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It’s impossible to predict the future and basically that’s what strategy is. Based on historic evidence, data and outside factors, companies try to predict how the market is going to evolve and how they can best benefit from this evolution.
While strategy is rarely undebatable and never perfectly executed, it is a very important part in evolving companies. Having a vision and the plan to achieve that vision is what makes companies such as Amazon, Walmart or Apple stay ahead of the competition.
But sometimes things go wrong and strategy mistakes happen. Here are three cases:
Overstock is one of the largest online retailers in the US. It is an Utah based retail company that has a 20 years background in commerce.
The company sells more than 1 million items on the Overstock.com web-store. The products range from home deco to jewelry to electronics to cars to insurance. Did I mention they run a pet adoption online service? And a farmer’s market?
You’ve probably guessed where I’m going with this. Focus is really not their strongest asset. The company has basically organized its strategy around the old “let’s just try everything and see what sticks” motto. This is, of course, the winning formula to tackle Amazon. This and of course Bitcoin, a surefire solution by the company’s CEO to fight the upcoming zombie revolution.
No, really, he actually said that:
“Someday, either zombies walk the Earth or something close to that[…]. Bitcoin is the solution.”
Patrick Byrne, Overstock CEO and Bitcoin Messiah. Source: Wired.
Overstock’s strategy turned “un-focused” to hilarious when it announced its new media service aimed at Amazon’s Prime earlier this year. A bold move one might say, as Overstock is missing a few things called content, digital infrastructure, hardware (think about the Kindle), Amazon’s market share and media know-how. But they did get featured in the Onion a full 2 years before they’ve made the move.
Make no mistake. Walmart is huge. Walmart is on top of the retail food chain (excuse the pun). It has more than 11.000 stores, in 27 countries and employs more than 2.2 million people. The company is the biggest retailer in the world with a revenue of $485 billion.
But that doesn’t mean it should be successful online, does it?
Walmart’s digital strategy is a bit … puzzling, if I may. The company’s “ecommerce” store has been online since 1996, about the same time Amazon started to grow. Unlike Amazon, Walmart.com didn’t really matter in the company strategy until 1999. That’s when the company announced the customers that no orders placed after the 14th of December could be fulfilled in due time for the holidays.
Walmart then decided to spin off that pesky thing called the online store in 2000 and transferred the operations in Silicon Valley, under a partnership with Accel Ventures. The reason, as mentioned in this throw-back article from 2002, is that online is “not where their customer base is”.
After an unusually horrible decision to shut down the store for a month in the fall of 2000, for a revamp, the store was just as bad as before. But it did managed to miss the 2000 holidays season due to a late re-start.
The company eventually realized the blunder and in 2001 bought back Accel’s share in the ecommerce company. Good thing they’ve realized just how important ecommerce was. It didn’t even take long to improve and redesign the webstore: just 5 years, until 2006.
Walmart was also quick to realize it can make a connection between the online and offline channels. In 2007, 11 years after it launched its online store, it launched the Site to Store program, allowing customers to order online and pick up in store.
Blunder after blunder, the company eventually realized the importance of stepping into a new era, one where customers are connected to Walmart digitally. The company has since changed its perception on ecommerce, hired talent and started experimenting with upcoming technologies.
But if there’s something worse than an un-focused strategy and a rigid strategy, that has to be … no strategy:
There are very few cases where the lack of strategy and extensive investments are seen so clear within the same company. Fab is one of these rare fails. The company was founded by Jason Goldberg and Bradford Shellhammer and experimented with some pivots. Five that I know of, mentioned above.
It went on to raise a total of $336 million and for a while it could have been the next Amazon, or Ikea, or Apple, or whatever founder Jason Goldberg thought was the fad of the day. Eventually it went on to be a huge whole in the investors’ pockets and was acquired by an undisclosed sum in march 2015.
The whole story is outlined in this cautionary tale. It could be a very funny strategy fail if it weren’t such a sad story for investors, founders, employees and in the end – the whole online retail market. Fab is the story of what could have been, if someone were to lay out a smarter strategy. Or some strategy for that matter.
For a very long time, retailers used a linear approach to the supply chain. It meant that merchandise flowed in just one direction. Products would move between the manufacturer, the wholesaler, the retailer and onto the sales channel. This sales channel meant the brick and mortar store, in all its variations, for a very long time.
With the internet revolution came the concept of eCommerce, where customers would place the orders on an internet store front and they would receive it at home. Medium and large retailers used the same method of silo-management to the online store.
The "silo" approach meant that each new sales channel would be treated as a separate silo, independent from the other stores. That worked for the previous concept of brick and mortar stores, so it had to work for the ecommerce approach, too, right?
Not quite. The concept of having an online store work as a separate operation doesn't fit the profile for the new consumer. The fact is that there are very few exclusive online shoppers. People like to spend time in stores, touching merchandise, they spend time on social media, get informed, place calls to ask for info and generally live in a complex world that mixes online and offline experiences.
Customers demand new options from retailers, things such as "buy online, pick-up in store", "order in store, receive at home" – just some of the many challenges retailers face right now, trying to connect with the new consumer.
