Mihai Mike Dragan is an ecommerce expert and the cofounder and COO of Oveit, a global company focusing on live experiences technology, both virtual and in-person.
Mike has an experience of over 15 years in building digital products, with a focus on ecommerce. He has worked with some of the largest consumer brands in the world, advising on their digital go to market strategy.
Mike Dragan is also the author of the "Understanding Omnichannel Retail - beyond clicks vs. bricks" ebook, a guide for companies that understand consumer behaviour across media. He holds two degrees, one in International Economics and one in Computer Science.
Why is product distribution so important? Because it’s a big chunk of the cost of shipping a physical product. How so? Well – a very important part of retail is pricing. The most important part of pricing is the cost. To get a complete view of how much a product would cost, retailers think in terms of net landed cost.
Listen to this article below:
What is net landed cost?
The net landed cost is the sum of costs associated with manufacturing and distribution. When thinking in terms of net landed cost you have a better chance of understanding your total cost.
Net landed cost = Costs(Product manufacturing + Product distribution)
A common fallacy is thinking of costs just in terms of manufacturing, either from a purchase only point of view (how much you pay your supplier for a given product) or a more inclusive manufacturing point of view. The manufacturing point of view assumes that even if you are not manufacturing the product yourself, you still have the liberty to choose another supplier or change merchandising altogether.
The most important advancements in retail, in terms of supply and cost effectiveness, have focused largely on manufacturing costs in the past decades. This has lead to increasingly efficient production lines, a more competitive manufacturing market, shifting manufacturing overseas and many others.
This manufacturing improvement trend has had beneficial results on the customers life through more accessible, more diversified merchandise. It also meant companies managed to sell more, to more people. Companies such as Walmart have grown to their existing magnitude thanks to a wide network of suppliers, providing them with products manufactured at the best possible cost.
Product distribution lagged behind for a long time. Explosion of ecommerce is changing this.
Lots of retailers improved their ties to manufacturing but there was one part that has been left mostly untouched. That was the product distribution. Distribution costs have decreased but not dropped.
To get a better view of why, get a glimpse of what are the factors that weigh in the distribution costs basket. Here you have costs associated with getting a product from the manufacturer to the customer. This includes freight, stocking, customs, costs associated with store development and maintenance, marketing costs, customer support and others. This is a very large area and a lot of work to be done. And it happens on a very wide area (globally) and in many un-optimized industries. Freight is still in the 20th century in many parts of the world.
Product distribution and delivery is changed by technology, data and omnichannel retailing
Today, distribution is changing, and it’s changing fast. As a result, the associated costs will follow.
At the forefront of this change we have several factors, one of which is omnichannel retail. Omnichannel means working with product delivery across all channels. The other two key game changers are technology data. This is how they weigh in and these are the areas that will be soon transformed:
Improving merchandise distribution by improving logistics
Logistics have not been fully transformed by technology. For example, freight has been virtually unchanged in the past decades. Think about it this way: cargo ships are still loaded after excel files are checked, faxes are sent and handshakes seal deals. For a large part, the industry is archaic and it’s but a question of time until it will be transformed. There is a lot of room for disruption and companies such as Freightos have challenged the status-quo and promise 10-17x ROI. In weeks.
And it’s not just freight. Fleets of small vans contractors have taken up the Uber model and are now roaming the streets of Hong Kong to deliver goods the likes of DHL and UPS can’t.
Working with shipping hubs + local stores decreases product distribution costs
Working with a combination of warehouses and local distribution centers (such as local stores) makes possible and desirable a few things that previous retail models couldn’t. First of all it allows for a better inventory transparency and improved shipping effectiveness.
In the past customers would otherwise expect orders placed online to be shipped at home with larger costs and delayed shipping. Now they can just pick up orders in store. The 2020 Covid-19 outbreak accelerated this trend.
Even more: they can have the closest store ship their purchases shipped at home, instead of mixing the order in a large, central warehouse.
Omnichannel retail means selling online, in-store and distributing products from multiple hubs in a way that makes it cheaper, faster and more reliable. It also makes possible having just a limited number of products in store and keep the most either in the warehouse to be shipped when convenient or with a supplier. By reducing store footprint companies can reduce fixed costs associated with marketing and distribution of products, thus decreasing costs.
Better product distribution through better data improves marketing and advertising
John Wanamaker was a retail innovator. He is credited with the fixed price and money back guarantee marketing concepts. Wanamaker was one of the pioneers of the department store and loved advertising. He is also credited with the famous saying :
“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
Good thing that was more than a century ago.
Marketing is now changing rapidly and unfortunately for some advertising agencies, long gone are the days when the Mad Men of advertising charged millions for concepts that could or could not work.
With the rise of digital commerce and omnichannel retail and the smartphone to bridge the gaps, data is all around. Marketing is now data driven and the half of budget Wanamaker complained about can now be easily tracked.
Advertising is data driven and marketing costs are constantly improving.
By improving distribution and decreasing distribution costs we have two very important things happening. The first is that companies engaged in improving this area will be more profitable and more inclined to continue on this path.
The second thing is that lower distribution costs mean better prices for the consumers, therefore an improved appetite for consumption. Improved profitability and decreased prices – these are two very strong forces that will shape tomorrow’s retail. And it’s happening today.
