Two companies have redefined retail in the past 50 years. One is a company founded by Sam Walton in 1962. Mr. Walton opened the first Walmart in Rogers, Arkansas. The other is an Internet company, founded by Jeff Bezos in his small garage in Bellevue, Washington. This second company is Amazon, the largest Internet Retailer.
Both companies went on to be huge successes but in terms of revenue, Walmart has the upper hand. With $469 billion in 2013 revenue and 10700 stores opened worldwide, Walmart beats by far Amazon’s $74 billion 2013 revenue. If you look at the raw data Amazon is no match for Walmart. But pull back just a bit and the picture is changes. By comparing the track records for the two companies an interesting insight becomes clear:
The chart above is a comparison in terms of historic revenue. On one hand you have Walmart – the biggest and most successful retailer in recorded history. Employer of 2.2 million people, crusher of markets and destroyer of mom and pop shops. On the other hand you have Amazon, the brave new world of online retail. Both redefined their markets and both are leaders in their respective fields.
But one is unlike the other. See – I couldn’t even put together figures from the first years in Walmart’s history. Walmart’s revenues starts 6 years after the first Walmart opened, in 1968. That’s when the company reached a figure ($12.6 million) comparable to Amazon’s first year with recorded revenue (1996 – $15.7 million). 17 year after the company launch, Amazon registered $74.4 billion in revenue, while Walmart registered “just” $6.4 billion.
Both the trend and evolution show one thing – Amazon is on its way to become the biggest retailer in the world, a type of retailer the world has never seen. This might probably be a good time to reconsider your stock choices.
Online retail is a fast moving sector and there are lots of outstanding business leaders out there. Among the best of the best, some really stand out. The way they’ve founded their companies and directed their investments have placed them in the higher echelon of influence in online retail.
Jack Ma, a former English teacher in China, got his first taste of internet entrepreneurship in 1995, when he founded China Pages, a directory of Chinese businesses. He previously worked as a lecturer in English and International trade in the Hangzhou Dianzi University.
After founding and running China pages he briefly worked for the Chinese Ministry of Foreign Trade and Economic Cooperation, between 1998 and 1999. In 1999 he founded Alibaba, a B2B marketplace connecting Chinese manufacturers to the world.
Alibaba’s spectacular growth pushed Ma and his associates to add new companies to the group. AliBaba Group now owns Alibaba.com, Taobao Marketplace, Tmall, eTao, Alibaba Cloud Computing, Juhuasuan, 1688.com, AliExpress.com and Alipay.
The company is now only outmatched by Walmart in terms of revenue. Recent developments and an increase in online retail spending have made the Chinese market the largest online retail market in the world. The big winner: Alibaba Group. Through its subsidiaries, the AliBaba Group now handles $248 billion in transactions, 84% of the total online retail market in China.
You wouldn’t think of the fifth wealthiest man in the world as one of the most influential persons in online retail. But he is. Through it’s flagship company and different personal investments, he is in control when it comes to online retail infrastructure and software.
For once, Larry Ellison is Oracle and Oracle means, first and foremost, databases. Ellison started his career working for the Ampex Corporation in 1970, on a relational database for the CIA. His designs were based on a paper written by Edgar F. Codd, called “A Relational Model of Data for Large Shared Data Banks”. The same design was implemented by IBM, but the company didn’t have time to solidify its dominance on the market. Challengers soon began to emerge.
One of those challengers was Larry Ellison’s Software Development Laboratories (SDL), founded with two partners and later renamed Oracle, based on the database Ellison developed when he was working for the CIA database.
After a long struggle against the largest competitor, IBM (which would push its DB2 and SQL/DS products) and other challengers (Informix, Sybase, Microsoft) – Oracle eventually took lead in the database war. In 2010 the European Union approved Oracle’s acquisition of Sun Microsystems. One of the most important assets Oracle got was the wide-spread, popular MySQL database.
So for one – Oracle now dominates the database market, the underlying infrastructure of connected systems and retailers worldwide.
And that’s just the begging – Oracle is currently on a purchase streak, aiming to build a strong multichannel retail presence. It is second only to Adobe Systems, with its customers registering over $200 billion in revenue in 2013.
It’s presence is split between Social marketing, ecommerce platform software, site search, customer service, personalized content and transportation management.
To give you a glimpse on how serious Oracle is about its investments in multichannel retail – they paid $1.5 billion in 2011 for Right Now Technologies, a company providing customer service software and services to the likes of Overstock.com.
Larry Ellison is also one of the major shareholders in Netsuite and Salesforce, two companies shaping the global B2B and B2C commerce future.
1. Jeff Bezos
Net Worth: $30.1 billion Company: Amazon
Jeff Bezos is the one man we all picture when we think about ecommerce. He is a Princeton graduate with a degree in Computer Science. After graduating from college he pursued a career in investment banking in Wall Street, which he left to found Amazon, after noticing the fast growth in Internet usage.
