Survive or thrive?
For an online retailer, there seems to be no end to the flow of encouraging statistics. Here are two more. Almost 150 million people shopped online for the first time last year, and every region of the world recorded double-digit growth in e-commerce.
But in some ways, all of these numbers are a silver lining with a cloud. Because consumers aren’t the only ones embracing online shopping. Retailers are too. From large legacy companies trying to stay relevant to nimble startups targeting niche consumer interests, a growing number of hungry new competitors is following the migration of consumers online.
Many will not survive. Fierce competition coupled with the rapid pace of change in both technology and consumer behaviour will cull the unprepared. It is not enough to simply sell a product or service online. To succeed, businesses must understand the fundamental changes that make e-commerce the future of retail.
JCPenney thought they understood these changes. They embraced e-commerce early and were among the first to pick up on the power of social media. But at the same time the 118-year-old company was spending millions on e-commerce and still continuing to slip ever closer to bankruptcy, a pizza delivery driver in the UK was starting with nothing and growing his online fitness gear startup Gymshark into a brand that is worth US$1.3 billion today.
The legacy company with over 100 years of retail experience failed, while a niche brand emerging from nowhere succeeded. This is a cautionary tale about the risks and rewards for the wave of competitors that are moving online today.
And it’s quite a wave. Shopify, the giant e-commerce platform that hosts Gymshark, recently shared some data that reveals just how big. New stores on its platform jumped an incredible 71% in the second quarter last year, and this surge continued into the third quarter when Shopify set a record for the total number of merchant websites.
An online retailer’s competition isn’t confined to just one country either. While a brick-and-mortar store may face a rival across the street, online retailers must deal not only with competition from across the country, but with a rising number of competitors around the world.
Cross-border e-commerce rose 21% in the first half of 2020 compared with the previous year, while the online trade of luxury goods increased 39%. The scope of this trend is reflected in a 3,309% spike in the use of translation apps along with significant increases in the use of apps for dropshipping and currency conversion.
This sudden move online by merchants all over the world affects online retailers in ways that go beyond trying to sell a better product or service. It’s also feeding into advertising expenses with the cost per click for ads rising from 71 cents in January 2020 to US$1 only six months later.
Globally, branded commerce and marketplace apps can cost companies more than US$30 to acquire just one new customer, highlighting the growing importance of retaining customers once they have been acquired.
It’s a sobering reminder that while online retailing opens up a world of opportunities for businesses seeking new customers, it’s also a fiercely contested marketplace where failure can come swiftly. The question is how does a company avoid becoming the next JCPenny and instead find a way to be the next Gymshark?
Keeping tabs on trends
Consumer behavior has never been so fickle. Trends ebb and flow faster with every year while customers increasingly expect more meaningful and immersive experiences to accompany their purchases. Much of this is driven by Generation Z, the first generation born into a world of social media and which now accounts for about 40% of all consumers globally.
Unlike Millennials, this younger generation is tuning out celebrities in marketing and embracing messaging that speaks to their concerns about society and the environment.
They are also obsessed with social media, which is quickly becoming one of the fastest-growing drivers of online shopping.
In China, the messaging app WeChat contains sub-apps called Mini Programs that allow users to do everything from ordering food to hiring a maid. Last year the value of these transactions doubled to US$250 billion.
The US is starting later but adapting rapidly with the value of social commerce expected to rise 34.8% to US$36 billion this year, accounting for 4.3% of retail ecommerce sales.
Success online depends on staying on top of these always-shifting patterns in consumer behaviour. Remember the livestreamer in China who sold space on a rocket? It wasn’t a gimmick. She’s part of a massive new trend to selling live online, with livestream shopping expected to bring in US$136 billion in China alone.
In touch with tech
Unsurprisingly, most trends today are closely entwined with technology with movement in one driving change in the other. It’s no different for online shopping and there are several tech trends on the horizon that are already reshaping the ecommerce landscape.
Over 80% of consumers say images are the single biggest factor in their purchases, and about 22% of all online returns are due to a product looking different in person than it did online. Now imagine what 3D shopping and augmented reality (AR) will do to purchasing decisions.
One poll showed that 60% of US consumers want to use AR while shopping and that they are willing to pay up to 20% more for the opportunity.
In China, consumers are using AR to test products ranging from make-up to furniture, while the local e-commerce giant JD has an AR tool that lets people virtually ‘try on’ more than 1,000 types of sneakers.
New technology promises to help shoppers in other ways as well. The use of data to match consumers with products they want is proving to be a significant driver of revenue. This personalized shopping bumps sales by about 20% and results in 80% of customers preferring to buy from companies that offer such experiences.
Perhaps less glamorous than AR and personalized shopping, but certainly not less important to the bottom line, is the technology behind fulfillment and logistics. Reducing costs and ensuring reliability is vital to remaining competitive and guaranteeing that customers have a seamless experience from checkout through to delivery. About 45% of consumers say they are unlikely to reorder from a business if their delivery is late.
Mindful of these rising customer expectations, China’s logistics companies are investing heavily in modern warehouses brimming with cutting-edge robotics, IoT technology and artificially intelligent forecasting. The country’s second-biggest courier, SF Express, expects same-day delivery will be possible across China by 2025.
E-commerce is an exciting new frontier for shopping. It’s also a battleground involving fiercely competitive retailers and a new type of consumer with fickle tastes and high expectations. It’s a journey fraught with risk, but for those who learn the tech and follow the trends it’s also a journey filled with rewards. Just ask the pizza delivery guy who built a billion dollar company.