A growing trend among online retailers is the expansion into brick and mortar stores. Google, Amazon, Rent the Runway, Warby Parker, Bonobos, Birchbox, and Honest Beauty have all complemented their online businesses with offline retail concepts in the form of showrooms, pop-up stores or traditional retail formats. This expansion offline is allowing retailers capture greater growth and more effectively convert today’s highly informed consumers. This trend, coupled with the increasingly blurred line between the online and offline retail channels, is leading to the emergence of the omni-channel retail concept of the future.

amazon

Amazon Store in Manhattan

 

 

 

 

 

Unlocking Meaningful Growth

Online retail has experienced significant growth over the past decade but, while still attractive, e-commerce growth rates have declined from ~30% per year in the early 2000s to ~10% today. Approximately half of today’s growth is generated by those online retailers that also have a physical retail presence, a distribution channel that still generates between 94% to 97% of total retail sales. Retailers that have both an online and physical retail presence report an average annual growth rate of 23%, relative to the 9% experienced by online only retailers. With the online retail space experiencing declining growth rates, brick and mortar stores offer online retailers with an additional channel through which they can broaden their customer reach and extract meaningful growth.

Enhanced Customer Conversion

The customer conversion process is becoming longer as consumers are increasingly inundated with information and becoming smarter as a result. While the online retail channel is undeniably valuable, the addition of a physical presence allows retailers to directly interact with the customer and to tell the story of their brand through a differentiated shopping experience. Touching and feeling a tangible product and creating a physical and human experience with the brand is a powerful way to convert increasingly smarter consumers.

Those consumers acquired through the offline channel have the potential to be of higher long-term value to the retailer by means of relatively larger purchase sizes and greater loyalty to the brand.

Bonobos has reported that customers buy ~75% more if they buy in the fashion retailer’s brick and mortar stores. In this setting, the customers’ experience of the Bonobos brand is enhanced by their ability to touch and try on the Bonobos products as well as the one-on-one human experience, which the company believes leads to greater customer loyalty.

Warby Parker Co-Founder and Co-CEO, Dave Gilboa, notes that “selling offline is a key way to interact with customers” and “the offline sales component is part of a long-term customer acquisition strategy which can fuel more sales online.”

bonobos

One-on-one shopping experience at a Bonobos Guide Shop

The Omni-Channel Concept of the Future

As the divide between online and offline retail concepts is becoming increasingly blurred, we are seeing the emergence of the omni-channel retail strategy of the future.

To build a valuable brand, meaningful customer base and to stay relevant, retailers must combine the best of the online and offline retail concepts into a reimagined, new and innovative retail experience for customers.

Bonobos and Warby Parker were early movers with their launch of small-scale concept stores that serve as showrooms (inventory is for display and trying on only). This retail concept allows consumers to physically experience a brand, while also being introduced to the company’s online store. Retailers also benefit from higher customer conversion rates, generally larger order sizes and the lower costs associated with significantly lower in-store inventory volumes.

Rebecca Minkoff and eBay have joined forces and are also paving the way to the omni-channel experience of the future with the launch of an interactive store in New York City’s SoHo. The store combines the best aspects of the online and offline shopping experience. Shoppers can browse through the entire Rebecca Minkoff catalogue on the “Connected Glass” interactive shopping wall. At the touch of a button on the wall, the customer can have their selected products sent to a dressing room. The dressing room mirrors are also interactive and allow the customer to request additional items as well as a stylist at the touch of a button. The interactive system also allows the customer to link any products that they have tried on to their personal profile, which they can access online or during future visits to the interactive store.