Are you thinking about how to start an online store without inventory? Do you want to understand how such a business works and how to be on top of your game? I wrote this guide to help new ecommerce entrepreneurs get started with an online store without inventory in 2021.
My name is Mike Dragan and for the past 17 years I’ve worked with some of the largest consumer brands in the world to build and improve on their ecommerce strategy. If you ever get stuck or have some questions, do shoot me line and I’ll try to answer.
In this guide you’ll get an understanding of what makes an ecommerce business work. You’ll notice that, just like a car, the things that make an online store are usually under the hood. How you present them is obviously very important and I’ll guide you through the best apps you can use to showcase and sell your products.
As you’re starting your journey into entrepreneurship and starting a new online store the first thing you might ask yourself is – how do I start an online store without an inventory? Given the fact that you are probably low on capital this is a very important question and I’ll help you understand how to navigate this issue through finding suppliers, developing a “supply chain” and making sure you are able to fulfill your orders in a timely manner.
Here are the 3 chapters I’ll guide you through. At the end of this guide you’ll be able to start selling like a pro:
10 steps to start an online store without inventory:
Basically there are ten main areas you need to focus on when starting an online store without inventory. These are:
Finding your niche and understanding your market. Building a go-to-market plan;
Finding the right business model (how will you make money?);
Registering your business;
Finding suppliers, developing a supply chain, pricing the products;
Developing a fulfilment operation (understanding how you or your staff will pick, pack, ship and handle product returns) and preparing for customer care;
Building a brand identity and building your web store;
Posting products and adding relevant content;
Adding sales channels to your business;
Marketing your store;
Testing and fine tuning;
That’s a whole lot of bullet points but don’t worry. An online store is still a business and businesses are built by entrepreneurs just like you.
But keep in mind…
Starting your online store without inventory is hard work but you can do it.
This guide will work as a framework for you have to do to maximize your chances for success. Depending on where you are and the type of products you will be selling you may need to adapt as you go but you can rely on this framework to guide you through building your store.
So let’s dive in:
1. How to find a niche market for my online store?
“I’ll sell everything” is not going to work. You will need to find the right market you are going to sell products in. Especially if you have no inventory, your online store needs to be optimized for a specific type of product and consumer. This is called “product-market fit”. Basically making sure that what you sell has a potential group of consumers that will buy it from you.
There are three very important things to take into account when starting your online store and discovering your market:
what value do you provide for other people?
what type of value do you provide that other companies don’t?
are there enough people interested in the products you are going to sell?
The first thing you have to understand is that your business has to provide value for other people. Just as people do, businesses strive for purpose. Without providing value in a clear and straightforward way, you cannot expect your business to be successful.
Find out what people need or want. A combination of both is great but if you have to choose, go for need – it is way better in the long run. Find out how you can supply these products or services. This is the value.
The second thing you have to take into account is that other online stores may provide the same kind of product. Do your research. Google the type of products you want to sell. Check Google Trends to see how the terms for your products have evolved throughout the years. Compare the number of product searches with the number of companies providing the same type of value you’re planning on offering.
There is a dynamic between demand and supply that you cannot ignore. You are looking for a market that is booming but there are not many competitors. And that’s were the third point comes in: your online store has to provide value for lots of people.
You may like hoodies for cats very much. Hence the question – how to start an online store without inventory for my passion. Is hoodies for cats such a good idea? You are addressing people in your country (don’t think you’re going international just yet), who own cats, who think that dressing up cats is a good idea and who like hoodies. A pretty small market, don’t you think?
The lower the market size, the lower your chances for success.
To start an online store without inventory you need a large market you can make a dent in. The higher the market size, the higher are your chances at building a great business.
See the graph below on where you’d want to place your business in:
So there are two great combinations that you can choose. Both need as many customers as possible. You should strive for a market where there are plenty of people ready to buy your product.
The best place to start an online store without inventory is the one in the lower right corner – few competitors, many potential customers. That’s where few companies will compete with you and there are plenty of customers willing to buy your products.
To position your online shop there, you need to identify a need before the competition and quickly get as much market share as possible.
The other option to start an online store without inventory is the market where there are a lot of competitors and a lot customers. This means this is an established market and you’re more likely to succeed if you prove yourself better than the competition.
If you make small changes in the way you sell products you will be able to compete with established leaders. Later on in this guide you’ll see how to create innovative business models for your ecommerce store.
How to create a plan for my online store?
Once you have discovered the kind of product(s) you will be selling it’s time to start planning on how you’ll start your online store with no inventory. You will notice that I’m using the term “plan” – not business plan. That is because this is your plan. It has to come as a natural idea and set of targets you want to accomplish in the future with the business you’re building.
There are nine important questions you need to answer when planning your future online store. Try to be as clear as possible when answering these questions. It helps a lot when thinking about how to start an online store without inventory.
9 things to think about when building an online store without inventory:
What products will I be selling on my online store?
Who are my competitors?
Who is my customer?
How do I convince the customer to buy my products?
I don’t want to hold inventory. Who will be supplying my products and how?
How much will my products cost and what profit am I making?
What are the costs I expect to have when running my online store?
How am I going to cover the costs?
How much revenue am I expecting in the first 3-5 years?
Answering these questions will get you thinking and preparing for the future. You will notice that these are actually the questions you need to figure out the answers to when building a business plan as well.
