Global online spending will exceed $4 trillion by 2020 and will make up nearly 15% of all retail sales (eMarketer).
Almost 70 percent of Americans shop online at least once a month.
These are compelling numbers, and most manufacturers realize they’ll have to adapt to the changing landscape. Yet many still haven’t developed a branded eCommerce strategy, and most are hesitating for some pretty valid reasons: lack of budget, insufficient resources and infrastructure, and fear of channel conflict. Many businesses now thriving in eCommerce faced the same concerns but viewed them as challenges, not barriers to entry. Wisely, they chose not to ignore the changing market conditions that signaled it was time to develop an eCommerce strategy.
Here are three signs that you should get started with your own eCommerce initiative:
1. Retail Locations Are Closing
“We are right now in the middle of the biggest, most profound transformation in the history of retail,” Robin Lewis, CEO of the Robin Report and a former executive at VF Corp. and Women’s Wear Daily.
According to Retail Dive, the internet is one of the main drivers of this shakeout, which includes store closings, bankruptcies, and restructurings. 2016 was a rough year for brick and mortar retailers, including some major players. A small sample of the retail fallout in 2016 as evidenced by store closures:
- Sports Authority : 460 stores
- Walmart: 269 stores, including 154 U.S. locations. As a result Walmart is doubling down on its commitment to growing eCommerce business.
- Aeropostale: 154 stores
- Kmart/Sears: 78 stores
The outlook is equally grim for 2017, again hitting some marquee names.
According to Business Insider, Macy’s will close 100 stores, representing 15% of their locations. 30 Sears and Kmart stores are targeted to close by April. CVS plans to close 70 locations. Fourteen major retailers have each announced they will close at least 100 stores by 2020. Many of these closures will have a trickle-down effect as the loss of anchor or flagship stores often has a negative impact on smaller retailers who suffer from the loss of traffic to their mall or shopping center.
The National Retail Federation forecasts that online spending will increase by 8 to 12 percent in 2017, far exceeding the 3.7 to 4.2 percent increase in forecasted total retail sales. Note, online sales are reflected in the overall retail increase.
“It is clear that online sales will continue to expand in 2017 and provide growth for the retail industry,” Jack Kleinhenz, Chief Economist, National Retail Federation.
- Have your retail partners closed locations?
- If they’re not closing stores now, do you anticipate that they might be part of this trend during the next few years?
If you’ve answered “yes” to either of the above, these are signs that it might be time to evaluate an eCommerce strategy with a sense of urgency.
2.Your Competitors Are Already Selling Direct to Consumer (DTC)
What is Direct to Consumer?
In the past decade, brands like Warby Parker and Bonobos have disrupted the traditional multi-tired distribution model by launching online, selling direct to consumers (DTC) via eCommerce and eliminating wholesale and retail middlemen. Today, these brands have added a limited number of brick and mortar storefronts where consumers can go to be fitted, select styles, and place orders which are then shipped to the customer from a distribution center.
Selling Via Bricks and Clicks
Well established brands such as Nike, Under Armour, and Disney are adopting this model. Nike plans to grow DTC business 250% by 2020, forecasting $16B from this channel. And eCommerce pioneer Amazon is now opening physical stores. In DTC we’re seeing a merger of online and in-store sales.
Advantages of DTC for the Consumer
Consumers benefit from DTC in several ways:
- Better selection – brands offer the complete product line, retailers stock limited inventory
- Most accurate, up to date information, support, and customer service
- Direct interaction with the brand, which is a customer preference
How DTC Delivers a Competitive Edge for Brands
Brands enjoy even more significant benefits from DTC. Those selling DTC are able to:
- Capture invaluable customer data and analytics – which can be used for more targeted marketing, promotions, and product development
- Build stronger, direct customer relationships
- Improve the customer experience
- Earn better margins on their products
What Does This Trend Mean for You?
Most manufacturers aren’t in a position to open their own brick and mortar store locations like Disney and Nike, but they can still leverage the benefits of DTC by launching an eCommerce strategy, while at the same time maintaining existing relationships with traditional channels. If you see competitors selling their products online, don’t get left behind!
3.Your Traditional Channel Sales Are Decreasing
Maybe you’ve been 100% committed to the traditional sales/distribution model, and it has served your business well for years. Your company has solid relationships with distributors and retail partners. You’ve made a considerable investment in a sales team and a marketing strategy built around serving the channel.
Now, sales to channel partners are lagging. This shouldn’t be surprising, given the retail closings that we’ve already discussed. Or maybe sales haven’t fallen off yet, but you’re aware of the huge shakeout in bricks and mortar retail that’s underway and know that it may impact your company’s sales in the future.
Still, you can’t afford to damage your channel relationships. They are especially valuable to holiday sales. During the 2016 holiday season, online sales grew by 14%, while in store sales grew by only 1.4%. But online transactions accounted for only about 11% of all retail sales. And according to a Pew Survey, 64% of Americans indicated that with all things being equal they prefer buying from physical stores to buying online.
So while growth in eCommerce sales is clearly outpacing traditional retail, Americans are still getting most of their shopping done in brick and mortar stores.
This creates a challenge for suppliers - how to develop an eCommerce strategy while still reliant on revenue from channels.
My Retailers Sell Our Products Online – Do We Need an eCommerce Strategy?
Many retailers already have eCommerce operations, and some suppliers and manufacturers are content to sell their products on those sites rather than launching their own eCommerce strategy. This may be a mistake.
Through their eCommerce sites, retailers capture customer data, own the customer relationship, and control the user experience. While they are happy to make money from your products, they are most concerned with promoting and building their brand, not yours. Their priority is making the sale, whether it’s your product or a competitor’s. You have no leverage to build a relationship or optimize customer lifetime value.
Are your sales to traditional channels are declining? It might be time to develop an ecommerce strategy and regain control of your revenue numbers.
Retail closings, competitors going direct to consumer, and declining retail sales are three factors to consider when evaluating whether your business is well-positioned for the future. If you recognize that these things are impacting your business, an eCommerce initiative can enable you to adapt to the retail shakeout and remain competitive.
Considering an eCommerce and don’t know where to begin?
Visit this resources page to jumpstart your strategy.