As demonstrated by Bonobos, Warby Parker and Rebecca Minkoff, the possibilities are endless and the race is on to develop the ultimate omni-channel retail experience of the future.

minkoff

Rebecca Minkoff’s Interactive Shopping Wall

 

Sources:

https://hbr.org/2014/08/e-commerce-is-not-eating-retail/

http://www.wwwmetrics.com/shopping.htm

http://www.emarketer.com/Article/Customers-Spend-More-Ecommerce-Site-They-Buy-After-Visiting-Bonobos-Offline-Shops/1011874

https://gigaom.com/2012/11/05/the-future-of-e-commerce-is-both-online-and-offline

http://www.retailcustomerexperience.com/videos/rebecca-minkoff-debuts-first-interactive-store/

http://www.megatechnews.com/amazon-store-coming-to-nyc/

http://www.retail-week.com/retail-week-live-2013-a-glimpse-of-the-future/5046698.article

By: Jessica Reed


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This week eBay announced that it is acquiring Shutl, a London-based start-up that provides same-day delivery of goods available at local retailers [1]. Shutl already serves most of the UK and is planning to offer same day delivery in 20 major U.S. cities [2]. Shutl uses a different model from eBay’s instant delivery service, eBay Now, available in San Francisco, New York City, and Chicago [3]. eBay Now deliveries are handled by eBay employees, who pick up goods from local retailers and deliver them to eBay customers [4]. On the other hand, Shutl uses its technology to link up with local retailers and third party couriers to fulfill orders. This is a lower cost and more scalable model because it locates couriers already operating with extra capacity.

Finding a way to economically scale up same day delivery is a timely and strategic move for eBay. eBay’s competitors are investing heavily in what I call “NowCommerce” – online retailing of goods that can be delivered to customers within hours.

Some might not consider Walmart to be one of eBay’s closest competitors, but if you take a look at Walmart’s recent technology investments, Walmart is clearly investing for an increasingly competitive battle with eCommerce giants Amazon and eBay. For example, Walmart is opening another Silicon Valley office this fall [5]. In 2012, Walmart launched Walmart To Go, a same day delivery service delivering items available in Walmart stores to customers in San Jose, San Francisco, Northern Virginia, Philadelphia, Minneapolis, and Denver [6].  Walmart’s footprint of 4,100 stores within five miles of two-thirds of the U.S. population creates a huge NowCommerce opportunity for Walmart [7]. With the acquisition of Shutl, eBay can better compete with Walmart on same day delivery. Shutl already operates in 50 towns in the UK, indicating eBay will be able to expand NowCommerce well beyond cities like San Francisco in the U.S. [8].

Unlike Walmart’s store-based strategy for same day delivery and eBay’s partner-based strategy, Amazon is enhancing its same day delivery capability by investing in new and improved distribution centers around the country. Amazon currently offers same day delivery on items in local warehouses through Amazon Local Express Delivery, available in Baltimore, Boston, Chicago, Indianapolis, Las Vegas, New York City, Philadelphia, Phoenix, San Bernardino, Seattle and Washington, D.C. [9]. Amazon is building more warehouses close to its customers, including giant warehouses one to two hours from San Francisco and Los Angeles [10]. With more of Amazon’s world-class fulfillment centers located closer to customers’ homes, Amazon may be able to compete with Walmart and eBay’s same day delivery offerings.

So when will same day (or same hour) delivery of mass market goods be available in cities across the U.S.? This week’s acquisition will certainly heat up the race between Amazon, eBay, and Walmart to be your destination for items you want delivered as quickly as possible.

References:

[1] http://www.bbc.co.uk/news/technology-24637668

[2] http://business.time.com/2013/03/01/amazon-gets-more-same-day-delivery-competition-shutl-coming-to-20-cities/

[3] http://www.ebay.com/now/faq.html#question-block1

[4] http://www.wired.com/business/2013/10/ebay-buys-shutl/

[5] http://www.nytimes.com/2013/10/20/technology/to-catch-up-walmart-moves-to-amazon-turf.html?pagewanted=1&_r=1&hp&

[6] http://techcrunch.com/2013/10/15/walmart-expands-same-day-grocery-delivery-to-denver/

[7] http://www.forbes.com/sites/stevebanker/2013/10/04/amazon-vs-walmart-e-commerce-vs-omni-channel-logistics/