However, take your time to think through these questions. Find information to support your expectations. Question your own assumptions because the market will surely do so. If you’ve taken into account all these questions you basically know how to start an online store without inventory. Planning is an important part of building your online store.
2. How to find the right business model and make money with my online store?
You’re probably thinking the ecommerce business model is pretty straight forward. You post some goods online, someone orders them, you ship them and collect the big bucks.
Well, that is why you need to know that even if the logistics and operations may look the same in all ecommerce business, the differences can have a huge impact on how you’re building yours.
I’ll walk you through the 5 ways on ways you can make money with an online store without holding an inventory. Afterwards we’ll look through different implementations of the B2C model (business to consumer), the one you’re probably aiming for.
How to start an online store without inventory – the 5 business models I should consider
B2C online store
B2C Ecommerce is the most popular form of commerce online. The B2C stands for Business to Consumer and that’s exactly what it means.
Online stores (aka “The Business”) will deliver goods (either from their own inventory or from a supplier), post them online and sell directly to the customer (“The Consumer“). The Consumer browses an online store and hopefully buys the items posted online. When this happens, the online store team is notified. They wither contact the supplier to receive goods or they will pick the merchandise from the warehouse shelf, pack it and ship it to the consumer.
Most of the online stores you are familiar with are focused on this type of ecommerce business model. Some examples you might be familiar with are Walmart.com, Target.com or HomeDepot.com. The big difference between them and your future store you are asking the question – how to start an online store without inventory. They hold inventory and you will probably not.
But B2C is not just for the big players. Many ecommerce startups employ this type of business model. For example Bonobos.com and WarbyParker.com are doing just great selling directly to the consumer.
Bonobos is a fashion ecommerce retailer for men. The company manufactures and sells its own line of men wear and its main selling point is it makes shopping easier. How it does that? You’ll find out later in this guide.
WarbyParker.com sells stylish eyeglasses and sunglasses directly to the consumer. It is a great example of finding the right type of product at the right time and packaging it with the right type of social activism twist. When you buy a pair of glasses from them, a social mechanism makes sure that part of the money you’ve paid go to those in need of eyewear in the developing world.
But wait, isn’t Amazon a B2C ecommerce site, you might ask? Glad that came up. See, Amazon has started as a B2C online shop but since then it evolved past a single model. Most of its sales are still directed at the end consumer but Amazon also ships items to businesses (B2B ecommerce) through its Amazon Supply outlet. It also brings other sellers (businesses and consumers) in contact with its own customer database. This means Amazon is indeed the largest online retailer in the world, but it’s not just a B2C ecommerce website.
B2B online store
Another business model that works great is the B2B Ecommerce model. In this model Businesses sell merchandise to other Businesses through an online shop.
You might wonder why even mention this model. I mean, couldn’t those listed above just allow businesses to buy from their shops? Of course they could and most do. But here, I’m talking about a different type of companies, different type of products and most of all – different number of items purchased and different pricing.
Say you’re a company manufacturing hoodies for cats. Supposedly your market is not as popular as the smartphone market and your factory can ship 1000 beautiful cat hoodies every year. You could, of course, open an online store and ship these hoodies directly to the consumer. But you’ll find out that it implies development costs, marketing costs, customer service costs and you just want to be in the factory all day, trying to finally manufacture the perfect cat hoodie.
Along come Business A and Business B. These companies are probably retailers and have an established commerce operation, with a huge database of customers and they think they can sell 500 hoodies this year. And they want everything you manufacture.
How to start a B2B online store and decrease marketing costs?
Before these companies came along you’ve done the math and thought: “My cost for each manufactured hoodie is 10$. I’ll sell these hoodies for 20$ and make a nice profit.” But then you went on and started selling on your own and saw that including marketing, shipping and other expenses your cost rose up to 18$ and you’re actually making only 2$. Not that much, is it?
But now both Business A and Business B decide they can offer you 15$ for each hoodie and they are going to buy everything you manufacture. On one hand they are offering you less than your asking price but in the end your earning 5$ instead of 2$ so you decide you’re better off selling directly to Businesses.
This simplified scenario is the basis of the B2B ecommerce business model. It means that businesses (either manufacturers or wholesalers) sell directly to businesses and offer incentives to those that buy in bulk. The usual incentives are lower prices, extended payment conditions, free shipping or custom manufacturing.
Some of the most popular B2B ecommerce sites are Quill.com, AmazonSupply.com and of course AliBaba.com, the largest B2B marketplace, connecting businesses in China to buyers all over the world.
By the way – if you are asking yourself how to start an online store without inventory – the sites above will become your go-to source to find suppliers that will send products to consumers when you receive orders. This is called a dropshipping model for ecommerce.
B2B2C online store
This is a rather new type of ecommerce business model. It stands for Business To Business To Consumer.
How does B2B2C ecommerce work?
Say you have your own stocks and you’re selling your cat hoodies through your very own ecommerce website and it works pretty well. But you’re thinking – why not sell more?
So you think of new sales channels, the type of opportunities where your cat hoodies can sell even better if exposed to a larger number of customers. Kinda like Amazon or eBay.
Larger retailers, such as Amazon, offer you the possibility of selling on their own website. You supply the goods and post them on the Amazon Marketplace, for example, and next thing you know -bam! – your cat hoodies can be purchased by Amazon’s customers. Same thing happens with an Etsy shop. Depending on your decision you can either fulfill orders on your own (receive orders from Amazon, pick, pack and ship yourself) or just let them handle the logistics, through their Fulfillment by Amazon program.
