Home / January 2008 Archive
When Backward Is Forward
Sometimes it makes perfect sense for a big retailer to stop selling online.
In the early days of the web, there was much debate in retailing about the importance and necessity of jumping into the e-commerce game. While the prospect of this new sales channel was exciting, there were many unknowns. Retail IT departments didn’t understand the new technology. Merchandisers wondered whether enough people would use credit cards on websites. And everyone wondered what it all meant on the backend.
Many of the larger retailers, newly sporting the label “brick-and-mortar”, moved forward cautiously. Indeed, Wal-Mart shuttered its e-commerce site during the 1999 Christmas season rather than let mounting technical problems affect any of its customers. This cautiousness made room for the rise of the many “pure-play” e-commerce retailers who hoped to challenge established retailing. Soon enough, however, the unknowns around e-commerce became known. The established retailers, building in some cases on the mistakes of the pure-plays, moved into e-commerce and used their existing brand recognition to crush the new upstarts. Only a handful survive to this day.
That an established brick-and-mortar retailer should also have an e-commerce site thus moved from point of debate to conventional wisdom. But depending on your business model, you can still be a big retailer and be wise to avoid selling online.
The June 21, 2007 announcement by Pier 1 that it is shuttering its e-commerce operation may look like a desperate cost-cutting measure to some. To be sure, Pier 1 is in real financial trouble. They are in many ways similar to TJX, another established retailer that discontinued e-commerce operations for its T.J.Maxx and HomeGoods brands in 2005. However, I suspect this is a move both would have made regardless of their finances.
Here’s why: digital content and inventory.
E-commerce Operations 101
One of the biggest operational headaches for any e-commerce retailer is provisioning digital product content. In order to sell a product online you need multiple images, description copy, and other product information. E.g., to sell sheets you need threadcount, and to sell cameras you need megapixels. There are many companies that exist to ease this burden for retailers one way or another. Most of the time this involves getting the content from suppliers or manufacturers who are willing to help as part of promoting their own business.
In those cases where it can’t get existing content from such helpful sources, a retailer must pay to have it created. This means shipping products to a studio, writing copy, assembling products and taking their pictures, counting threads, etc.. This is very expensive and easily costs up to $150 per SKU.
A retailer selling online also needs a reliable inventory of a product to sell against. This might mean that, in addition to its stores, the retailer puts some of the stock in its own warehouse for fulfillment. Or it might mean having a good 3PL or drop-ship partner. In any case, it is a huge customer service headache to accept orders online for products that are out of stock. A headache, but not the end of the world. Usually such items can backordered, and stocks replenished. However, it is customer service death to accept orders online for products that are out of stock and will never be in-stock again.
It’s the Business Model
Properly dealing with digital content and inventory requires that retail merchandisers carefully plan which products to sell, how many to buy, where to send them, and when to discontinue them. But both TJX and Pier 1 have business models based on sourcing serendipity - A.K.A. “opportunity buys”. For TJX, it means picking up a truckload of liquidated clothes and distributing them to nearby stores. For Pier 1, it means buying out the excess inventory of an Asian wicker factory and selling directly to American consumers. In both cases, there will be no supplier or manufacturer in the middle who is interested in creating digital content to help sell the products. In both cases, once the supply of a given product is sold out, there is virtually no chance for replenishment.
TJX initially tried to pay for the creation of content for its products, but soon found out that the task was impossibly expensive. How many different styles of shirt were on that truck anyway? Are pictures needed for all of them? What about these three lamps that were included? Similarly, there were inventory headaches. How many of those shirts should be held in reserve for fulfillment of online orders? What in-store sales are missed because the items were set aside for the online store? If this was TJX’s experience selling products online, I bet Pier 1’s is similar.
Shareholders of Pier 1 stock should take heart. Other financial issues aside, the shuttering of their e-commerce operation is likely a signal that things are moving in the right direction. The realities of an e-commerce operation are fundamentally at odds with their core business model. This step backward is really a step forward.
Recycling Retail
Ask retailers what ‘recycling’ means to them and you’ll get a variety of answers. For some, it’s a relatively recent idea that means reusing packing peanuts, or separating paper from the rest of the trash. For others, it’s an old idea that was once called ‘refurbishing’ or simply selling ‘used’ items.