To go from being a retailer to being an omnichannel retailer, companies need to step up their game. And it's not just marketing or hardly operational shopping programs. Customers demand a real change in the way they are engaged. Companies such as Macy's have invested in creating experiences that handle multiple journey maps for their customers and the results are satisfying.
To achieve this, retailers need to adopt an omnichannel supply chain. The biggest difference between this type of approach and the previous is the fact that it is omni-directional. Whereas the classic supply chain was mostly linear, flowing from one place (manufacturer) to the other (customer), the omnichannel supply chain flows across many boundaries.
To achieve relevance in the omnichannel age, retailers need to be ready to handle:
The omnichannel supply chain is not easy to achieve. Medium and large companies are caught up in a web of systems and processes that may have worked 10 or 20 years ago but they are now obsolete. The linear approach to supply chain management and marketing is really not their best bet. The change in consumer behavior is irreversible and the omnichannel supply chain is one of the most important changes in today's retail.
So you've got this far. Starting an Online Store is a lot easier when you've got the right info and this is the place where you can find it. It takes a lot of drive do get through Part 1 and Part 2 of this guide, so good for you!
During this part of the guide, you'll get a better understanding of what fulfillment means and how to build a company that can effectively manage orders and ship the right products to the customer.
Good, good fulfillment. Yeah! But wait …
Good question! Although the term fulfillment is used quite a lot, not everyone has a clear grasp on the whole idea. I mean – why fulfillment? Well, it's actually a pretty simple concept. Order fulfillment is anything that has to do with fulfilling your promise to the customer. That promise is you're going to ship the products they've purchased, those products are going to be in good condition and they will arrive as soon as possible.
Fulfillment also covers the reverse process (also called reverse logistics). That means getting merchandise back from the customer. That type of operations happen:
So basically when your ecommerce business is fulfilling an order, it is actually making good on its promise to deliver merchandise in the best way possible. Although the concept is not that really hard to grasp, making it happen is a little bit harder.
In order to make sure your fulfillment operations you'll have to look for the answer to four very important questions:
Fulfillment is probably the most complex and tedious part of ecommerce. It is also the one thing that is the least talked about in terms of ecommerce. It's not flashy and it's not cool. It's complex, involves a lot of tweaking and a lot of work to getting it right. While most ecommerce guides will point out to the importance of picking the right shade of orange for the "Buy now" button, few will speak of how important fulfillment is.
Just to get a glimpse of how important fulfillment is - think of your car. While having the right color and the right type of leather is important, the car won't start without an engine. Fulfillment is the engine that keeps ecommerce going.
There are just five basic steps in fulfilling ecommerce orders. Four of them are mandatory and one is optional. Hopefully you will cover this last step as few times as possible. These five very important steps are:
Overview of the Fulfillment Process (including returns)
Customers will place the orders through one of your sales channels. It may be your online store, on the phone or through a mobile application or a pop-up store.
There is a great variety of order management software out there and later on on this guide will get through some of them. It matters less what you will be choosing later on. What matters from a fulfillment standpoint is what the order info should contain. Here is the minimal information you will be needing:
Most of the time, you will be receiving more info from your order management tool but these are the essential blocks of information to keep in mind.
Before moving on to the actual order fulfillment bullet points I have to make a point. You don't HAVE to fulfill the orders yourself. Some companies outsource their fulfillment to other companies. My advice is you should keep most of your fulfillment operations within your company. You won't be able to ship products across the globe but you can pick, pack and carefully wrap orders for your customers.
When medium and large online stores are fighting each other over consumer mind share, we only see the marketing and superficial aspect of this battles. But the fact is, underneath all this visible struggles, the real battles are won in the warehouse. Your real chance for success stands in picking, packing and shipping the right products, within the timeframe you've promised.
It may seem hard to handle fulfillment operations and it sure is. But because it is hard, you have to master it before the competition does. Walmart and Amazon, two of the largest retailers in the world, are also two of the best supply chains in the world. It's not that these companies have developed spectacular fulfillment operations because of their huge sales but the other way around.
Glad we've got that out of the way. Now – what's the best way you can receive products in your inventory?
It all starts with an order to your supplier. It is usually called a "Purchase Order" as you are placing an order to purchase products. We will assume that you have already set up an agreement with your suppliers and they will ship the products. You will probably pay as you place your order, when the order arrives or at a given time after the order has arrived, if you have agreed as such with your supplier.
Once the products have arrived at your warehouse you will need to:
( Basic check list when receiving products from the supplier )
Placing the products in the inventory is a very important part in receiving the products. The better you keep track of where the products are, the less time and effort you will need when picking and packing the products.
When placing the products in storage you need to keep in mind some very important aspects:
Hopefully at this point you have managed to get the products in your inventory, they are correctly marked and stored and you are ready to pick said products for the orders you are going to be shipping.
Once you have the products in the inventory and orders are coming in, it's time to process these orders.