[8] http://www.minyanville.com/sectors/technology/articles/EBay-Goes-All-Out-to-Offer/10/25/2013/id/52401?refresh=1

[9] http://www.amazon.com/gp/help/customer/display.html/ref=hp_left_sib?ie=UTF8&nodeId=201117750

[10] http://www.usatoday.com/story/tech/2013/09/28/retailers-ship-from-store/2862405/


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I must confess, dear reader – I absolutely love wine, and even my blog post in the Online Economy blog will be about wine. Nonetheless, I’m pretty sure we can find common ground, as I’m willing to bet you enjoy wine too. In fact, I have never met a person who told me they hated wine. Prefer beer or liquor? Sure. Hate wine? Nah.

However, for a person walking into a store to buy a bottle of wine for [insert occasion], there exists a fundamental mismatch between the segmentation that retailers are offering (grape / origin / vintage / nothing at all) and what the customer is seeking (price range / gastronomy / occasion). Why haven’t brick-and-mortar stores figured this out yet is a topic for a whole another blog post, but meanwhile, 23% of shoppers were classified as “Overwhelmed” in Constellation Wines’ Project Genome wine consumer typification study. [1]

The issue is further exacerbated by the choice the customer is facing. Range of SKU’s offered differs wildly depending on the type of outlet, and can be as low as 100-150 at Costco (who, nonetheless, tends to rotate the selection quite often in order to encourage the treasure-hunting effect), to a more typical 1,000-2,000 or more at an upscale supermarket or a specialized liquor store. [2] How many wines of those available in the store have you tried or even heard of? Ten? Twenty?

At best, our choices are guided by the grape type and, for the enthusiasts, production region, while we remain almost fully blind to the specific attributes of the bottle we chose – that is, until we open it. We can use the help of the store assistant (when there is one available), but where’s the guarantee that they (a) know what you like, and (b) are not just trying to sell you their highest-margin bottle?

The role of the Internet in facilitating the wine purchasing process seems to have vast potential here. However, when we start to dig into the details, things are not so simple. For starters, most of existing Internet wine stores (including the market leader, Wine.com) are cluttered and ugly, have a complicated wine choice process and are plagued by phantom inventory that appears to be in stock, but in fact, as you learn at some point after ordering, is not really available. [3]

The largest issue by far, however, is that of delivery timing. While I don’t have hard numbers on hand, out of the $30B worth of wine purchased annually in the U.S., the majority is purchased for same- or next-day consumption, i.e. going to a house party and bringing some wine with you, or dropping by the store after work and grabbing a red to go along with those pork chops your partner is cooking tonight, etc. Those scenarios do not lend themselves to purchasing wine over the Internet to be received in several days’ time. Furthermore, because one normally only buys one or two bottles under those circumstances, the economics do not allow for same-day delivery.

Existing wine recommendation sites, of which Snooth is probably the largest, share the same criticisms of segmentation not matching customer needs, clutter and unavailability. Additionally, they have their own challenges of wine descriptions not being linked to sites or stores where those wines can be bought.

Finally, wine flash sales sites like Lot18 and Gilt Taste Wine – the last group of participants of the online wine sales ecosystem – target the smaller deferred consumption segment and can only substitute the local store if the customer is willing to stock up on multiple wines to cover every potential occasion, which is rarely the case.

Having discussed the limitations imposed by the purchasing behavior, as well as the challenges of existing online and offline solutions, we can formulate the requirements to the “ideal” wine recommendation engine:

  1. Is simple and easy to use, segments wine into same categories as the consumer
  2. Is unbiased and personalized to the taste palate of the individual
  3. Recommends wine that can be purchased at the store near the user NOW

Of the three criteria, partial solutions exist for #1 and #2 in the form of various half-baked mobile apps, subscription clubs, etc., whereas #3 is by far the most difficult one to satisfy. Any start-up aiming to resolve this issue, beyond the obvious need to compile a vast, Pandora-like database of wines and their characteristics, will need to have expertise in hyperlocal commerce in order to provide the seamless transition from online choice to offline purchase.

