that they will take their business elsewhere, where shopping is easier. The bottom line: This is the perfect system for making the wrong strategic decisions.

There is another Way

You will counter with the argument that there are reps who understand what is at stake. There are those, of course. Even if they are a very small minority. I was fortunate enough to meet just such a customer a few weeks ago.

They answered my question as to why they wanted to implement an E-Commerce project with:

We want to be around for the next 30 years too.

Here, someone analyzed changes in customer behavior and drew the necessary conclusion that new business models were absolutely essential for the company’s future. Accordingly, discussions about budgets took a back seat. What was of more interest to the customer was exactly what we can contribute to make E-Commerce truly successful.

Retail is dead…NOT

I refuse to jump on the bandwagon of those naysayers (especially consultants and analysts in the digital industry) who have been predicting for quite some time that “retail is dead.” E-Commerce will not replace the Brick & Mortar store. But, digital will have a lasting impact on shopping behavior in Brick & Mortar. Actually, it’s already changed behavior – and will continue to do so!