Order processing is split between four main areas:
Picking is probably the most time consuming part of order processing. It also gets a lot more complicated as your business grows and it may be prone to errors. Having more products in your inventory will increase the complexity of picking the right products in the fastest way possible.
If you've managed to place the products in the right spots (as stated in the step above – receiving products) your chances of correctly processing orders increase big time. The reason is it will be easier for picking staff to move fast through the aisles and pick the right products.
To have a streamlined picking process that works just as well with 10 orders per day or 1000 orders per day you have to decrease the chances for errors. To do so, your picking staff will cycle through these steps:
( A basic example for a picking list )
Packing is the next step in the fulfillment operation. Once the products have been picked from the corresponding aisle, shelf or bin, they are sent to the packing station where they will be split into orders and prepared for shipping.
The packing operation is usually split into these further steps:
Once the products are placed in the right package, a quality control station will check for any errors that may happen.
Quality control personnel will usually check for one of the following errors that may appear:
Once the products have been picked, packed and quality control made sure there were no errors in the order management process, the package is ready for shipping.
Online stores usually partner with one or more shipping companies to deliver the goods. The shipping station will check the package weight and direct it to the right shipping partner.
Most shipping companies will provide you with a general framework on how to handle packing and preparing for shipping. Here are the most popular ones:
When these companies (and others) will charge you for their shipping services they will take into account some (or all) of the following variables:
Once the orders are picked by the shipping company, the order status is constantly updated so customers and the online store knows where the packages are at the moment.
When the products are delivered the status is updated and the order is confirmed. After this point the product is in the customer's ownership and any reverse process wil be treated as a return.
Oh, returns – can't live with them, can't live without them. Just kidding. A clear and friendly return policy is what sets the likes of Zappos.com apart from the competition. They will let you return the products you've purchased within 365 days, free of charge and as their return centers will check the products you will be credited within 7 days with the money you've spent.
Ecommerce customers love a great return policy and you need to be ready to handle one. The logistics involved in such a return process are usually dubbed reverse logistics. This means you will reverse the steps mentioned above.
Basically you will unship the products, unpack, unpick and un-order everything.
If you offer free shipping, you will have to handle the shipping costs from the customer to your return center (for small and medium companies, the return centers are the same as the fulfillment facilities).
Now, the big problem when getting information on handling returns is that most of the resources out there are either
What will follow will hopefully be a bit more relevant and a bit less boring. The big idea you have to keep in mind is returns are the reverse process of everything you have read so far.
You will have to tailor the following concepts to your specific company structure, accounting, IT systems and processes.
That being said there are three main areas you need to focus:
There are usually three main options to do this:
Once the products are back at the fulfillment center you will have to get them back into inventory. The process is similar to what you would do if you were to receive goods from your supplier. The main differences are:
Once the products have been checked and returned to the inventory, you will need to issue a refund to the customer and inform said customer of these changes.
And … that's it.
It may seem complicated right now but keep in mind that thousands of online store owners are doing all these things. Now that you've got the basics, you will be able to deal with most of the operation challenges you will face. If there is anything else you need to know – just ask in the comments sections bellow.
This concludes this part of this guide. This is probably the hardest and the most important part of making your store run smooth. It involves many operations, usually lots of people and it needs to be built in such a way that it will easily scale when your company is growing at double digits.
Next week we will focus on branding, designing and choosing an ecommerce platform for your online store. See you soon!
Last week we've covered the basics of starting your online store. We've talked about choosing your market and your particular niche, We've covered the main questions you need to figure out before you start building your actual store. Finally we went through the main business models and scanned some of the most innovative and interesting implementations in B2C (business to consumer) ecommerce.
Now that we've covered the basics, let's turn your idea into a real store. This part of the "Starting an Online Store" guide will show you how to register your business and how to build the operational basics for your store. At the end of part two of this guide you'll know how to find the right ecommerce suppliers, integrate your business with said suppliers and set the prices for your products.
Note: This part of the guide is intended to work as a guide mainly for readers in the US. That's why some of the acronyms and type of companies you'll find in here are going to be aimed at those of you registering your business in the US. If you are registering your business elsewhere please leave a comment as to where you intend to register your business and I will try to get back to you with more info.
That being set, most of the information you'll be reading here is in essence applicable in other countries or regions. Even though business structures may have different names and have slightly different usage in different parts of the world, their purpose remains pretty much the same, as globalization tends to level the playing field.
Sure, planning and building your business is a great way to spend your time and effort. But you also need to work as a legal entity.
There are basically two ways you can register your business:
You can start as a Sole Proprietorship (the most popular type of business for ecommerce entrepreneurs) and move to other forms of businesses as your chances of success increase.
If you are the sole owner of an online business, the Sole Proprietorship (also known as DBA – "Doing Business As") is the easiest form to register and manage your business. It actually works as an alias for the individual doing the business. Because of this, the owner is personally liable for the company. That means that all debt is imputable to the owner. However, as Sole Proprietorships are usually low-liability businesses, a lot of startups work under this type of legal entity.