One company that aims to resolve the discontinuity between online and local shopping is Milo, now owned by eBay. Their product, Fetch, integrates with POS systems such as QuickBooks, RetailPro and Comcash POS used in local stores in order to generate fully-synced in-store inventory that is then made searchable online. Ideally, if Milo was ubiquitous, it would resolve the local requirement for the wine engine.

For some product categories where retail is highly concentrated in only a few national chains, such as electronics, Milo is already a viable solution. Wine retail, however, is still dominated by mom-and-pop shops: top 50 companies combined only form less than 20 percent of the sales in the United States. [4] This means that the scaling of Milo (or similar, alternative solutions), which seems to be going in the logical top-down direction, i.e. signing on the largest national chains (Target, Sears, Best Buy, Barnes & Noble, etc.), is unlikely to reach sufficient penetration of the mom-and-pop shop segment anytime soon.

Meanwhile, alas, any mobile wine recommendation solutions will have to focus on large retailers, most popular wines and deferred consumption.

 

1. http://www.cwine.com/export/sites/cwine/cwine/ppt/GenomeHomeandHabits.ppt

2. http://wineeconomist.com/2009/11/07/bottoms-up-extreme-value-wine-demand/

3. http://online.wsj.com/article/SB123939668806909355.html

4. http://www.fraziercapital.com/books/liquor/1.pdf


 


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As Christmas gets closer, retailers are getting ready for their best sales season of the year by building up their stocks, hiring extra personnel and working extra-hours. For example, Wal-Mart’s sales during this season normally account for around 40% of their overall yearly sales [1]. Nevertheless, retailers are also getting ready for a great market share war, a war that has become fiercer year after year.

Brick-and-mortar retailers such as Target, Wal-Mart and Best Buy are implementing on a trial basis new strategies, along with old ones, in order to attract customers back to stores. For example, they will try to match in-store prices (Target, Best Buy) to those offered by strong online competitors. Additionally, they will increase the offer of different kinds of coupons: in-store and location-based mobile discounts (deals that customers can only get while in the store by for example scanning an in-store code), after being tired of customers using stores as showrooms for online retailers and using their cell phones to compare prices [2].

Furthermore, some are experimenting with new strategies for their store websites such as one-day-shipping or same-day-shipping for a fixed fee (Wal-Mart) and free shipping if the store is out of stock (Best Buy) [3]. All of these strategies seem to be targeted to compete with the almightiest of all competitors: Amazon.

For online stores, the key strategy is getting the product faster to its customers to try to produce a similar gratification feeling as getting the product at a store. This strategy is not new to Amazon, but recently it has started to be implemented by another online giant: EBay. EBay is teaming up with FedEx in order to have merchants print the labels from home and use the service at a discount [4].

Given the fact that brick-and-mortar retailers are trying to provide its customers with the benefits of online shopping in their stores and online retailers vice versa, one can’t help but wonder who will customers ultimately chose? There is one key aspect to each side that the other cannot replicate: seeing up-close and trying the products, and the comfort of not leaving home and making a purchase in a couple of minutes.

Another distinguishing factor is that on one side, there are competitors like Wal-Mart and Best Buy that play both in-store and online, and on the other, there are competitors such as Amazon and EBay who only play online. In the scenario where online retail prevails, will stores like Wal-Mart and Best Buy have to redefine their companies’ strategies? Will they have to allocate more resources to their online portals?

What if customers, given that all companies offer the same price, prefer the in-store shopping experience? What other strategies could online retailers implement to offer its customers a value-added experience?

Shipping strategies present a great business opportunity and challenge for carriers such as FedEx and UPS, but its ultimate success will be defined by “if” and “how much” customers are willing to pay for same-day and one-day shipping services [5].

I believe that the strategies being implemented are going to allow in-store retailers to capture some of Amazon’s and Ebay’s market share. Nevertheless, I don’t see how they can be economically sustainable if implemented over prolonged periods of time. Online retailers can afford the low prices they offer by not having to incur in the high costs of running a store, in addition to sales tax strategies.

