Hidden E-Commerce Sales

Written by Evan Schuman
June 17th, 2007

In Sunday’s New York Times, there’s this intriguing piece talking about how E-Commerce sales are quickly running out of steam. Perhaps “intriguing” is the wrong word for it. A more apt term might be “dangerous” or “out-of-context” or ….. nah, I think I’ll stick with “dangerous.”

The piece is not dangerous because it reveals some deep, dark secret. It doesn’t, not does it claim to. It’s dangerous because it perpetuates the misguided?but commonly held?belief that online and offline retail efforts today are distinct. Even worse, it seems oblivious to the rapidly-increasing influence that each has on the other.

Let’s start with the piece itself. As far as I can tell, the story is factually accurate, but it draws the wrong conclusions from the data it reports.

The story is built on stats showing a sharp decline in online sales. For example, the piece references Forrester Research predicting online book sales will increase 11 percent this year, compared with a 40 percent increase last year. Clothing went from 61 percent last year to 21 percent this year and pet supplies, according to Forrester, will hit 30 percent this year compared with 81 percent last year.

I have no quarrel with Forrester’s figures, nor with the Times referencing them. And the Times did point out that one key reason for this is the nature of a high-growth market. The figures cited in the story were all percents, rather than actual sales figures. Clearly, as the market grows, it won’t be able to maintain double-digit growth.

That’s not a reflection of the market as much as a concession to the laws of math, in the same way that a million-dollar company can have huge double-digit growth for years, but when it becomes a multi-billion company, those percentages reflect much bigger dollars. Also, the total retail pie is a finite size so it’s not a dire situation that growth percents will eventually level off as the market grows.

But those statistical issues are not the key problem with the Times story. The problem is that it still sees online and brick-and-mortar as rivals. It references brick-and-mortars being upgraded?lights, space, personnel?as a reason for the dropping online percents.

The reality is that we are just starting the age of the merged channel. From the retailer perspective, there are two ways to see this trend: strategically and tactically.

From a strategic C-level viewpoint, how the customer comes to make the purchase?whether it’s online, brick-and-mortar, call center, catalogue, cellphone, kiosk or anything else?is irrelevant, as long as the sale is made. It becomes a strategic concern if the combined revenue starts to drop, but no one is suggesting that that is happening with retail today. This should be reflected in sales commissions and dozens of others areas, where managers are rewarded for helping sales get made, with no one caring in what channel it happened.

From the tactical viewpoint, it can matter a great deal which channel the purchase is coming from, if for no other reason then to guarantee that all channels have the resources (people and tools) to deal with the volume of customers that will use them.

As a practical matter, though, the world of the merged channel isn’t quite so neat-and-clean. As this column discussed last week, executives today tend to take the easy way out and analyze online versus offline sales based solely on which channel completed the transaction. That makes little sense. For both the tactical purpose of resource-allocation and the strategic purpose of rewarding the right people, the important issue is where the purchase decision is made, not where it happens to be consummated.

If a customer spends hours online and decides to purchase blue $900 widget but he opts to pick it up because he happens to pass by a store on the way home from work and he wouldn’t mind saving the shipment fee as well as having the item right away, who should get the credit? Before you make an online allocation decision based on that brick-and-mortar POS transaction, know more about it. That scenario would support the Times’ story’s suggestion that online is losing its edge, but a deeper look suggests that that was truly an online sale.

The reverse also happens. A customer stops by her local storefront to touch and feel and try out the desired widget and also check out the competing widgets in the same aisle, with the assistance of one of the more knowledgeable store associates.

After a successful 40-minute field test, she decides on Widget C. But the checkout lines look long and she’d rather avoid the hassle of getting this awkwardly-shaped widget into her car. Besides, she thinks she’ll qualify for free shipping and online prices tend to be lower than brick-and-mortar. That may appear on the books as an online purchase, but it’s offline that deserves the credit.

Then we throw in kiosks-in-store, cellphones that use 2-D images and the phone’s camera to go deep into display-referenced Web sites and in-home services that upsell and you can see how this online/offline debate is not only distracting, but it’s borderline silly.

The issue here is not that online growth is declining. The issue is that as retail matures, online/offline turns into blended sales. That’s a good thing, except that it makes online sales effort more difficult to see. But there’s an easy solution for this. If any retailer buys into the premise that online is petering out, shut down your site for a month and wait and see the impact on your sales. That is about the best way to see the invisible hand of modern-day E-Commerce. Any true doubters out there bullish enough to find out?


2 Comments | Read Hidden E-Commerce Sales

  1. James Connell Says:

    The NY Times article indicates that “online sales are running out of steam”. How correct is this statement when we’re still expecting to see sales GROWTH online to exceed 15% in the United States.

    Most multi-channel retailers are seeing sales growth from their online channel at least double that of their bricks and mortar channel.

    Realistically the online market is maturing in the US. It must. How realistic and sustainable is another 5 years of +20% sales growth.

    And yes the sales channels are merging. Consumers are using all the tools at their disposal to purchase the goods they want, how they want, when they want, whether it is m-Commerce, e-Commerce or in-store purchase.

  2. Jeffrey Grau Says:

    Perhaps we will look back 10 to 20 years from now and see that the real impact of the Internet on retailing is not as a buying channel, but as a product research tool. If so, then the real challenge for retailers will be to drive online researchers into their physical stores to consummate their purchases.


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