The Rise and Fall of Fab.com: A Cautionary Tale for Every Entrepreneur

Fab.com is dying.

fab-broken-heartThe ex-gay Yelp, ex-gay Social Network, ex-gay Amazon, ex-Design Flash Sales site struggles on its death bed. The company’s spectacular rise and fall is a lesson in how to go from rags to riches and back to rags again. It is a story on how growth can sometimes make investors, founders and management oblivious to threats.

I was never a big fan of the concept of flash sales. I covered it, I studied it but I didn’t like it. It is short-sighted way of running online retail operations. It is a great way to create market demand. It may even be a good way to develop customer base. But it will not handle growth forever.

Flash sales need three things to function: good-to-great products, relatively low prices and consumers willing to try overpriced merchandise at a discount. All of these factors come at the expense of two very “un-scalable” variables:

  1. a people based supply chain. To make products available at a discount, someone has to find great products, has to estimate demand for those products and then negotiate purchasing. This is a tricky bit because these guys have to take into account a price that is relatively small but helps the flash sale site turn a profit and and allows the manufacturer to actually ship the product. This is very, very hard work and can be done only by skilled individuals who can evaluate demand, find products, negotiate prices and make sure merchandise is delivered.
  2. a demand based on human wants, not needs. No one needs designer shoes or designer furniture. People need shoes and furniture. Sometimes they want designer shoes because we live in a shallow society that makes people feel that objects buy them happiness. And most business pray on these wants. Flash sales sites promise products that say “I am a successful individual”. They promise brands and designer items at a low(er) cost. As a novelty – it will work for a while (for Fab that meant about 2 years). But customers will eventually want new products, at lower costs.
Jason Goldberg on product curation.

Jason Goldberg on product curation.

None of these variables scale very well, because they are human-based. Fab and especially founder Jason Goldberg, the one taking most of the heat have learned this the hard way.

Of course, it easy for me and other bloggers to watch events unfold and point fingers at who done what and why the business model was wrong. It was a bit harder when Fab.com was getting millions and millions in financing and customers were anxious to find new products and buy on Fab in 2012. 

But this post is not about pointing fingers. It’s about looking beyond the failure, at what lies ahead for Fab.

Fab.com: the road so far

Fab started as a gay community service that reviewed local business. In 2011 it pivoted and went on to offer daily discounts to its users, later on connecting users in a form of social network. As the model didn’t really took off, founders Jason Goldberg and Bradford Shellhammer decided they need to pivot yet again and rethink their market.

As it seems, the duo thought the company was great at a very specific thing and decided to focus on that: design. Specifically: interior design. They re-positioned Fab.com as a source for inspiration and sales of design-related products.

The rise

One can of course notice the stereotypical positioning (being a former gay community) but it nevertheless worked. The response to this new pivot was great. The number of registered users went form 175 000 in June 2011 to 350 000 in just a month. In just 12 days the company sold more than $600k worth of merchandise.

The new Fab.com was available by invite only and when it opened more than 125 000 had already registered to receive offers. The reviews were awesome and in just a short month after the Fab relaunched, Menlo Ventures invested $8 million in the company.

Fab’s usage of social networking and social-shopping features further increased the number of users and sales for the company. In just 5 months since launch (nov. 2011) the company boasted over 1 million registered members. Then came the holiday shopping season and sales skyrocketed. As a result of fabulous sales and increasing media traction, Andreessen Horowitz invested … wait for it … $40 million.

In 2011-2012 Fab was just killing it. Sales reached $100 million

In 2011-2012 Fab was just killing it. Sales reached $100 million

After just 7 months since relaunch, on Dec. 7, legendary Andreessen Horowitz VC’s are chosen by Fab.com founders from 15 willing investors.

At the end of 2012 numbers are in and they show a spectacular growth fueled what went from a 4 people company to a 140 employee design force.

CEO Jason Goldberg then posted on its now gone blog “Betashop” a slideshow detailing the successful year his company had. It shows the brave startup growing from a small yet promising group of passionate people to a company selling in 26 countries, with 10 million members.

