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.

 

Leave a Reply

Your email address will not be published. Required fields are marked *