For a growing number of retailers, however, ‘recycling’ means one of two things: a new approach to product packaging, and new product merchandising opportunities. Whatever your particular answer, it’s clear that retailers have an important role to play in the conservation and reuse of our planet’s resources.
Consider this: more than 25 million tons of plastic packaging is generated in the US each year. That’s enough to fill Yankee Stadium more than 500 times. And 95% of it is used only once on a one-way trip from crude oil to landfill. Smartcycle of Jamestown, RI develops and markets the SmartCycleTM brand of recycled plastic packaging. It is one of a growing number of companies helping retailers to both reduce packaging waste and attract lucrative, environmentally-conscious customers at the same time.
Packaging is important, but the big payoff for the planet comes when the products we sell are themselves made of recycled materials. Traditionally, most recycling has gone towards bulk products such as steel, mulch, rubber and paper. Until recently, practically all end-consumer products were made from virgin materials. Questions of quality and a certain negative stigma seemed to prevent widespread acceptance. For most products, therefore, the resource reuse loop has not been closed.
All of that is changing. As global warming and environmental issues saturate mainstream thinking, tastes are turning to products that are part of a global solution. Far from their being stigmatized, interest in recycled consumer products is heating up. And much like organic produce versus the regular fare, recycled products are in some cases being sold at a premium over their virgin material counterparts.
The trick, of course, is finding the right wholesale suppliers with the products that appeal to your customers. A good place to start is this list of suppliers on ProductBlazer.
At some point all of our products will be made, in part or in whole, from recycled materials. It is only a matter of time. Do you have a green plan? Be there first to claim (and reclaim) your share of the new (old) pie.
Three Reasons to Enhance Your Visibility with Private Label Products
Everyone wants their name in lights. Short of that, how about your name on a 3 1/2 gallon bucket of Alcatraz Caramel Almond popcorn from The San Fransisco Popcorn Works? Many suppliers of high-quality specialty items will produce their products with your own brand on the bottle, in a process called private labeling.
Offering your customers products labeled with your brand is a great way for them to take a little piece of your brand home with them. Getting private label products produced for your company is easy. Start using ProductBlazer to find a supplier that will label their product with your brand. Next, choose one or two products that are relevant to your business. Finally, add a cross-sell at checkout time and offer your customers the chance to take a little piece of you home with them.
Offering private label products enhances your brand’s visibility.
- It differentiates you from the competition.
- It expands your product line.
- It enhances your brand by leveraging the strength of another company’s hard work.
You will be the only storefront on earth (and the Internet) that sells your custom branded products.
We all want more products to sell. Private labeling provides a great “excuse” to sell something you may not otherwise sell. A maternity shop selling hot sauce? Why not? It has your brand on it!
Private labeling allows you to focus on building your brand and lets the popcorn experts handle the product development.
Many high-quality suppliers can ship their products with your brand. This list contains links to twenty suppliers that provide private labeling for a wide variety of products, including cookware, soap, coffee, roasted poultry, hot sauce and a lot more.
Thinking of Selling Online? Make Sure Your Storefront Supports these Features.
Every store needs a place to sell its wares. Whether it is a shop on Main Street, a table at a flea market, or an e-commerce storefront online, you need a place to display what you have to sell and accept payments from customers. Many people, including experienced off-line merchants, find the process of selecting an e-commerce storefront daunting. This article is intended to decode the technojargon that so often pervades discussion of anything online, and focus on the most important details.
In its most basic form an e-commerce storefront is just a product catalog, a shopping cart, and an integration to a payment processing gateway. The product catalog can be as simple as a single HTML page that many web hosting providers will provide for free. However, if you want to grow your business you will need the ability to adapt your storefront to changing market environments by adding and removing products, and even changing the look and feel of your storefront. Unless you want to learn HTML and another programming language, you will need an e-commerce storefront system.
What Features do you Need?
An e-commerce storefront system provides all of the features required to sell products online. A good e-commerce storefront system should provide the following features.