C2C online store
So we’ve covered businesses selling to customers and other businesses. Shouldn’t consumers sell to other consumers too? But they do and this area is actually booming.
Consumers usually meet other consumers through online marketplaces. By far, the most popular is eBay.com, the place where anyone can sell and buy anything. Even though eBay hosts businesses also, we will focus on the individuals selling their items through these type of systems.
The online marketplaces enabling C2C ecommerce help sellers post their goods online and buyers to find them.
There are many mechanisms in place to handle these transactions, things such as product showcasing, selling, payment and feedback. But if we were to look at what makes C2C marketplaces work this has to be the network effect and peer review. The network effect means that the more people engage in trading goods in a marketplace, the more people will come and more successful the marketplace will be. This effect also ensures seller and buyer lock-in: the more people are buying or selling, the harder it is for someone to leave the marketplace. The reason – where else will this person find so many customers or merchants?
The second big feature that defines C2C marketplaces is peer review. When you’re buying or selling through this type of systems, you really don’t know who’s on the other end. And because relying on luck and having faith in the good character of people is not the most efficient solution, marketplaces introduced peer review.
When someone buys from a merchant and they get what they asked for, they offer a positive review. When they don’t, and things take a turn for the worse, they slap the merchant with a negative review so others know the merchant is not to be trusted.
The same goes for the merchant. If the customer doesn’t pay up or somehow tricks the merchant – there’s always a bad review at hand to get things leveled.
Once these reviews start pilling up, they start working as a certificate of good standing (or bad standing). If you are a honest merchant or customer, you won’t leave the marketplace that stores this certificate. That’s because reviews are a valuable asset that help members trade in better conditions.
Why mention all these? Because building a C2C marketplace is really, really hard and expensive. For example eBay lost $100 million trying to enter the Chinese market before giving up to AliBaba. It’s that kind of expensive so I would rather advise against building a general C2C marketplace if you’re a startup.
You could, however find a niche where individuals are willing to trade with one another and cater to that specific niche.
For example: Etsy.com is famous for building the biggest handcrafted C2C ecommerce community. Uber and Lyft bring individuals in need of transportation in contact with those able to provide these type of services. In fact, Andreessen Horowitz, one of the leading Venture Capital firms lists Online Marketplaces as one of the most promissing directions for startups.
C2B online store
Yes, C2B (Consumer to Business) eCommerce is a thing. It might look a little off but there are great ways to start an C2B ecommerce business. There are also some great established services that help connect individuals to the businesses in need of their products or service.
An example of Consumer to Business ecommerce model
Reverse auctions are a great way for individuals to post how much are they willing to pay for a certain product or service. A C2B Ecommerce site can collect these auctions and forward them to companies willing to fulfill them. For example – the basic model behind the likes of Groupon.com or LivingSocial.com is a combination between B2C and C2B. Companies post their offers but the consumers have to vote by purchasing these offers. If the minimal number of offers is not met, the offers are not activated.
Another great example of the C2B ecommerce model is Elance.com. The website is one of the first businesses that connected freelancers to potential contractors (usually businesses). Freelancers would go online, post their capabilities and those in need of their services would hire them for a limited time or project based.
Monster.com is another great C2B example. Yes, people posting their resumes and getting recruited is a type of commerce where The Individual is pitching The Business to buy his services (aka hiring).
If you’re an one-woman or man startup, this can be a great way to setup something quickly. In fact, most freelance developers or graphic designers practice this type of commerce. Either through large marketplaces such as Elance.com or just by posting their resume and portfolio online and getting orders through a simple contact page.
How to start an online store without inventory and sell to the government
The models above are the most popular ways to start an online store without inventory but they are not all. There is a separate class of ecommerce business models that has to do with the government. When the government wants to buy products or services from businesses it will post the tenders on a G2B (Government to Business) portal that handles auctions and offers.
If the businesses want to market their their offers to the government, they will employ a B2G business model. See that? G2B vs B2G – pretty simple stuff.
A final model is G2C – government to citizen. Using this model, government authorities can auction goods directly to the consumer. It also works as a way of connecting citizens directly to the authorities and decrease bureaucracy when issuing documents or collecting taxes.
Six innovative business to consumer ways to start an online store without inventory
Let’s say you’ve studied all these great ways of starting an ecommerce business and you finally decided on one of them. The vast majority of online shop startups are built on top of the B2C business model so the next part of this guide will focus on a few innovative ways of implementing an online shop.
The basics all stay the same. You are still an online shop owner trying to attract the right kind of consumers and provide them with products they will love. But how about some inspiration from the most innovative business models out there?
1. The right fit
Remember Bonobos.com we’ve talked about earlier? Well their whole selling point goes something like this: most men don’t really like shopping. They like to wear clothes that make them look good, without spending too much time choosing. We can make this happen.
That is especially hard when you’re an online store and your customer can’t see, touch or try on the product your selling. But it can be done. To make it happen, Bonobos mixed its great designs with few things to keep the customers happy and relaxed:
Ninjas. What? Well, not real ninjas but some pretty great customer service representatives that are willing and happy to walk customers through buying the right piece of clothing.