In 2012 Fab sold over 4.3 million products. During the holidays that meant a rate of 17 products sold per minute. While other companies still try to cope with the idea of mobile commerce, Fab’s sales in 2012 had 33% of all sales coming from mobile. During holidays, 56% of sales came from smartphones and tablets.

The customer lifetime was great and two out of three purchases came from repeat customers. In 2012 sales grew 600% over 2011 and Goldberg boasted that Fab’s 15.000 products were 33% more than IKEA’s. Fab was the largest design store.

Jason Goldberg's statement on Fab, 2012. Source.

Jason Goldberg’s statement on Fab, 2012. Source.

The fall

In hindsight, past the astonishing numbers, some statements showed something was not exactly right. There was a sense of too much pride: everything Fab was doing was absolutely great and everybody else was just the loser left behind. Jason felt like Fab was the only company with the right attitude and operations. Even Amazon and IKEA didn’t seem like a match for them.

The company was so incredibly self-assuring that it was doing everything internally. In 2012 it employed more than 600 people across the world, it built and operated its IT systems in-house, it even built its own warehouse. How ’bout renting, man?

The 2012 presentation goes on and on about the greatness of Fab, about superstar employees, about the huge vision ahead, about how Fab has to beat IKEA and Amazon at design and deliver more than $30 billion in sales. In the end Jason shows a 6 point plan on how they’ll achieve that:

  1. Have personality
  2. Sell stuff they don’t
  3. Lead on mobile
  4. Lead on social
  5. [Be] global
  6. Be the best company to work for

These 6 points up there - these are the reason Fab failed. What they leave untapped is just what matters. They are all great for rallying the troops but they lack substance. Amazon and IKEA’s steady growth happens from the ground up. The infrastructure these companies rely on to build, handle, ship and sell products – these are their secret weapons.

Marketing is just the illusory panacea startups reach for when hoping it would suffice in their struggle against the big guys. It doesn’t. That’s where they get their smaller competitors.

Retail, even if it happens online, is a logistics game. Walmart, IKEA and Amazon manage to stay on top with a lot of help from their supply chain. Everything moves smoothly behind the scenes and that’s what Fab failed to acknowledge. By spending too much time on social media, mobile and interviews, the management failed to see the large logistic wall that suddenly halted their growth.

In 2013 things got from great to bad and then to awful. The company did raise an additional $150 million in venture capital in July 2013 but as CEO Jason Goldberg these were definitely not great news:

“What a lot people don’t know is that we set out to raise $300 million. [...] And when you set out to raise $300 million, and you raise $150 million, you have to change your business plan. And that’s what we did.”

Jason Goldberg

The change of business plan meant a lot of things that hurt the company’s credibility. Layoffs throughout its offices left employees unhappy. The company had to reconsider its position. At the turning point it was burning through $14 million each month and still not reaching sales projections.

Fab.com traffic dropped abruptly. Source

Fab.com traffic dropped abruptly. Source

The job cuts took Fab from more than 750 employees to less than 380 at the end of 2013. It started in Europe and than spread through its offices. Every office was restructured to help the company reach a balance point. It didn’t. Even C-level executives had to take a hit. It’s unclear if they left willingly or have been laid off but Co-founder Bradford Shellhammer and COO Beth Ferreira left the company.

Meanwhile traffic came down abruptly and so did sales. The company was heavily relying on ad spending to reach customers. Its 2012 marketing costs were $40 million. In 2013, the figure dropped to $30 million. But as the chart on the right shows – that was not the only factor that lead to the drop in traffic and sales. People were just not interested in Fab’s products anymore. Buzzwords and social media didn’t cut it anymore.

Fab.com's traffic dropped both on the web and mobile. Source.

Fab.com’s traffic dropped both on the web and mobile. Source.

Hem.com – The rebirth?

hemAll these bad news took the company by storm. A lot of people took shots directly at Goldberg for shifting focus, delaying layoffs and generally the could-be death of Fab.com. It was not surprising: he was the one taking the spotlight when Fab was growing, he would be the one taking the heat for the fall.