The second big option in starting an un-incorporated business is the General Partnership. In Partnerships, more individuals get together to start some kind of business. Just like the Sole Proprietorship, Partnerships are easy to set up and manage and because partners share equal control on the company, the liability and profits are also shared.
Like I've mentioned above, the second category of companies falls under the "corporate" model. When you're incorporating your company you don't become a corporate behomoth and you don't automatically get billions in revenue, as you'd expect. It just means you're operating under a different set of rules. Plus you get to do a lot more paperwork and pay some extra taxes.
Pros of incorporating the business
The most important reasons to incorporate your company as an entrepreneur are liability protection and documenting deals with partners.
By far liability protection is the most important reason to incorporate your company. Under a corporate structure, your business is treated as a separate legal entity. If things go awry in your business (and sometimes they do) the company is liable for paying all debtors, not you. That, of course, if you have been operating your business in a legal manner.
Basically, registering as a corporation will keep your assets (house, car, golf clubs) protected from any issue that might arise operating the business.
The second important reason to incorporate your company is documenting a business deal with partners. Whether you are raising money from investors or selling shares in your company, you need a corporate structure to do this.
Cons of incorporating the business
You may hear other reasons why you should incorporate your company, things such as tax benefits, business credit and transferable ownership. But don't rush to register your corporation just yet. Most entrepreneurs are doing just great running un-incorporated business in the beginning. Tax benefits are usually tangible when your company is already successful enough. So if you are just a startup, you can probably forget about tax benefits.
Building business credit means companies are evaluated independently from their owners but that doesn't necessarily have to be a good thing. If you are a startup with no cash in the bank, no sales and no clear plan, that fresh business credit won't be of help much.
Finally, saying an incorporated company is a lot easier to transfer to other individuals or companies leaves out a very important aspect. Before transfering your company (hopefully selling it for lots of cash) you need to build this company. So again – this won't help you that much either.
But the biggest disadvantage small businesses that incorporate have to face is paperwork. Lots of paperwork. You will have to fill in state reports, organize annual meeting and deal with involved bureaucracy.
Then there's the fees. You'll be paying fees for legal council, tax filling and others. Professional help is not cheap. Plus you get the minimum franchise taxes and others. These amount to thousands of dollars in fees, which is a bit much for small business owners.
So incorporating a company is no easy feat. Or better said – it's not easy to manage an incorporated company if you are a small business owner.
But if you do find yourself in need of incorporating the business, here are the most important type of corporations you can choose:
You have probably heard one thing or two about LLC (Limited Liability Company). It's the most popular form of business among small and medium businesses, including online store owners. It combines what is called pass-through taxation for its members with the limited liability corporations provide.
Although not technically a corporation, it is a great choice for those that want to join a limited liability partnership. It basically works as partnership or sole proprietorship in terms of taxation. This means the owners (called members) pay taxes on the LLC's profit directly. The company doesn't fill taxes separately, which makes things a lot easier to manage.
This types of businesses are actually pretty young as a commercial concept. The LLC structure was first formed in 1977 and now it's accepted in all US states and a throughout most of the world.
At the heart of LLC stands the "Operating Agreement", a document signed by all members, setting the rules under which the company will be managed. It covers things such as profits sharing, company management, adding or removing members and more.
The LLC is the most popular choice in the world right now for forming partnership, usually chosen by groups of up to 5 members.
Although starting and managing a LLC is less complicated than a corporation, it is still more complicated than starting and managing a sole proprietorship or a partnership. You will probably have to hire a legal counselor to help you with the set up and operating the company.
The Regular Corporation is … well … the corporation. A company organized as a corporation is a separate legal entity from its owners (called shareholders). The company can thus protect owners from liability issues or company debt.
The corporation provides advantages such as:
Once the corporation is set up, it will pay taxes separately from its owners. This can lead to double taxation as companies are taxed on profits and once those profits are distributed, shareholders will also have to pay income taxes. The double taxation problem is solved by incorporating as a S Corporation (see below).
Corporations are not necessarily ran by its owners. The shareholders own company stock. This gives them the ability to elect Directors, organized under a board of directors. Once this board of directors is set up, they appoint Officers (CEO - Chief Executive Office, CFO - Chief Financial Officer etc.), which are the people that actually run the company on a daily baisis. Of course, if you own 100% of stock, you can appoint yourself as the one and only director, be the officer and run the company.
On the other hand, if your company will be owned by more individuals, the Board of Directors and the Officers will run the company. Both the Board of Directors and The Officers have to abide to an internal company document called "Corporate Bylaws". This document sets the rules on operating the company and can be extended or modified as the company evolves.
The Corporation is a lot more formal than the LLC and of course, the Partnership or the Sole Proprietorship. The records have to be carefully maintained, there is a mandatory yearly Directors and Shareholders meeting and every decision has to be documented and reported.
Although the corporation is harder to form and maintain, it is the oldest and most reputable form of business organization.
When registering as a corporation, you should take into account the S-Corporation. By filling in the appropriate tax election form to the Internal Revenue Service, the company will be taxed as a Sole Proprietorship or a Partnership.