365 days return. Not the right fit? Maybe the customer is too busy to return the merchandise within the standard 30 days. Why not extend that to 365 days?
Free shipping and free returns. This means the customer has no reason to drive up to a brick and mortar store to try on the products. Shipping and returns are free so basically everyone can try on their new chinos at home. If they don’t like them, they send them back.
Try on everything. Bonobos has a special kind of store – the one that lets customers schedule a “try on everything and if you are happy with what you find, you get your stuff shipped home” session. Also – preferences are saved so next time the customers wants to click-shop, he knows exactly what’s the right size.
The key take away is if you’re building an online store, it has to solve a problem. Bonobos solves the “shopping for clothes is boring” men problem and promises the right fit without the headaches of chasing a pair of pants all day.
2. Flash Sales
There’s a whole post on Netonomy dedicated to Flash Sales. Basically, these type of online shops sell discounted merchandise to registered members.
Take for example Ruelala (pic above). Customers have to provide the shop with their email address to register as a member. This means that basically anyone who enters the website is also subscribing to an email newsletter.
In exchange customers get discounted, usually designer or brand name products. If you like to know more about this ecommerce model, please click here.
3. The subscription pack
Most online shops have thousands of products listed. This is a great advantage over brick and mortar stores which have to actually stock on all those products. Online shops can stock on the minimal amount and later on deal with orders through supplier dropshipping but more on that later.
A new trend emerged that deals with showing just the right amount of products customers need in a given period and ship those products in a subscription based model.
Take Manpacks.com for example:
What Manpacks does is list just the minimum amount of products men need in any given month. Customers setup their pack and receive it every month, based on a subscription.
There are many advantage in starting such an online shop:
Predictability: because your revenue is subscription based, you can estimate your monthly, quarterly and annual revenue accurately. This way you can plan for the future and balance your company.
Economy of scales: having few products on sale and lots of customers means you can negotiate with suppliers better prices for the products you’re selling. This means you can also profit more and sell your products cheaper.
Marketing is easier: with few products in your offer you can simplify your marketing and communication and improve your customer acquisition (again – more on this later).
4. Community designed products
Are you familiar with the term crowd sourcing? It basically means asking lots of people to do something for you or your company. In this case, we’re talking about designing products.
What Threadless.com did was build a community around the concept of designing t-shirts. Designers would submit their designs and the community would choose what t-shirts were sold. In exchange, the website shared revenue with said designers.
Of course, going against Threadless now is probably not a great idea but you can always build a business by channeling people’s passion towards a commercial goal.
Community: build and stand by your community. It is the key to creating a lasting brand.
Share and save: hiring designers is a costly thing but if you can take independent designers’ ideas and turn them into products you can save a lot on fixed costs. But you have to be willing to share.
5. Customising for the masses
Mass customizations is an ecommerce segment that’s growing really fast. Customers want to express their creativity and they are ready to pay for this.
This type of online sales are technologically advanced and need three really important things to function:
a store that can handle customisation input for the customers
a system that transforms this input to a set of instructions to a production line
a operational structure that can customize products in an automated manner so costs are kept in check
For example Nike launched Nike by you, a great way to customize their products. After a successful trial period, the program extended to many of the company’s products.
The final innovation I think you should take into account is 3D printing. Using specially designed machines you can build 3D objects and sell them to customers.
3D printing is a technology that is actually yet to take off but it sounds really promising. For certain products it can mean a reinvention of manufacturing and commerce. Imagine having your customers build the product in your store and having this product instantly printed and shipped. Imagination is the only thing that could limit what can be done with such technology.
Shapeways for example, started in 2007 as a marketplace for 3D Designers willing to design and sell their ideas. In 2012 it has passed the 1 million products sold threshold so there really is a market out there.
Because it is connecting designers to buyers, Shapeways is a C2C marketplace but probably the future will show 3D printing is not restricted to individual designers so B2C online shops might also leverage the trend.
This was the last of the six innovative ecommerce trends you could use to spark the right idea for your future shop. This ends part one of this guide. To wrap things up let’s walk through what you’ve learned here. First – the importance of finding the right niche and how you cult do that. Next, you’ve learned about the necessity of building your Plan when starting an online shop and the questions you need to answer when building said plan.
Last but certainly not least, you’ve discovered the main business models you can use to build your shop and six of the most innovative B2C ecommerce models. Pretty good for a day’s work.
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 un-debatable 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:
Listen to this article or read it below:
1. Overstock plans to develop media service, as predicted by The Onion
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 used to range from home deco to jewelry to electronics to cars to insurance (both cars and insurance categories are now discontinued). 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 organised 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.
The strategy is so hilarious, Onion can predict it
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.
2. Walmart spins off its ecommerce operation, then acquires it, then ignores it, then develops it, then makes it central. Sort of.
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 a 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 realised 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.
Actually, in 2020, Walmart made one of its boldest move to the digital world – acquiring a share in TikTok, the emerging social media outlet. This might seem weird at first but it makes sense when thinking about live stream shopping. Live, rich social media seems to be the most effective way to sell online when it comes to Gen Z’s and millenials.
But if there’s something worse than an un-focused strategy and a rigid strategy, that has to be … no strategy:
3. Fab.com turns from gay social networking site to daily discounter to flash sales retailer to catalogue retailer to custom furniture designer. Within 4 years. Then switches to selling Yoga mats and classes.