Additionally, customers’ willingness to pay for short-time shipping may be very low, making this strategy not very effective. Amazon has achieved to have customers’ pay for its Amazon Prime subscription that offers shipping benefits by offering other valuable products with the subscription. For example, some of Amazon Prime’s benefits are: free two-day shipping and USD 3.99/item one-day shipping or same-day shipping in some cities, free lending of Kindle books and free instant streaming of selected videos [6]. Customers may not see flat-fees per purchase as valuable as Amazon Prime’s deal.

I believe that brick-and-mortar retailers’ price and shipping strategies can be very effective in order to win customers but they will hurt their margins, thus they might only be economically sustainable if implemented seasonally or during limited periods of time. Online retailers still have the bigger price advantage. Nevertheless, it seems that it is going to be a very happy Christmas for both customers and carriers.

 Sources and references

[1] http://noesisstar.com/target-to-match-online-prices-in-the-holiday-season-835

[2] http://www.latimes.com/business/money/la-fi-mo-amazon-target-price-match-20121017,0,5546399.story

[3] http://bottomline.nbcnews.com/_news/2012/10/19/14538755-amazon-retailers-do-combat-shoppers-caught-in-the-middle

[4] http://www.businessweek.com/news/2012-10-23/ebay-joins-with-fedex-on-shipping-to-compete-with-amazon

[5] http://www.businessweek.com/news/2012-10-18/same-day-shopping-lures-fedex-as-premium-business-wanes

[6] http://www.amazon.com/gp/help/customer/display.html/ref=hp_primeland_overview_2day?nodeId=200444160#free_2day


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Is being an MSP always a good thing?

Multi-sided platforms (MSPs) refer to platforms that facilitate two or more classes of entities to create value for each other via the platform. The classic example is a video game console, where the two sides are video game developers/publishers and video game players. In the case of LinkedIn, the two sides are recruiters (either companies or head hunters) and job-seekers (passive or active). There may be other sides like advertisers, but let’s focus on those two for this discussion. The value to job-seekers is the prospect of getting a job offer, which is enhanced as the number of recruiters grows. The value to recruiter is finding the perfect candidate for the job, which is enhances as the number of active job-seekers grow. The mode of communication here is LinkedIn’s InMail, which allows paying recruiters to email potential candidates using LinkedIn’s platform.

Ideally, LinkedIn wants to grow both sides of its platform, especially the paying-side (recruiters). However, as the number of recruiters grows, the average number of InMail emails to potential candidates (job-seekers) also grows. After some threshold, the increased number of InMail emails will annoy job-seekers driving down their engagement, which will ultimately reduce the value of the recruiters. The question here is whether equilibrium will be reached or will the value decline on both sides start a fast downward spiral.

The more interesting question is where this phenomenon can be observed in other MSPs. As the number of sellers grows on eBay, selling the exact same product, does the value of buyers increase or decrease. While there may be a greater variety or choice, the resulting indecision may frustrate potential buyers into moving away from the platform. This is the issue Amazon struggled with when they started to allow 3rd party sellers to sell via Amazon – repeat entries for the same product resulting in customer confusion.

In fact, this can also be observed in single-sided platforms that exhibit strong network effects. When I first started using twitter, I started by following my friends and news sites or blogs. Next, I began to follow twitter users in the industries I was interested and then ultimately anyone that followed me. As I amassed people I followed, I became overwhelmed with the number of tweets I would have to read for the ‘follow’ relationship to be meaningful. At this point, I quickly stopped using twitter, returning to it only once I had scrubbed the list of people I followed to a manageable amount.

As the size of a side in an MSP grows, so does the perceived value for the other side(s). However, those other sides may experience downsides as a result of that growth leading to the realized value for these other side(s) being lower than before the growth. As a result, the platform may lose engagement from those other side(s). Losing engagement is obviously bad for a platform as it will also reduce the value for the side that experienced the growth starting a downward spiral.


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