He set up his company in the proverbial garage with few employees and in 1995 launched the beta version for 300 friends. Days after the launch the book selling eshop managed to ship books across US and 45 foreign countries. Yearly sales in the first year reached $510 000, much more than Bezos envisioned. The company grew and grew, survived the dot com and went on to register $74.5 billion in 2013 revenue.
By expanding the initial book selling operations into CD’s, videos and later clothing, toys, electronics, home & garden, jewelry and even art, Amazon essentially became the “everything store”. Amazon is now the biggest online retailer and a disrupting force in retail.
Everything from the ecommerce revolution to online payments, shipping and marketing has been heavily influenced by Amazon and guided by Jeff Bezos, both a star-gazing visionary and a focused micromanager.
But beyond his influence in online retail and retail at large, Bezos is a special human being. A libertarian, he invested in projects most of us would consider unreal and unattainable. He was one of the first investors in Google, financed a clock that would run 10 000 years and a company that’s working on lowering space flight costs, to allow humanity to explore the great unknown.
This short list, headed by Jeff Bezos, is prone to change. The world around can change as well, partly due to these people’s and efforts. To get a deeper glimpse on how they did it and what motivates them, have a look at Jeff Bezos’ Princeton graduation address, “What matters more than your talents”:
China’s Ministry of Commerce released data showing huge growth in terms of Online Retail. Chinese consumers spent $296.57 billion online in 2013, 13% more than their American counterparts ($262.51 billion in 2013). That means China is now the biggest market for online retail.
China showed a 41.2% growth YoY and is now the largest online retail market
Chinese online retail market showed a 41.2% growth rate from 2012, a result of a) an increase in online spending and b) an increase in the total number of internet users. The number of internet users in China grew 8.5% to a total of 618 million users at the end of 2013. As a result, China showed an increase of 52.4 million in online consumers.
Although China surpassed the US in total online spending, one must not ignore the fact that the US still spends almost twice as much online than China. The total number of internet users in US, according to Internet World Stats is 277 million, 54% less than internet users in China.
As such, American users spend 945$ per year online, whereas Chinese users spend 478$ per year. Moreover, online retail in China is more or less a monopoly ran by the Ali Baba group, a company preparing for an american IPO. With $248 billion in transactions handled in 2013 through its many subsidiaries, Ali Baba accounts for 84% of all Chinese online retail. That is NOT a balanced market.
Although the numbers amount in favor of Chinese online retail (large growth rates, increased number of consumers and a lot of room to grow) Ali Baba’s dominance does not paint a pretty picture. Whereas US online retail is a competitive and balanced market, the Chinese behemoth has clay legs. Sure – it had a astonishing growth and there certainly is a market there, but can the Chinese leaders take on mature, innovative markets? My bet is on NO. The centralized, planned uber-organization can work pretty well in China but in the competitive world of global markets it might run into trouble.
Europe lags behind and is expected to reach $318 billion in 2018
Europe shows a healthy, double-digit growth rate in terms of online retail, yet still lags behind the US and China. Forester shows that Europe will grow with a CAGR of 12% until 2018, when the market is expected to reach €233.9 billion ($318 billion).
This is neither good nor bad. Europe is still making peace with it’s new-found unity. The European Union still has to battle inequality between countries, has had a rough time battling recession and has just recently considered online retail as a viable alternative to classic retail.
Northern Europe is more mature in terms of online retail development, thus shows smaller growth. Southern and Eastern Europe has increasingly adopted online retail as means to reach its uncovered consumers and shows larger growth rates.
Make no mistake, however. Europe is a large market. It has 518 million internet users and there is still room to grow. There are more money to spend and surely Europeans will get moving soon. Just as soon as they get over this recession thingie.
Brick-and-Mortar retailers are in trouble with online retail becoming mainstream. A signifiant part of that trouble are customers testing or trying on the merchandise and than buying it online, cheaper. It may not be the end of brick store but showrooming is a sign that we are witnessing a new chapter in the bricks vs clicks story. Possibly – even more.
What is Showrooming?
Simply put Showrooming is the practice of checking merchandise in store and than purchasing it online, usually cheaper. Although the practice has been around ever since online stores became competitive in terms of prices (past decade), things started moving a little faster now that smartphones allow in-store price checking. Customers can go to the closest store, try the product they want to purchase and than research prices online. Amazon even has a special app for that.
That’s obviously frustrating for store owners. They setup the shop, pay invoices for rent, pay checks only to find customers passing through the store, checking out the merchandise and than buying it elsewhere. Shoppers, on the other hand, don’t really care if the store makes any money or not. They want to try the product (check!) and than purchasing it at the lowest price (check!).