The main advantage for you and your partners is that income and profit is passed through to the shareholders, thus solving the double taxation problem mentioned above.
Even though you've solved the double taxation issue – you're still stuck with the paperwork and specific regulation, which can be a burden for online retail startups.
To wrap things up, here is a rundown of the main types of incorporated business structure you can choose, each with its own pros and cons:
Once you have decided on whether you're registering your business as a sole proprietorship or incorporating it you can check the specific regulations for your state here and start the registration process.
You've figured out your market, planned on how you'll build and run your store and what your business model is. You've registered your business and you are ready to go. Or are you?
Well hold on there, you still need to have those products you're selling. That means you need to source your merchandise from suppliers.
Generally speaking, suppliers are those businesses or individuals that are willing to supply you with products priced below end consumer value. Still a bit unclear? Well say you will be selling plain t-shirts. You know you can buy those t-shirts for $20 at the closest store. If you do buy t-shirts in that store, you will be buying them at end consumer value. You are the end consumer. Because you cannot price them at a higher level you are basically stuck with them – hence the "end" in end consumer.
What you need to do is go find yourself some suppliers that are willing to sell you those t-shirts for less than $20. Why would they do that, you say?
Remember the whole B2B business model? Some companies just work this way. They manufacture the products or sell them in bulk and let other companies sell directly to the end consumer.
( The basic operations needed to run your store )
When dealing with suppliers you have to be ready to make a commitment before they agree to do business with you. This commitment can come in many forms but usually it's one of the following:
Once you've made a deal with one or more suppliers you will be selling your products right on your store. When the orders start pouring in (or maybe just trickle in the beginning) you have to make sure customers receive the products they've paid for. This part is called "fulfillment" as in fulfilling your promise to send the product to the customer in exchange for the payment you have received.
Fulfillment means any task done inside or outside the company that assures the right products are shipped to the customer. Usually this means:
We will talk a lot more about fulfillment later on in this guide but for now I just wanted to give you an overview on the usual processes in handling orders and shipping products to the end consumer.
Fulfillment can be done either within your company, by the supplier or as a mix between the two. Let's have a look at these scenarios:
Usually, most online retailers (such as yourself) choose a combination between the two and maybe some other processes.
( The example below is illustrated in the figure above. Combining basic operatiosn with supplier drop-shipping. )
For example, let's say you partnered with two suppliers (see figure above). Supplier A will provide you with plain t-shirts. Supplier B brings in sneakers. After you start your store you receive two orders. Customer X is asking for 2 plain t-shirts. Customer Y is asking for a plain t-shirt and a pair of sneakers.
You will have to treat these orders differently. Order number one, the one where customer X paid for 2 plain t-shirts is forwarded to Supplier A and he will dropship these items and then invoice you for the products.
Order number two is a bit more complicated. You will have to ask supplier A to send you one plain t-shirt (if you don't already have it on your inventory) and Supplier B will send you a pair of sneakers. You will be invoiced on those products and once you have them in your warehouse you can pack and ship them to the customer.
You can also choose to work with external fulfillment services, such as Fulfillment by Amazon. These services relieve you of the burden of picking, packing and shipping your orders. For a cost.
By building and interlinking separate operations such as those mentioned above, you are actually building what is called a supply chain. The supply chain means any interlinked process that enables you to move products from the manufacturers or wholesalers to the consumer.
The supply chain is not a static structure. It can and it will change as your online store evolves. As you add new suppliers to your supply chain, your ability to distribute products to consumers will increase and so will your revenue. But speaking of adding suppliers to the supply chain …
Yeah, how DO you find suppliers for the online store? Now that you've got a sense of why you need suppliers, how to negotiate and deal with them, let's have a look at how to actually find them. When you're looking for merchandise suppliers you'll see that you have two big options when choosing, each with its pros and cons. These two options are domestic suppliers and overseas suppliers.
Assuming you are in the US, using domestic suppliers will be a very viable option but you should also consider the second. Overseas suppliers can be a great addition to your supply chain. They can be used when in need of additional product options or lower prices. Let's have a look at the pros and cons of using these two types of suppliers.
( Directories providing links to domestic US suppliers )
The most important thing you need to remember when dealing with overseas suppliers is that you have to be very, very careful. If you are inexperienced, you should ask for professional advice on how to get the best deals and protect yourself from fraud. Also – if you do find yourself in need of doing business with overseas suppliers, choose to contact those that provide a local sales office or agent or order using established marketplaces that provide escrow payment options.
( The most reliable services that connect you to B2B suppliers overseas )
Although the services mentioned above are a great way to find the right suppliers, you can also do your own digging and search for independent manufacturers or wholesalers.
There is no standard way of doing this but some tips may help you get closer to your ideal suppliers:
So hopefully you now know a thing or two about finding suppliers and you're going to get the best deal possible. Great! What's next? Oh, yeah, prices:
When it comes to pricing, you have two rather simple concepts to always keep in mind:
Basically, the prices of sold products have to cover the sum of these expenses. The bottom line is always the same: Profit = Revenue – Costs.