- Store Design
- Product Catalog
- Shopping Cart and Checkout
- Payment Processing
- Product Promotion
- Order Management
- Shipping & Taxes
- Inventory Management
- Application Integration
- Quicken or QuickBooks. When your storefront is integrated with your accounting software, your customers orders will automatically appear in the correct account.
- UPS/FedEx. Some storefronts allow you to get an accurate shipping quote in real-time. Others will allow you to schedule the pick-up of a package and print the correct shipping label automatically.
- Payment Gateways. Why process payments manually when your storefront can do it for you? Though make sure your storefront supports your existing payment gateway.
- Order Management. If you have been selling through a catalog you probably already have an order management system. Many storefronts provide direct integration to popular order management systems. Other storefronts will allow you to export a simple text file of your orders for import into your order management system. Having a separate a order management system can present difficulties when customers cancel or change their orders, as the updates to the order may not be reflected in the storefront without manual intervention.
- Marketing Support
Experienced visual merchandisers know that small changes to the layout of a store can have a big impact on sales. Many merchants are frustrated when they start selling online because they can’t change the layout and look and feel of their online storefront. A good e-commerce storefront will provide merchants with the ability to change the layout and color scheme of their e-commerce storefront without any computer programming.
A product catalog stores information about your products in a structured format. There are several benefits to a good product catalog, including the ability to easily sell the same product on multiple pages of your storefront, and maintain a single place to edit the product information. Product catalogs also make it much easier to have products loaded into your storefront, but not yet available for sale. This functionality is vital when you are reselling a product from a manufacturer that may have an embargo date on the product.
Every storefront needs a basic shopping cart that allows your customers to select products they want to buy, continue shopping, and then provide payment information. However many storefronts provide feature-rich shopping carts that may include the ability to save a shopping cart for later or suggest additional items for the customer based on the contents of their cart.
An entire article could easily be dedicated to payment processing alone. Suffice it to say that any decent e-commerce storefront must have the ability to process your customer’s credit card transactions. Some storefronts will only work with major gateway providers, such as Authorize.net, while others will support other providers. If you have an existing relationship with a gateway provider make sure that the e-commerce storefront supports your provider.
Good product promotion features allow you to feature certain products outside of the more rigid categorization imposed by a product catalog. For example, a storefront may allow you to create a category “Home Page” and feature some number of products on that page. These products could have sale prices whose prices will increase after a fixed period of time.
What happens after your customer buys something? Larger Internet retailers usually have a separate system to manage the life-cycle of an order, and many e-commerce storefronts will have basic order management functionality built in. The most basic functionality you need is the ability to print a copy of the customer’s orders for your records. Many storefronts also support the printing of a packing slip that can be included in the customer’s order as a receipt of purchase.
Do you collect taxes from customers that live in the same state that your company maintains a business presence? Many retailers do, and some e-commerce storefronts provide the ability to calculate the correct sales tax for the customer. In addition to taxes, shipping can represent a substantial percentage of the customer’s cost and the customer will want to know exactly how much shipping and handling will cost. Many e-commerce storefronts will provide the ability to specify shipping and handling costs on a per item basis. Other storefronts many only allow shipping and handling as a percentage of the customer’s total sale. It’s important that you understand if your e-commerce storefront will support how you manage your shipping and handling.
Customers hate backorders, but many retailers choose to continue to sell products that they have backordered. Every retailer needs to make their own policy decision and make sure that their e-commerce storefront will support their policy. Many storefronts provide the ability to upload an Excel spreadsheet of stock quantity information and allow you to configure the storefront to support your backorder policy. For example, the storefront may disable a product if it is out of stock, indicate to the customer that the item is out of stock and not allow them to make an order, or indicate the item is out of stock and allow them to proceed with their order.
In most cases you will not throw out the other software you use when you starting selling online through an e-commerce storefront. Many storefronts can play with your existing software packages to make your life easier.
How do you market your products online? If you are buying keywords through popular search engines like Google and Yahoo, you will probably want to be able to measure the effectiveness of each of the keywords. Many storefronts are smart enough to figure out when customers visit your site from keyword searches on search engines, and can help you gauge the effectiveness of those marketing campaigns.