When it comes to it, companies such as Amazon, Net-A-Porter or eBay, mostly online operations, are of course benefiting and even encouraging the trend. On the other hand traditionally offline retailers frown upon, helplessly, and look for ways to counteract Showrooming.
There is great reason to do so as 69% shoppers look online for better prices and 47% look for free shipping, when checking products in-store.
There are ways for brick and mortar retailers to fight these trends at least in the short run, by:
offering to price match their online competitors
increase customer retention by creating loyalty programs
develop online operations to increase market reach and decrease product costs, therefore harnessing the Showroomin trend
If you’re a classic retailer you should note that these are only temporary solutions because…
Showrooming will eventually turn stores into showrooms
On the long run physical stores will probably become obsolete. A recent study by Paris-based Capgemini shows that:
most offline stores are expected to become obsolete in their present form, and will be replaced by actual showrooms by 2020
when that happens, shops will actually sell more, as 56% of digital-enabled shoppers spend more when they first research the product they want online
73% of shoppers expect online prices to be lower
There will be no “brick and mortar”-only retailers
Retailers tend to focus on the practice of showrooming, but there’s a larger picture of a rapidly changing reality. It’s not this practice they should be focusing on but rather the changing landscape of multichannel shopping. There is nothing mystic about online retail’s rise: it’s just that customers get more products for less money.
Expensive operations as brick and mortar stores, hardly manageable teams that usually harm retailers’ brands and many, many other overheads all add up to a tectonic shift in traditional commerce. Offline-only retailers are a thing of the past. They can ignore the trends, they can fight them but sooner or later they too will be transformed, just like the traditional media juggernaut.
Ecommerce cuts out the middle men
As far as historical records go, commerce has been a traditionally multi-level industry. There were those that produced the goods, the big buyers, the carriers, the retailers, the marketers, all adding up to the costs. When globalization came into effect that became even more so.
Say you wanted to develop and sell a computer. You had those handling raw materials, processing them, the assembly line, the shipping company, transport, distributers, retailers. Not to mention everyone in R&D, accounting and all those other XXI century white collar jobs. Just a glance shows a very, very long line between development and actually delivering the product to its end user.
All along this line, everyone adds costs. In the end the one that pays for these costs is the consumer.
You think that’s just a timely thing? Here’s a list of startups that are slashing merciless through middle men with the power of ecommerce:
Founders of Warby Parkershowed they can slash prices on premium eyewear by cutting out designers, brands, wholesalers and retailers. From just 1% online buy rate for glasses they now expect the industry to deliver almost 15% in the next year. They managed to do that by letting customers receive home 5 pairs, for 5 days, so people can try them on, ask their friends what they think about them and than return 4 back without any charge.
Seasonal collections? Screw that, Crane & Canopy releases new high quality duvets each week based on Pinterest and social media trends. They do that by connecting premium factories to end buyers. They cut out the wholesalers, retailers and premium designers.
Similarly, Bonobos started when Stanford B-School students Brian Spaly and Andy Dunn decided they want to start a new business, met with a taylor and figured they can make affordable fitted clothing for men. Soon enough they were raising $16.5 million in venture capital and the business really took off.
These are rather small startups but if you remember no more than 30 years ago – there was no Apple. 15 years ago – there was no Amazon. 10 years ago we had no Facebook. Personal computing and music, books, communication an media – all industries that had been radically and irreversibly been changed by these rather young companies, driven by the amazing change the Internet is.
We now know retail is changing. With it – our whole society. The outcome is hard to predict but the signs are here. Small and mundane as it might seem, showrooming is one of those signs.
It’s pretty hard for anyone to admit it but it’s true: universities can’t keep up with the times. They cannot deliver qualified individuals for the growing online retail segment because there is nothing to be qualified on. Of course, there are some courses that cover some successful business models but truth be told there is no use in knowing Amazon’s business model as long as there is already one Amazon on the market.
How did it come to this? When did this pillars of economic evolution start to lose ground? Let’s have a look at some of the potential causes and some answers on how to hire and develop the right individuals for the online retail segment.
Universities teach rules. On the internet rules are meant to be broken.