The media took turns at hitting Fab.com whenever it could and it was obviously an easy task. There were plenty of laid-off employees out there to leak inside info about how bad the company was being ran. They were jobless, pissed-off and needed someone to take the blame.

How could a company with $336 million in funding fail so bad? Where did the company on everyone’s lips go? What happened with all that value investors just …  lost?

All these questions left out some seemingly uninteresting investments Fab was running in Europe. While dealing with layoffs, decreased sales, management layoffs and media hits, Fab acquired custom furniture companies MassivKonzept and One Nordic Furniture Co..

By doing so the company combined the MassivKonzept’s mass customization tools and One Nordic Furniture Co.’s talent and technology. The new company took over Fab’s sales in Europe and now leverages Fab’s customer base, experience and of course – cash.

jason-goldberg-techFab’s European venture received the name Hem (Swedish for “Home”) and now employs 150 employees in Berlin, Helsinki, Warsaw and Stockholm. Some of them are previous Fab employees, some are new hires.

Hem is a designer, manufacturer and retailer and it is an integrated company. It is the technology company that Jason Goldberg wanted to build for a long time.

But most importantly, Hem is something Fab never was: its own company. An unique organization that goes beyond comparing itself to others. It is not the Amazon of Europe or the IKEA of online. It is Hem. It allows its customers to build custom, beautiful furniture and products for the home and it can now deliver on this promise. It seems to be a company that may lack sales and the buzz Fab had but it has something more important: purpose and substance.

It seems that a more mature Jason Goldberg has finally decided to leave marketing and PR aside and focus on building a real company. An unique company that goes beyond buzzwords and solves real problems, in a real environment, where the team is not made of superstars but rather a group of passionate people that put the product ahead of their own egos. And it started with its leader.

I believe Hem has a bright future, unlike Fab. It is built to last, just like its products. I must say that when I set out to write this post, it was going to be yet another bashful take on Fab’s fall. But the more I read about it, the more I found about Jason and his company and the more personal it felt. And a lot of it resonated through this interview he gave at TC Disrupt. A sense of grit and humility echoed through this talk. As an entrepreneur I know what it feels to fail. I too made mistakes and I too delayed laying off people. I too mistook marketing for product and company development. I too believed sky was no limit and failed. So there is a lot of Jason’s actions that I get from being in a similar, yet smaller scale, place.

Yes, Fab is dying and it’s a great thing. Hem now takes its place and it has the potential to be a far better company. In the end this might be not a cautionary tale of entrepreneurship gone bad but a lesson in resilience and willingness to adapt.

Jason Goldberg took some courageous steps into transforming the company he’s built and it will probably pay off in the future. After all, he runs a company that is pretty close to break even, with $120 million in the bank and a large customer base. And now it has a real business model. How hard can it be?

The Fascinating World of Amazon Logistics

Jeff Bezos

Jeff Bezos

Word’s out that Amazon is planning on opening its first brick and mortar shop. With such news the retail world is now buzzing with questions:

Is Amazon really going head to head with mainly brick-and-mortar retailers? Should the likes of Walmart be paying attention to such tactics? Could this mean a new way of doing business for Amazon?

The answer is no.

First of all Amazon is not opening actual stores. It’s opening pop-up stores. The big difference is pop-up stores are available for just a limited amount of time. They pop-up and then they pop-off. For example the two stores Amazon is now opening will be in San Francisco and Sacramento and will be open just for the holidays.

Amazon will use these stores to showcase its proprietary mobile devices (tablets, ebook readers, the smartphone). Once the holidays are over – puff – they disappear.

There is, however, one report from the Wall Street Journal, not yet confirmed by Amazon, saying the company would actually be looking for more. This report points to a New York location in Midtown Manhattan that would serve as a permanent physical presence. Again, this won’t be your typical store but rather a location designed to respond to specific Amazon needs.

Such needs would include testing Amazon products, order pick-up, returns and local delivery. Maybe even a drone helipad. Who knows?