Your company will report a gross revenue by selling products. Profits come when you are selling enough merchandise, at the right price, to cover your costs.
Of course, it's a bit more complicated than this but you get the picture. You have to price your sold products where you can be profitable. However, prices need to stay competitive to the market. This means that there's a balance you have to keep. Prices should be big enough to keep you in business but small enough to be competitive with other online retailers.
1. Markup on cost means you add a certain percentage to he cost associated with the product. It is usually a standard percentage somewhere between 15% and 40%, enough to keep you profitable and your prices competitive.
The formula works like this:
Item cost + (Item cost x Markup Percentage) = Price
Say for example we are selling plain t-shirts, with a cost of $20. We've set the markup at 30%. The the price would be:
$20 (Item cost) + ($20 x 30%) = $26
2. Manufacturer suggested retail price (MSRP) is another way small businesses can set their prices in such a way that they are profitable but not too expensive. MSRP is the price the manufacturer recommends to resellers so they don't start price wars that can benefit no one. This type of price setting leaves out a lot of options for the online store owner and should not be a general rule in the long run.
Above are just two of the simpler ways prices can be set to attract the consumers. We will get into a lot more details in the "Marketing your store" part of this guide so stay tuned.
For now, this concludes part two of the "How to Start an Online Store" Complete Guide. Part three will focus on building your fulfillment operation (picking, packing, shipping and returns) and how to build a brand identity and the actual store front. See you soon!
Featured image source: https://www.flickr.com/photos/27017674@N06/8915361750
Achieving clarity in Omnichannel Retail is no easy task. Retailers, especially large ones, need to get all departments, all sales channels, suppliers and fulfillment operations on the same page.
And that’s just the first step. Then comes the IT integration where legacy systems are connected to a central management tool that handles at least inventory transparency, CRM and order management across channels.
Omnichannel Retail is not mainstream right now. It is still in its infancy. Sure, some are more advanced than others and some companies are building the future faster than others. But the truth is omnichannel is a need to be fulfilled for most retailers.
And here come the knights in shiny digital armor to rescue the day. The following 5 vendors have built omnichannel retail capabilities ready to be plugged into existing retail ecosystems. They are now the go-to elite for large retailers in need of upgrading their IT infrastructure.
Shopatron was founded in September 2000 by Ed Stevens and Sean Collier. Since then, it has evolved into an integrated SaaS platform that connects offline and online orders management, making it easier for customers to purchase from retailers.
The company offers specific omnichannel solutions, most important being:
Shopatron targets midsize retailers and its main benefit is the advanced order routing. The platform combines online and offline sales and claims inventory visibility across channels.
NetSuite was already rocking a great SaaS ERP product and a fully flavored ecommerce solution when it acquired OrderMotion in 2013. Now the company can provide inventory management across channels, a single customer view, business intelligence data and omnichannel order management.
The company, among the first to bet on SaaS platforms, is now one of the fastest growing companies in the field, closing 2013 with $414 million in revenue. The revenue is up 34%, which is a big win for the company initially backed by Larry Ellison.
NetSuite started as NetLedger, envisioned as an online accounting tool, that later turned to an wider array of company management tools.
The past two years have been very active for NetSuite in terms of omnichannel related acquisitions. In 2013 it acquired Retail Anywhere, a POS solutions company. In 2014 it acquired both Venda, an ecommerce SaaS company, and eBizNet Solutions, a company focused on WMS (warehouse management system) solutions.
Netsuite has decided omnichannel is a perfect mix when it connects companies focused o separate blocks in the retail chain.
PayPal is not the only jewel in eBay’s pocket as it seems. eBay Enterprise (formerly known as GSI Commerce) is one of the fastest growing and biggest companies providing technology and consultancy for omnichannel retail.
The company delivers four big solutions to its customer base:
Unlike the other companies on the list, eBay Enterprise goes beyond software integration and into marketing and operations. In terms of retail solutions, eBay Enterprise provides support for commerce integration across channels. The company integrates the main sales touch points, with the help of its omnichannel tools:
The omnichannel operations tools cover a lot of ground and can be used in fulfillment operations, customer care and store based fulfillment.
IBM stands for a lot of things and among them it had to be omnichannel retail also. The tech giant offers technology to retailers in need of:
Its Websphere Commerce solution connects both online and offline sales through its different versions. It handles cross-channels inventory visibility, distributed order management and scales as you would expect from IBM.
At the core of IBM’s order management and inventory tools you’ll find components IBM acquired in 2010, when it purchased Sterling commerce. The transaction cost IBM $1.4 billion but brought in 18.000 global customers.
The Websphere commerce is a great fit for large companies and powers some very well known brands, but it is somewhat a not so great fit or midsize retailers.
Hybris, now a part of SAP, is probably the best fit for omnichannel retailing. Hybris is a dynamic company focused on growth and delivers constantly on market needs.
The omnichannel solution is scalable and built on a modern and flexible architecture, that allows interaction with all interfaces. Its order management solution, inventory and commerce application are built to work together seamless and easily connect with other systems.