Choosing an e-commerce storefront system is not easy. But finding a suitable e-commerce storefront much easier if you examine your current business processes and select a storefront that allows you to continue to do business the way you do today.
The Tale of Mom and Pop and the Two Long Tails
The prognosticators say that Main Street retailing is dead. The big box stores have ruthlessly driven Mom and Pop out of business to the ultimate detriment of consumers everywhere. The prognosticators are wrong. To see why, take a look at something going on in between retail and wholesale. First, let’s look at their tails. Their long tails, to be exact.
The ‘long tail’ is a statistical concept recently popularized by Chris Anderson in articles and his book “The Long Tail: Why the Future of Business is Selling Less of More”. Being the editor-in-chief of Wired magazine, and having skills that include rigorous mathematical chops, Anderson demonstrates a recurring phenomenon in markets across many industries. Namely, he shows that very often in demand curves one sees that the majority of sales are accounted for by small, niche products or companies. Large sales volumes are predominated by large numbers of small sales added up.
For a particular company, the long tail consists of products that sell individually in low volumes. Amazon is the poster child of long tail business planning. Josh Peterson, now a former Amazon employee, summed it up this way: “We sold more books today that didn’t sell at all yesterday than we sold today of all the books that did sell yesterday.” That is, Amazon makes most of its money selling books every day that no one has ever heard of, and that hardly anyone reads.
For a given industry, the long tail is comprised of companies that individually have low sales numbers. In the $3.5 trillion retail industry it is Wal-Mart, Target, and Home Depot who get all the attention. Indeed, those three themselves account for $500 billion in sales. However, the top 100 retailers have combined sales of just $1.5 trillion. And the top 1,000 retailers have under $1.6 trillion. Most of the rest - almost $2 trillion in sales - goes to everyone else. This is a classic long tail, and it is overwhelming comprised of small, independent businesses. Mom and Pop aren’t doing so badly.
Whether a long tail exists in a company depends mainly upon inventory and distribution costs. Where those are high, sellers will tend to focus on stocking items that have high sales volumes, ignoring the slow movers. Where inventory costs are low, distribution and access to markets become key. Even if it had them all in stock, Amazon couldn’t sell the long tail of books if it couldn’t reach the massive market of low-volume niche buyers interested in them. Of course, the internet is the driving technology that makes that market efficiency possible.
Whether a long tail exists in an industry depends mainly on market efficiency and barriers to entry. For instance, there is no long tail in the cable industry. It’s simply too hard to start your own cable company. It’s also a relative hassle for consumers to make switches, assuming they have a choice. Retail has a long tail because practically anyone can open up a shop, and consumers can shop anywhere they like. Wholesale goods is another industry with a long tail. With some 100,000 wholesale suppliers, most of the $2.3 trillion sold at wholesale goes to the bottom 99,900 businesses.
Wholesale suppliers sell to retailers. To what degree do their two long tails intersect? Again, it depends on market efficiency. Large retailers find it ridiculously easy to find suppliers, who line up at their doors hoping for a chance to sell. Small retailers don’t have it so easy. For decades their main way of finding suppliers was through aggregation services like rep firms and trade shows. These are expensive and/or time-consuming, and ultimately meant they did business with a relatively small number of large vendors. It was only the larger guys who could afford to have many small vendors. The two long tails didn’t meet.
In much the same way the internet enabled the long tail phenomenon of Amazon, it is also enabling the intersection of the long tails of retail and wholesale. With vertical search engines like ProductBlazer, small retailers have access to tens of thousands of small suppliers and their products. With credit card transactions and email communication, the cost for small retailers of doing business with a larger number of small suppliers has fallen.
This is nothing short of a mini-revolution. Consumers can now go to a big box store to buy all the things that everyone else buys, at competitive prices. They can also go to their favorite small retailer and get something that no one else buys, at great margins for the retailer.
Mom and Pop will never again sell Ivory soap as cheaply as Target, but then again, they should be smart enough now not to try. Instead, they are thriving by having a detailed, intimate knowledge of their customers and the ability to find and deliver unique, niche products to them that Target would never touch. This is Mom and Pop’s own niche, and their access to the long tail of wholesale suppliers ensures they’ll occupy it for years to come.