Seriously now – with the store working as a mini-warehouse, the company could easily offer same-day delivery to near-by customers. That’s a great way to compete with Google’s same day delivery. These type of operations (pop-up shops and drop-shops) could become mainstream in the future as retailers need to bridge the gap in omnichannel retail AND provide faster shipping.

However, Amazon’s offline presence should be scanned from a different perspective:

Amazon is not moving offline. It is already there.

There are no Amazon stores just yet. Except for a few Amazon lockers and the occasional pop-up stores, the largest online retailer remains a pretty digital presence.

Except for its logistics.

Beneath the magic of Amazon’s online retail presence lays an well-oiled logistics machine. Amazon combines advanced IT systems, human operations, robots, huge warehouses and a complex shipping operation to fulfill its daily orders. And some underpaid workers but that’s another thing.

Inside one of Amazon's Warehouses. Source: Wired

Inside one of Amazon’s Warehouses. Source: Wired

How many products does Amazon ship? Billions.

In 2012 Amazon sold and shipped more than 10 million products each day. The total number of products shipped in the last quarter of 2012 was 1.05 billion. Yes, that is a Billion with a B and it is reportedly the first time in the company’s history when it sold more than 1 billion products in just one quarter.

The number of listed products is also huge. Its top 5 markets all list more than 100 million products, with the US totaling a whooping 253 millions, as reported by Export-X:

The total number of products listed on Amazon's top markets. See more here.

The total number of products listed on Amazon’s top markets. See more here.

Amazon Fulfillment: 83 million square feet of storage and fulfillment centers

You’ve probably guessed that shipping 1 billion products per quarter to more than 200 million customers worldwide requires a bit of work. What you probably don’t know is that such a large-scale operation uses 50 million square feet of storage in the US and 33 million square feet of storage outside US (source).

There is no other ecommerce competitor with such storage and fulfillment potential. Its dominant position allowed for two interesting business models to evolve: The Amazon Marketplace and Fulfillment by Amazon.

To reach sales as those shown above, Amazon lists and sells both its own products and those from 3P (Third Party) merchants. Merchants can join its Fulfillment By Amazon program, ship the product to Amazon’s Fulfillment centers and than leverage Amazon’s Logistics.

This means the company can count on its sales AND influence to shape the future of retail. Its logistics are probably the most useful and under rated tool in expanding globally. While everyone wonders if Amazon will set foot in the offline world, the company has already laid the foundations to what will probably be the future of retail.

Of course, the numbers listed above can only show a small bit of what is required to keep Amazon moving and growing. The operational tools Amazon employs and the processes behind this amazing machine will be uncovered in an upcoming ebook. Until then – check out “Understanding Omnichannel Retail” – a comprehensive report on how online and offline sales are now connecting.

Prestashop 1.6 Review – A Great Choice for Small Ecommerce Startups

Ecommerce startups need flexible, easy to set up and cheap solutions when it comes to software. A few companies provide such solutions and probably the best known is Magento, which can accommodate a wide array of startups.

However, Magento does have some issues and when it comes to small ecommerce companies, it might not be the best choice. Issues ranging from bloated code, unreliable support when it comes to finding the right development team make it hard for small companies to implement it. As you’ll see below there is one contender to Magento’s reign that you should definitely check out if you’re planning on starting an ecommerce company.

Prestashop and Magento keep rising as the former leader, OS Commerce, seems to have its glory days behind it.

Prestashop and Magento keep rising as the former leader, OS Commerce, seems to have its glory days behind it.

That contender is PrestaShop, a flexible and easy to setup open source application.

A brief history of PrestaShop

prestashop-logoThe company that now develops the product was founded in 2007 by Igor Schlumberger and Bruno Lévêque. The duo thought they could bring a better open source solution to the market and they did just that. Bruno, having a background in both tech and business, developed the first version of PrestaShop, which was downloaded 1000 times in the first month. Now PrestaShop runs on more than 185 000 stores world wide and has more than 600 000 registered contributors.

As Bruno Lévêque, founder and company CEO was unavailable at the time for a statement regarding the company vision, I’ll just go ahead and assume that they’re planning on increasing the install base and further develop the application. As they’re pushing forward with the new version, it’s becoming obvious that the two main opensource applications that small and medium companies will be able to chose from in the future will be Magento and PrestaShop. So it’s probably a good thing to know a thing or two about the upcoming champion.