Yeah, you couldn’t make this up.
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. Six 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 smart strategy. Or some strategy for that matter.
However – one thing is for sure. Jason Goldberg is one hell of a resilient dude. 2021 is the year of Yoga mats and classes for Fab.
Is Brick and Mortar commerce dead? Absolutely not. Is eCommerce the most important sales channel in the future? Irrelevant. Neither online or offline sales really matter in the big picture. What matters is how customers shop and how much has digital changed the way retailers do business.
In 2013 36% of overall sales in US were influenced by digital. As social media influencers gained more and more … well … influence, this trend continued and now 49% of the total number of consumers in the US depend on influencers when purchasing, with 60% of teens depending on recommendations from celebrities and people they follow on social media.
So what does this mean for you and your commerce business?
1. Sales are now lead by (social media) influencers
This is not new by any means. Influent people will drive sales.
What’s new is the media they use to do this and their profiles. In the past we were influenced by celebrities smiling at us from glossy magazines and the TV.
Now the influencers that drive sales are people with access to a mobile phone, an internet connection, a channel on one of the social media outlets and a care for their following.
Reaching out to these new influencers is now a key factor in building your brand, your community and your sales.
2. Influencers are now an actual sales channel
A growing trend in emerging social networks is to build their business models on something outside of advertising. One such business model is commerce based revenue rather than advertising. As Facebook and YouTube have hyper-optimized their advertising models, newer social media outlets needed to innovate.
Enter live stream shopping. With this model, influencers can sell directly to their followers, charge a certain commission fee or even build their own product lines.
3. Brick and mortar shopping is definitely not dying. Unless it has to.
89% of all retail sales still happen in the confines of a physical store. Wait, what?
It seems that what’s causing retailers problems is failure to engage customers on all channels. Customers are pre-buying (shopping) on ecommerce sites but they pick-up, try on and eventually buy a lot of things in the physical store.
With Covid changing this in 2020, ecommerce stores have received more traffic and sales and brick and mortar stores need to join digital sales somehow. Some use live stream shopping to do that.
The trick here is getting the big picture right. To thrive – use different customer journey points and engage digitally in a relevant way. Customers may shop online and get an assortment ready but they want to enjoy the experience. Either in-store when possible or digitally through live videos. Just placing discounts in the mobile app doesn’t work. Each part in the shopping experience has to be personalised to that particular medium and need.
If you look at the top 10 Forbes tech companies you can see several interesting things. Here’s the list below. See what you can spot:
The first obvious thing is that most of them are from the US. Second – in the US, most are relatively young companies, with the likes of Alphabet (Google) and Facebook being very young. The youngest companies also have something else in common: their business model is based on advertising. Simply put – they capture their users’ attention and profile and then show ads.
The other companies – not so much, outside of Tencent.
Advertising has been the go-to business model for tech companies for quite some time
Now – no one can say that advertising based models are bad – it seems that two companies managed to get most of the advertising budgets in less than two decades, displacing large media and advertising conglomerates.
The picture, however, is a whole lot different if you look at the top 10 companies, independent of whether they are a tech company or not.
There’s not one single advertising based company in the top 10.
The anomalies that stand out are Berkshire Hathaway (investment) and AT&T(telecom). The other companies are all retailers of something. Their own products, drugs, oil you name it. Even the two anomalies are related to commerce. If you look at Berkshire Hathaway’s portfolio you will notice that it resembles the list above quite a lot. AT&T is technically a retailer of telecom services with a quasi-monopoly on the US market.
Commerce based business models are the future of tech companies
I’ve noticed this idea in two key areas:
most of the new business models that are emerging in China are not advertising but commerce based. This is due to the fact that China’s VC scene is more grounded in a historic perspective of trade rather than advertising.
Shopify’s growth has been largely ignored by Sillicon Valley due to them not being related to the crowd consensus. Its stock trades at 40 times the list price 3 years ago
My guess is that the future of tech businesses is more commerce related than advertising, payment or any other niche model. Commerce is at the basis of our society and as long as we’ll have a functioning global society (not guaranteed, btw), commerce will make our world better.
This means the auto industry and especially auto dealerships have taken quite a hit. The main culprits: restrictions, Covid-19 related health worries, uncertainty about future income.
As such consumers have postponed planned purchases. However, the desire for purchasing new cars shows a quick rebound. However, the Covid numbers are still high. Automotive companies needed to find a way to replicate the in-dealership car sales experience, without endangering their staff and customers.
Car sales through live stream shopping
Some companies have taken bold approaches to selling their cars in times of trouble. One such company is the Renault Group. The company launched their new Dacia models (Stepway and Logan) in a live stream shopping session. For three days (2nd to 4th of December 2020), they’ve streamed a real-life presentation of the cars, using hired actors that were briefed on the car features.
The company used a live commerce solution to manage their live showroom and allow customers to ask questions. The flow of information was interactive, from the presenters to the audience, with the audience asking questions that were answered in real-time.
This is one of the first online campaigns for car sales that involves a direct to consumer sales channel. Traditionally, consumers were unlikely to buy through the usual ecommerce sites, given obvious lack in experience features that would convert visitors so prospects or directly buyers.
What does this mean for the automotive industry?
Covid has accelerated the digitalisation of many industries and marketing approaches. Big ticket item sales, such as cars, jewellery or real estate have resisted using digital channels to reach their customers.
