Is Ecommerce Worth It?

Last year, American consumers bought $513.61 billion in goods online. This year they’ll buy more.

But the Wall Street Journal tells us that the profit margins were quite small. Consumers demand free shipping (and you know they can get it at Amazon), so the costs of shipping eat into the savings of not having to keep a physical store going. Higher return rates balance out smaller problems with shrinkage.  And so many online stores also have physical stores that the idea of being able to reduce staffing costs may not be panning out. Profit margins are generally quite low for ecommerce, according to the WSJ.

A study from the Harvard Business Review made a further point: the new normal is not a shopper hauling out his phone and ordering up a big-screen TV. People shop with their phones… and their desktops, laptops, and tablets. And then, most of the time, they go buy the item in a physical store. Ecommerce is seeing growth far beyond what physical stores are seeing, but most purchases still take place in brick and mortar shops.

So, says HBR, you can’t track the path to purchase. Your shopper sees an item in social media, checks store locations and in-stock availability on her phone, reads more about the product on her desktop during her coffee break, texts a friend to get advice, and then swings by the store to purchase. Your brand has put a lot of resources into your online presence, but as far as you can tell, your customer just came to the store and bought. Pretty much the same as when they saw your product on TV or in magazines.

Add to these issues the fact that states can now require ecommerce sellers to charge sales tax — and work their way through the complex maze of state and local sales tax laws to file and remit those taxes — and ecommerce looks much less simple than it used to

So who needs ecommerce?

Ecommerce is growing faster than physical retail shopping. It’s certainly the wave of the future. Yet that idea of opening a little online boutique and raking in the money while you relax on the beach doesn’t hold up in real life. When does ecommerce make financial sense? See whether you recognize yourself here:

  • Brands with no physical store. If you have a specialized brand with no physical store, or limited distribution in physical stores, you must rely on ecommerce to get your goods into the hands of your customers. Small, agile companies can do just fine with small, agile ecommerce stores — if they’re selling something different from the big guys.
  • Brands looking for data. A small ecommerce shop can give you a lot of information about your customers and what they want. While we completely get what HBR is saying about the difficulty of tracking people throughout their path to purchase, the sample ecommerce gives you is invaluable as a focus group.
  • Brands with customers. Your regular customers have no problem with the fact that they have multiple touchpoints along their path to purchase. They like to do their research when and where they feel like it and then buy the item wherever they want, including in their pajamas. No ecommerce? Your customers will not love you nearly as much. Ecommerce is a requirement if you have a fan community.
  • Brands with a future. We meet people who seem convinced that this internet thing is going to be over soon. They aren’t going to have a fridge that orders groceries when they start running low or a magic book-like device that makes it easy for them to buy more books right on the screen when they finish their current reading. If that’s not you, then you probably see that ecommerce is likely to be important in the future.

Trick question

I recently had this conversation with someone engaged in selling in-store devices:

“Tell me, do you see people texting in stores?”

“Sure. All the time.”

“Do you see people going online with their phones to get information in stores?”

“Sure. All the –”

“No you don’t!”

Actually, more than half of consumers do, according to recent studies. About 10% actually buy things on their phones while they’re in the store. More than 200 million Americans shop online, and 80% of us use online resources while we shop. Nearly all of us use local search to find local businesses, too. Only 6% of U.S. shoppers say they like to browse in a store and buy their goods there, all in one go.

There’s no point in pretending these things aren’t true.

If ecommerce is actually tough to track and less profitable than brick and mortar sales, then we need to figure out how to solve those problems, not to sit back and wait for ecommerce to go out of style.

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