PrestaShop’s Business Model

When deciding what platform to run your store on it’s important to think about the company developing it. How is it organized, why does it exist and of course – what’s the business model? What keeps the company afloat? That way you can know whether it’s here to stay or not.

Fortunately – PrestaShop is developed by a growing company, with offices throughout the world and a very interesting business model: they give out the application as open source but they charge for special modules and themes in the … aham … PrestaShop shop.

The company also charges for support and training services, which might come in handy when the online store or the development team evolves. If you’re more into online documentation – there are plenty resources out there, starting with the Developer Guide.

PrestaShop Version 1.6 has a great back-office design

Well – enough with the talk about the company – let’s get busy reviewing the new PrestaShop v 1.6. I’ll just stick to the back-office but you can have a look at the default responsive frontend theme.

What’s really outstanding about the PrestaShop’s new back-office is that it’s designed for humans. It’s uncluttered (looking at you, Magento), it’s responsive (great for quick use both on the Desktop and mobile devices) and the team managed to arrange the dashboard elements in a way you can quickly access what you need.

The PrestaShop Dashboard

The PrestaShop Dashboard

The top most used reports (such as sales, orders, cart value and others) are displayed on the dashboard and users can quickly check, refresh or change settings for them.

It’s not just the dashboard – all back-office sections are redesigned to provide quick access to data, in a beautiful interface:

orders-prestashop

With the new version users can get access to PrestaShop’s best features without any hassle. My two favorites are:

  • the customers area – there’s a great benefit in having all customer data in one place. With the new version you can get all kinds of info on the targeted customer – previous purchases, groups he’s in, internal memos about the customer, vouchers and more. Back-office operators can thus have access to a birds-eye view on the customer interactions;
  • the stock management – a great feature in PrestaShop is the fact you can also use it as a starting point for inventory and supply chain management. It’s light interface does the job when keeping track of inventory, inventory movement, stats and supplier orders.

PrestaShop is probably a very good choice for small and medium companies that look for open-source solutions. With the new version you’ll have an uncluttered view of your ecommerce operations and you’ll be free to upgrade your system with the help of a growing contributors community.

PayPal to Process More Offline Payments

Ebay subsidiary PayPal is dead serious about taking on a $10 trillion market: the Multichannel Payments Market. To do so it will have to prove its worthiness against older companies, especially in offline commerce.

Multichannel Payments

A steady increase in Ebay's Revenue. Biggest cash cow - PayPal, 41% of total revenue.

A steady increase in Ebay’s revenue. Biggest cash cow – PayPal, 41% of total revenue.

With more than 140 million registered users already, PayPal has the sweetest spot in the online payments today. Its acquisition of global payments company Braintree secured an additional 35 million registered users. As President David Marcus puts it – this is a part of an effort to redefine money and payments into what he calls “Money 3.0″ – a new way of looking at payments and how customers use them.

PayPal owner-company Ebay is at the front of what some would call a commerce revolution led by technology. Its three main branches (The Marketplaces, Ebay Enterprise and PayPal) all work together in this changing landscape.

The Marketplaces (including Ebay.com, Shopping.com and Rent.com) enable C2C Commerce, while Ebay Enterprise caters end-to-end multichannel commerce technology. Ebay Enterprise is the tech, operational management and marketing vendor for the likes of Toys’R’Us, Radioshack, Sony ant many others.

Between these two, the payment processing subsidiary PayPal leads the way in online payments. The company is Ebay’s most promising subsidiary, growing at 20% in 2013. As of 2011, it decided to go offline, allowing customers to handle their money, cards and PayPal wallets in one place.

POS solutions

paypalofflineTo increase offline usage, PayPal now offers point-of-sale solutions, mostly targeted at the new tablet-based counters. Store owners can easily implement its apps and start charging right away.

In an effort to increase adoption, PayPal started integration with third-party store management solutions such as ShopKeep POS, Booker, or Leapset.