What Renault has proven in their Dacia sales is that anything can be sold online, with the right experience. We just didn’t had the right tools. Until now.
The Beauty and Cosmetics category is one of the fastest moving digital commerce areas. It is a highly competitive and innovative market with large brands quickly adopting digital models and challengers innovating their way to the top.
The emergence of the ecommerce sales channel for beauty brands has seen a long wait. The time has come for beauty retailers to align with the customer’s demand and specific requests. For example, a recent AT Kearney study showed 28 percent of online shoppers use the digital media to get informed on products. They carry this information in stores where they are sometimes more knowledgeable than the store assistants, which may pose a real challenge for beauty brands.
The AT Kearney study shows that only 16% of all online shoppers are online enthusiasts. The rest either use the digital media for information or for shopping for products they are already familiar with:
Online shoppers are more inclined to shop for particular products, such as skin, personal and hair care. Products such as beauty tools and nail care are less likely to be purchased online, unless is a very specific product, one the customer is already familiar with:
In this post we’ll get a glimpse of the eight most important type of beauty brands that engage their users through digital commerce (also). We’ll have a look at a selection of global champions with different backgrounds and different models. From digital pure-plays to established brick and mortar brands, let’s have a look at some of the most interesting approaches to beauty and cosmetics digital retailing:
1. Amazon Beauty
As expected, Amazon leads the way when it comes to online beauty retailing also. Customers are delighted to almost 2 million products, including luxury brands.
Its Beauty category is the go-to place for most of online enthusiastic shoppers, where Amazon is available. And with Amazon’s shipment policies, that’s basically everywhere.
Amazon’s secret weapon lies in its free-shipping policy (for orders above 25$), a great motivator for online shoppers and a better threshold than challengers Sephora and Beauty.com.
Another great asset Amazon will use to gather shoppers around its beauty retailing section is the fact that more customers use Amazon (30%) than Google when doing online product research.
Sephora is generally seen as the actual leader in the digital beauty commerce. Though it lacks Amazon’s ecommerce strength, the company is part of the largest luxury high quality goods (ahem…ahem) group, LVMH, packing a lot of beauty retailing know-how.
The company has developed a great omnichannel model that focuses on mobile as a bridge between online and offline.
One of the best things Sephora.com has implemented in its web store is the content marketing and digital assistance features. I’ve previously covered the subject and praised Sephora’s efforts to offer quality content, as praised are due.
The curated content customers find is a great choice to build loyalty. So is the Community where customers can browse among the knowledge base or post questions and interact with professionals.
As mentioned, one of the greatest assets Sephora has is its focus on digital rich content. Users are treated to:
Sephora TV, the go-to area for video advice, how-to’s and trends
Sephora Glossy – a fashion, beauty and style blog that offers great advice from beauty professionals in a great, visual format.
The Beauty Board – an user generated gallery from customers that upload pictures to showcase how and which products they use.
Some other touches make Sephora a great choice for beauty products customers, not the least of which are the three free samples with each order (a great way to drive future orders) and the mobile apps that make us of barcode scanning to offer price info and customer reviews.
Beauty.com is an online retailer so it has no apparent need or intention to leverage offline or omnichannel sales. It has developed specific filters and features to cater to customers that either know what they want and want the best price or they can quickly decide.
Customers can set an auto-reorder flag for certain products, which can be shipped each 30, 60 or 90 days. Before the order is shipped, customers receive an email notifying them and they can pause, skip or cancel the auto-orders. The customer incentives are savings and free shipping.One of the features that really stands out (they have a pop-up to insure it stands out) is “Auto reorder and save” option. Simply put, the online retailer has noticed the habitual purchase beauty customers take and leveraged it.
Another great feature that lets customers reach the right product is the filtering option which is set not only for product features but also customer concerns and specific needs. In the Make-up section, the eye category, one can find brand and ingredients options, but also filters such as concerns (acne, dryness or oiliness), benefits (curling, hold or smooth) and skin type. Unfortunately, the filters are not usable on the smartphone version of the web store.
Just like its direct online competitor (Sephora.com), Beauty.com offers free samples, free shipping for orders $35 and above, free returns and 5% back through its loyalty program. It also features great content areas, such as its Beauty Blog, with Romy Soleimani, The Latest Trends section reviewing product news and a Beauty Videos section, ranked according to customer reviews. A great no-no on the video section is the fact that videos embedding is restricted to affiliates only, leaving a lot of marketing potential untapped.
Consumer demand is the one thing that can decide whether a retailer is successful or not. Of course, there is a whole field of marketing studies to determine how we can influence consumers to purchase. But a really important aspect of how good retailers fare in the market is their ability to “sense” demand, not just influence it.
In a recent study, IHL Group claims Overstocks and Out-of-Stocks cost retailers almost $1.1 trillion world-wide. To put it in perspective, that figure is the size of Australia’s GDP.
What that means is that Overstocks and Out-of-stocks, collectively defined as Inventory Distortion, are a problem that cost retailers world-wide 7.5% of their gross revenue.
The figures translate into poor performance, decreased customer satisfaction, decreased sales and increased costs of inventory warehousing and inventory spoilage. Basically there are two really simple outcomes:
Either retailers stock up on too much inventory which turns to increased warehousing costs and spoiled products.