Hybris’ solutions work both B2B and B2C and can handle inputs from multiple inventory sources and outputs on multiple sales channels. Moreover, the solution features a central content management system that enables retailers to push content across a multitude of interfaces.
As of 2013, Hybris is a part of SAP, making it a global powerhouse connected to the world’s most popular (well, at least used) ERP.
So that’s it – these are the best of breed. Of course, there are more out there that deliver great products and I could name Intershop, Demandware or even Oracle. They, however are less inclined to omnichannel or have a really new found love for omnichannel retail. The vendors mentioned above are leading the pack in omnichannel retail implementation, especially for large customers.
Previously, the company used Commercehub’s marketplace technology to connect its vendors to its Ecommerce sales channels. With this new development there are two big things happening:
The first and most important, Staples moves technology development in house. This is a clear sign the company is shifting from a brick-and-mortar centric strategy to a technology centric strategy.
With its legacy store network already in place, growing online sales and the new marketplace, Staples can compete with Amazon on an omnichannel level. Its vendors can now access its online sales channels but with future improvements, their products will be probably ordered offline as well.
The second biggest change is in Staples’ logistics strategy. So far the company relied heavily on its own fulfillment centers. Now orders are increasingly shipped by vendors through drop shipping. This is the most efficient way for Staples to increase its product count and it seems to be working: Staples increased its product count from 30 000 in 2012 to 200 000 in 2013 to a whooping 1.5 million SKUs in 2014, according to Internet Retailer.
As Internet Retailer reports, Staples is still curating the vendors’ offers but it will soon switch to a fully integrated platform in 2015. Even now the new tool allows vendors to receive orders, see real-time alerts, access analytics data and manage inventory, without the cost Commercehub’s technology implied.
So why not bet everything on ecommerce? Why change direction again and include those “old” brick and mortar stores, and warehouses and such? Why build omnichannel retail facilities?
Short answer: because the customer is not a robot. The customer does not have to shop online. It will shop online when it feels better.
Ecommerce is indeed a revolution in the way we do business and indeed it has changed the retail landscape but consumers still exist in the physical world. Consumers do spend time online but they also walk by store fronts, they like to touch the products they buy and they like to see how fashion items, for example, look like in real life.
That means that real life stores will continue to exist. But so will online stores, sales call centers, interactive kiosks and marketplace outlets.
Retailers need to figure out how to connect all these channels. This new wave of customer centric retail is called omnichannel retail. The term means that no matter the sales channel, everything behind the scenes is connected. The inventory is universally available to all stores. The customer info is available on all channels also, so he or she can be instantly recognized and offers personalized. Product info is also available cross channels but most important – Fulfillment can be managed on all possible points so as to serve the customer in the timeliest and most effective manner.
One of the biggest challenges in omnichannel retail is fulfilling orders cross channels. Today, retailers that deal with both online and offline sales have to split fulfillment in two separate areas, each with specific operations.
The first is offline fulfillment, namely what happens in brick and mortar stores. Offline sales have been optimized to run on a pretty specific supply chain, not very flexible. It starts with the manufacturer, continues with forwarding merchandise to the wholesale buyer and then products end up stored in the retailer’s warehouses and stores.
Because ecommerce came as an addition to existing sales channels, it was added to the existing supply chain as a type of extra store, with its own specific operations.
However things got complicated when the web store had to split into the mobile store, the interactive kiosk, the marketplace outlet and others. Then customers wanted to buy online and pick up offline. But they didn’t stop here: they wanted to order in the store and receive home, ask for inventory info in the offline store and more. Pretty soon they started demanding it so now omnichannel retail is a question of customer service.
Retailers realized that what the retail world is facing is both a huge challenge in terms of customer demands and a huge opportunity. Those companies shifting their business strategies to fit the new, empowered consumer, will be the leaders of tomorrow.
But to do that, retailers need to develop new order management software hubs. These order management hubs need to connect all fulfillment options to all sales channels. That means that all stores, all warehouses, all suppliers, all drop shippers need to be connected and managed by an order management tool that filters orders from all stores, both online and offline, interactive kiosks, call centers, mobile apps and others.
Some companies are handling omnichannel orders just great. Others need to improve their policies and most of all their IT infrastructure. To do that they have to figure out what factors need to be taken into account when fulfilling orders. Here are the top 6 most important:
1. Proximity to customer – this obvious indicator will track which is the closest fulfillment outlet that can ship orders to customers.
2. Inventory levels across all fulfillment outlets – that includes inventory levels in the warehouses, stores, goods in consignment, drop shippers or even supplier and manufacturers. Yes, sometimes it can be more effective to ship directly from the manufacturer or the supplier than it would if the goods were shipped from the store or the warehouse.
3. Order split costs – orders that have more than one product per customer sometimes need to be split to multiple locations that have the products in stock. Products can be shipped individually or shipped to a single fulfillment facility (store or warehouse) and then shipped to the customer. Ideally, orders are fulfilled from the same point but sometimes that is not possible. In this case, the order management software should recommend the most efficient route products should take to the customer.