Among its benefits for store-owners, Paypal lists security, quick implementation and an all-in-one approach to accepting payments, scanning barcodes, tracking inventory and sending invoices.

Customers willing to take their PayPal Wallet to an offline store account can pay by swiping their PayPal paycard, using their account or by paying online and picking up in store. Having a larger pool of companies accepting PayPal payments allows the company to securely handle all transactions, allow customers to receive loyalty points and handle all personal information.

Ebay and PayPal will stick together

paypal-growthSince Ebay purchased PayPal, both companies listed a successful increase in revenue. Ebay powered PayPal’s adoption to its marketplace users and in turn PayPal grew up to become one of Ebay’s most profitable subsidiaries, amounting to 41% of total revenue in 2013.

With the help from Ebay, PayPal grew from $600 million in mobile payments to $27 billion in just three years. The figures are posted on the 2014 annual shareholder meeting website, in response to Carl Icahn’s demand to spin PayPal off into a separate company.

Carl Icahn, one of the most notorious corporate raiders in the tech industry, demanded PayPal to be split into a separate company and become listed on its on. The board of directors fought his demands showing that even though the company is open to changes in the future, right now the two are working better together.

Luck would have it that shareholders reached an agreement to keep the companies together and handle the incoming commerce revolution as a whole.

“[...] we have moved aggressively to leverage PayPal’s integration with eBay to expand PayPal’s reach to millions of online retailers and to offline transactions. PayPal remains one of the fastest growing elements of the company – which helps explain why others are targeting the payments business but are far behind PayPal.”

John Donahue, Ebay CEO. Source.

 

Why Do Online Retailers Fail?

A couple of weeks ago someone asked me a great question. It came from an entrepreneur interested in opening an online store. She had a brick and mortar shop, some experience in offline retail, great merchandise. Previously she’d noticed her customers were asking why can’t they order online, so she decided to give it a try.

So there we are – discussing the necessary steps to open the online channel and integrate it with the offline store. As she previously noticed that success in online retail is seemingly random, she asked a question I was not accustomed to:

Why do online retailers fail?

See – most people want to know what makes Amazon, Staples and other large online retailers successful. They figure that if they study these companies carefully they will get to be successful also. It seems intuitive – see who the leaders are and than copy them.

Companies such as Shopify or BigCommerce thrive on the idea that anyone can start a shop online and be successful. If Jeff Bezos can – why can’t I?

amazonjeff-bezos

Jeff Bezos – Amazon

Browse the internet and you’ll find dozens of blogs (this one included) on this particular subject. “How to be successful when selling online”? You’ll get thousands of posts on what makes online retailers succeed. The harsh truth, however, is that most online retailers fail.

You should know that …

Amazon is an exception.

Staples is an exception.

AliBaba is an exception.

Ebay is an exception.

Multi-billion online retailers are exceptions. They are market anomalies. They are not the norm. The harsh truth is that beyond logistics, most of these companies have done totally different things on their way to becoming successful online. They will continue to do so. And they probably won’t share their plans and strategies online.

Even if these strategic plans and key performance indicators were available online – what good would it do? Say you had all the information on how Amazon works. What good will it do? There already is an Amazon on the market. You’ll be a challenger at best.

So there is really no way of making sure your store will succeed. But there is something you could do: minimize the chances of failure.

There are patterns in online retail failure

There is a saying that goes something like: Tell me where I’ll die so I will never go there.

While successful online retail business models are really different from retailer to retailer, failures, I’ve noticed, have common traits. Companies ignoring basic product management, employees not engaged in client service, poor merchandise – they are all things easy to spot when retailers close shops.

Before going online and browsing around for the latest marketing gimmick, have a look at six of the most common things that lead to failure:

1. Lousy and/or not enough products

Commerce hasn’t changed much in the past … umm … thousand of years. The basic concept is simple: you buy a product from the manufacturer, bring it to the customer, get something in return. Of course – the customer needs / wants to be provided with the best merchandise he or she can afford.