…Or they don’t and they miss on sales opportunities
Either way, one thing is for sure: Inventory Distortion leads to poor commerce performance.
How do you solve Inventory Distortion? (Not exactly) Simple: Demand Sensing
Demand Sensing is a concept and set of technologies that make use of analytical and prediction models to estimate … well … demand. Imagine a retailer that runs a network of 10 stores, one online store and has a mobile app that drives sales also, along side a call center. Maybe they engage in some sort of live shopping to improve their performance.
Said retailer probably has an inventory management system, an warehouse management system, a sales reporting tool and probably some type of integration with suppliers and manufacturers.
Let’s imagine this retailer selling a type of red shirts that is available in one of the 10 stores and that inventory is not available online. If a customer will visit 3 of the stores in search of that particular red shirt and then search for it online and still not find it, it will probably consider it to be out of stock and the retailer would lose a sale opportunity.
You probably see where the problem lies: even though the product was available, it was not available to the customer and opportunities were lost. The same thing goes for products that are not exposed to the customers, or they are, say, unreachable on the shelf or unfindable on the web store if the search engine is not fit for the job.
The opposite situation, where demand is not correctly estimated and out-of-stocks become a reality, are just as bad as sales opportunities are lost.
The solution lies in gathering enough data across all sales channels, compiling this data and using models to predict demand. That easier said than done because …
To make demand sensing a reality, inventory transparency has to be achieved
As you are reading a blog on omnichannel retail, the term was bound to appear somewhere along the line. So here it is. You can’t have Demand Sensing without a connected sales operation and inventory transparency. All inventory sources have to be connected and data should be generally available. So should sales data across channels.
The picture below shows an example of omnichannel supply chain, one where all the operational pieces work together and share data. When such a structure is implemented, demand is easily “sensed” and estimated and thus inventory distortion can decrease.
So now we have the data. Implementing omnichannel retail can lead do a better demand sensing and therefore improve inventory distortion, a small glitch in the global retail system costing “only” $1.1 trillion.
Across the globe, retailers have picked up on the omnichannel trend and try to give the customers what they want: the same level of service across all sales channels.
Some are doing better than others but everyone’s trying. Especially for multi-channel retailers, the switch is essential in keeping up with an increasing competition from online pure-plays.
The switch is not easy and certain bottlenecks stand out:
1. Multichannel commerce (ecommerce + in-store) is sometimes treated as a marketing or tech buzzword. Hint: it’s not
When you say omnichannel you say “all channels”. When you say multi-channel – pretty much the same thing as most channels are in-store or ecommerce. You have to think of all the sales and distribution channels you manage. Hence the “omni”. That certainly looks like a marketing area and to a certain degree, it is.
But to make omnichannel a reality instead of long consultative talks, you have to go beyond marketing and into the dark woods of technology systems and process management. That’s the hard part. The change comes when companies and especially executives leave aside their differences and interact to connect cross-department processes.
Yes, omnichannel is marketing driven but it needs inventory transparency, it needs technology investment and updating and it needs a change in internal processes and culture.
Yes, culture because…
2. There’s a lot of sales cannibalization between channels
Mid to large retailers that switched from brick and mortar to multi-channel did this by adding silo-ed sales structures one after another. First came the brick and mortar operation, then came the online store, the call-center, the mobile sales and so on.
Each of these channels eventually developed into a full-fledged sub-organization. It is not uncommon to see, for example, ecommerce departments with full operational structures from purchasing, warehouse management, picking and packing, sales, marketing and others.
When such structures emerge, a certain type of independence emerges also and this can lead to channel cannibalisation. Simply put it’s one channel stealing sales from another, instead of working together for the customer and the common (company) good.
That’s why a change in culture is much needed when striving to implement omnichannel retail policies. Any customer should be encouraged to buy from any channel, as long as it stays within the retailer’s domain.
3. BAGA is a lot more complicated than it seems
BAGA stands for “Buy Anywhere, Get Anywhere“. Buy online, pick up in store. Or at home. Buy in the physical store and receive at home. Place an order on the phone and pick up in store.
It’s complicated just working with two or three of these scenarios. When you add general inventory transparency, cross-store orders and supplier availability it gets a lot more complicated.
That’s why a BAGA policy should be built after implementing:
inventory transparency policy and technology. This should spread across the full inventory spectrum including warehouses, stores, in-movement goods and suppliers.
customer master-data management. The customer is the same across all channels and should be recognized and its treatment personalized on demand. Think of this area as a CRM on steroids that spreads across all channels.
product master-data management. Product information should be available on all channels, when needed and in the right format.
cross-channel marketing policies. Think marketing independent of channel and at the same time available on all.
These are just three of the most important factors that slow down omnichannel adoption. The fourth is probably the fact that some companies are just so tired of working their way through ecommerce adoption that they are unwilling to move forward.
It takes willingness to discover the benefits and what omnichannel is. For many, the switch is rather simple in terms of technology. It does bare costs in willingness to learn new concepts and implement these concepts within the company.
4. Coronavirus made all stores go warp-speed on multichannel adoption
In 2020 all businesses had to go all digital and all channels, in order to survive. Most affected were the brick and mortar chains, with 15000 stores closed and roughly 2 million employees laid off.
As the economy shows signs of rebounding, even in the midst of the pandemic, most of the re-growth has been based on the response companies have had into improving their experiences across channels.