4. Information on customer history – fulfillment has to factor in the customer previous purchases and behavior. Retailers have loyalty programs that offer better costs and features to more loyal customer. A speedy fulfillment, complimentary gifts or just a thank you note may be outputs from the customer history.
5. Fulfillment capacity per location – estimating the maximum fulfillment load for each location can help prevent overload situations where store associates have too much orders to fulfill and can’t manage their day-to-day tasks. It can also prevent overloading several warehouses and leave others with zero workload, just because a specific area has placed more orders.
6. Seasonal fluctuations – stores get really crowded on holidays and store associates are way better answering customer questions than they are packing orders. Seasonal fluctuations need to be taken into account when implementing omnichannel retail.
Think about this – is there actually such a thing as an online customer? Or an offline customer? Or even a mobile customer? Definitely not. Consumers like to skip sales channels and fulfill their goals in the best way possible. Your customer can research for products online, ask friends for references on social media, test them in the brick and mortar shop and finally purchase in the web store. So it makes no sense treating customers as stuck in a sales channel. The Omnichannel experience, where every consumer can use given sales outlets as she sees fit, is now pretty close to utopia for many retailers.
But others are dedicated to making omnichannel a reality for their customers.
“Our goal remains to help our customers shop whenever, wherever and however they prefer, and to use the entire inventory of the company to satisfy demand,” Terry Lundgren, Macy’s CEO
As other retailers are facing declining sales and decrease in customer loyalty, Macy’s seems to be thriving. The company has seen recent increase in sales overall and a sharp increase in online sales (48% in 2013).
How did they do it?
Macy’s has lots of experience in customer service but the digital revolution took most retailers by surprise. Macy’s has dedicated a large portion of its yearly budget to improving customer experience through technology.
The company’s cost of sales rose to $139 million in 2014 second quarter. This increase was caused by “omnichannel business and the resultant impact of free shipping” which means Macy’s is betting big on its customers’ experience.
The results are great. Just short after Apple Pay was announced, Macy’s announced it will implement the technology in all stores. The company already allowed customers to store their coupons on the Mobile Wallet, that could be accessed anywhere – online, on mobile devices or in store.
Macy’s also partnered with Shopkick to increase brick and mortar traffic in its New York and San Francisco stores and now the company is rolling out the shopBeacon technology. The beacons give retailers the ability to push information directly to the consumer’s mobile device. It can welcome shoppers as they walk inside Macy’s stores, send out specific deals and recommendations and can be used as a way to redeem loyalty rewards.
Interactive kiosks were used to improve customer experience throughout brick and mortar stores. The kiosks vary in size and complexity, ranging from simple browse and order applications to more complex features. The “Beauty spot” kiosk, for example, improves Macy’s cosmetics section with an electronic make-up consultant. The system advises potential buyers on makeup and skin products that are best fitted for their needs.
Even store associates are empowered when answering customer needs. The company is now testing mobile and tablet POS that can connect to real-time inventory and offer quick responses to customer needs.
And if we’re talking about real-time inventory, you should know that Macy’s has been working hard at improving cross-channel operations:
In 2010 Macy’s piloted a store-fulfillment program in 10 stores. The idea was that if the company can connect inventory from individual stores, it can manage inventory better. As merchandise was sold sold online, stores would be able to ship orders directly, depending on their inventory levels or allow for in-store pick-up.
The program was a success and the company increased the number of stores that could ship orders. 13 more stores were added to the program in 2011. In 2012, 292 stores were shipping orders. In 2013 – roughly 500. The process will be finally completed in 2014 when all 800 stores will be able to fulfill customer orders.
As these stores began fulfilling orders two things happened. First – orders could be shipped faster, with the ultimate goal of same day delivery, thus improving customer experience. The second big change in Macy’s fulfillment was that using stores meant inventory turnover greatly improved.
With store associates empowered with real-time inventory data, orders began to increase. The store associates could locate items in other stores, and ship that item from that point, directly to the consumer’s requested address.
Macy’s discovered that the nearest store may not always be the best choice to ship the product. Sometimes a product sold in point A could have a really slow turnover so it should be shipped whenever possible. On the other hand, the same product could be in high demand at point B, closer to the customer.
The company didn’t stop here. With stores able to fulfill orders, the Order Online / Pick Up in Store program began in 2013. It was first tested in 10 stores during fall 2013 and began rolling out to all stores in 2014.
It’s not just the stores that improved their fulfillment functions. Macy’s is now expanding its direct-to-consumer fulfillment center in Goodyear to a mega-facility of 960 000 square feet which will be soon followed by an even bigger fulfillment center in Tulsa, in 2015.
So Macy’s is quick to implement omnichannel policies but is it worth it?
It’s worth it, all right. As you can see in the chart below, Macy’s revenue has been steadily rising, as opposed to some of its main competitors. It seems that 2010 was a real turning point for the company. And what year is that? Right, the year the company began to implementing omnichannel retail.
Fab.com is dying.
The 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:
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 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.
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.
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.
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:
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.”
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.
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.
All 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.
Fab’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?
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:
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.
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:
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.
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