Failing to put the product first is the one biggest mistake retailers make. It’s easy to believe that it’s all marketing and you can sell anything. You can’t. At least you can’t do it for a prolonged period of time. Eventually people will start asking for their money back. They will post bad reviews. Your store will fail.

So focus on the product. Find manufacturers that will deliver upon high standards.

Having great products is not enough, though – they have to be plenty. Customers need choices. Of course – you might think Apple does not need variety but the industry Apple is in does. There are plenty of PC’s, laptops and smartphones out there. All at the right price.

2. The wrong price

Pricing is one of the areas most sensitive to error because it can swing both ways. You can either charge too much or not enough.

You can be charging too much and there is nothing wrong with selling expensive products but make sure they’re worth it. Remember – online, anyone can track prices. Customers can feel cheated if your markup is too large.

You can also be charging too little – remember, prices are not weapons, unless you’re the market leader. Even then – prices should be used as a last resort. A cheap product remains a cheap product. Do the math – see if your supply chain and procurement can handle low prices. If not – differentiate with services, a curated selection of products and great customer service.

3. Not paying attention to customer care

Actual Zappos Call-Center

Actual Zappos Call-Center

As an online store there aren’t too many points of contact between you and your customer. Probably the most important is the customer care team. Operators answering the phone are one of online retail’s biggest assets. Or liabilities.

For every Zappos-like company that thrives on great customer care, there are thousands of online retailers ignoring it.

Having a customer satisfaction – oriented team can work wonders for online retailers.

4. Ignoring logistics

Quick – do you know what makes Walmart the largest retailer in the world (both online and offline)? Prices? Sure, but that’s just part of it.

The answer is logistics. Walmart was not always the company we know today. Between 1980 and 1990 the company started a quick expansion program to enable it to match its competitors. In 1981 they tied their stores through a satellite communications system that would enable real-time reporting, as soon as products were purchased. By 1988 90%  of all stores were using barcode readers to handle inventory tracking. It doesn’t seem like much now but back then there was no internet to connect the stores and barcode reading was only just taking off.

Now, Walmart is an astonishing logistics company. This is the key to keeping the company well supplied and one of the most important factors in keeping the prices down.

Amazon, too, is much more than meets the eye. Between the print on demand options, huge warehouses, robotic warehouse management and integrated supply and demand – Amazon means logistics. Retailers failing to improve their logistics will have problems staying afloat.

5. Outdated or limited technology

You wouldn’t be expecting technology to be an issue when it comes to online retailers. After all – online stores are … well … technology based – right? Indeed, but there is much more than a front end when it comes to online retail technology.

Here are a few things retailers need to invest in, if they are to expect to stand a chance:

  • CRM software – you need to know as much as possible about customers and make sure they are satisfied with your service
  • Inventory management – this is a combination between hardware, software and know-how. Online retailers need to know in real time what’s in stock, what is expected to go out-of-stock and where are the slow movers. For starters.
  • Supply chain management – dealing with suppliers is not always easy. Technology can help streamline the relationship between suppliers, retailers and end-consumers. Automated order placement and processing, barcodes, RFID readers and tags to help track packages, inventory inflow and outflow management – these things sound boring and complicated. They are, however, necessary for any online retailer.

6. Bad management

No technology will save a company lead by bad management. And as you might expect this is a combination of factors. There is no single individual usually guilty of sabotaging the company.

One can notice in failing online retailers some patterns – a combination between managers focusing too much on marketing or PR, a rigid organizational structure and the lack of senior expertise.

There is little data on the impact of rigid and poorly prepared management when it comes to online retail. This is due to the fact that online retail is still in it infancy and performance indicators can be  misguiding. It is, nevertheless, one of the most important factors in failing online retail companies.

6 things that can lead to failure for online retailers

So there you have it – the 6 big things that you need to focus on. Notice there are no tips on marketing, website design, search engine positioning and such. These are not critical problems. Marketing, design, accessibility – they can all be easily spotted and fixed.

Unfortunately – it is harder to understand and improve the product range, prices, logistics, customer care and of course – management. But this is where you need to look for a chance at building a successful retail company.