The whole concept behind higher education was that one might benefit from (1) a few extra education years, (2) access to some very experienced professors and most important although not usually talked about – (3) a network of like minded, probably successful colleagues. These three factors don’t really apply to online business in general and online retail in particular:
with wonder kids such as Mark Zuckerberg and the Google Duo, dot-com entrepreneurs are expected to be successful before their early thirties. Spending too much time in the academia is not really the best choice if you are an aspiring young millionaire. Have a look at this M. Zuckerberg’s interview back when Facebook was Thefacebook.com. The thing you should be thinking about – how can someone driven, ambitious and aware can stay in college for 4 years when he feels ” ‘near future’ being like anytime in the next seven or eight days.” Remember – this guy is a Harvard drop-out.
as for the “very experienced professors” – there is no way they can actually be that experienced unless their name is somewhere along the lines of Jeff Bezos or Jack Ma. The high education fees and the time spent in conventional education facilities are not really that useful when it comes to innovation. Professors are not really the most adaptable types. Most of them are still trying to understand and explain the Dot.com Bubble. They are historians rather than explorers. Of course, understanding our past can save us from some trouble but it can also lead to a certain lack of innovation, a thing the internet thrives on.
the network of like minded, probably successful colleagues is not really spending that much time in the classroom. They are studying, alright, they are building networks and they are building stuff. Just not where you would expect them to do that. They hang out in technology hubs, they read books on their Kindle and their laboratory is probably a Macbook.
Unfortunately a college diploma shows only that the individual can remember some things and can obey rules. That’s great for middle management and below but what do you do when you need to hire talent? Where can you find people that can turn Brick and Mortar stores into online retailers?
How to attract talent that can develop Online Retail Companies?
No matter how big your company is – you will be always faced with recruiting issues. How to look for the right candidates, how to attract them and how to keep them are always distinctively difficult issues.
Some of the larger companies, such as Walmart, have chosen the path I believe works best: buying entrepreneurs. When I say buying – think more than cash. The large pay check is one type of incentive, but not the only one. The right kind of people need a purpose, a direction and the freedom to choose their own teams. They will be motivated by a large vision, a goal to strive to and a team that can help them achieve that goal.
Here’s how Walmart CEO Mike Duke managed to lure ex-eBay engineer Jeremy King, now CTO of Walmart. Notice how Mike Duke had already decided that although ecommerce is not really the biggest piece of the pie – it is the key to continue Walmart’s development in the future.
After years of seeing his company lag online, Duke swore that digital was now a priority for Walmart. Duke had restructured the company, placing e-commerce on equal footing with Walmart’s other, much larger divisions. He had made serious investments in high-tech talent, acquiring several startups.
Hire experience – any kind of experience.
Remember – what did you do when you first tried to ride a bike? Chances are that unless you were an unusually talented child or a late learner you got a few bruises out of your first try. However, due to those slightly annoying incidents, you managed to learn what to do and what not to do.
As an online retail business owner or manager you should be looking for experience. Experience doesn’t come easy. As I said earlier in the article – there is no one there to teach young professionals what to do and what not to do. So far, at least. As such you will be dealing with people that failed, struggled, tried again and again and eventually learnt a thing or two about online retail.
In time, education will adapt to this changing landscape and it will offer better suited courses. In the same time online retail will develop into a mature industry and things will start to get rusty again, just as it had happened to classic retail. Then you will be able to hire diplomas again. Until then – keep you eyes open for experience.
The Starks. The Lannisters. Dragons. Swords. Power. Blood. Sex. Aaaand violence. I guess this pretty much sums up a slightly superficial yet short description of the Game of Thrones series.
Now if you’ve opened up your Facebook or Twitter account today, you definitely know something happened. Last evening HBO aired a certain episode called “The Red Wedding”. I will not spoil it for you, if you’ve not seen it yet, but it was a pretty shocking episode. Blood and death ruled the storyline and social media reactions quickly followed.
Just to get an overview of how much impact Game of Thrones had, here’s a tweet from musician Ed Sheeran that pretty much sums it up:
i dont know what just happened in game of thrones. i’m in shock.
Yeah, things got pretty violent. Shocking actually. And that got me thinking. Not the usual things one might ponder on but something closer to my professional interests. As the credits rolled in, I found myself wondering what could online retailers take away from the GoT Universe? I pretty much narrowed it down to 5 things (there is still a certain limit one can take away from blood, death and violence). Here they are:
5. Form alliances
You are not alone. Of course, you might have a strong company, you may not need partners right now and yes, others can sometimes slow you down.
However, you never know when you might need to launch a new product or face a strong competitor. That’s when allies such as industry bloggers, influential community members, thematic forums or websites will prove really useful.
Develop your customer community. Grow a company blog. Sponsor thematic websites. Maybe all of these. You never know when but your allies will come in handy.
4. Always be on the watch for challengers.
Retail is a fast moving industry. Online retail moves even faster. You might be the king of the hills today only to find out your market share has dropped faster than you could say “Winter is coming”.
If you’re not the market leader you probably want to be. That’s human nature. Also – online retail nature. With hard work, creativity, and a couple of other things you too can reach the “Iron Throne” you’ve battled for. Once you’re there you need to keep an eye for certain news that might predict a strong challenger:
a more flexible business model
3. Technology can save you. Almost magically.
If you’ve been watching the Game of thrones you might remember season’s two finale. Peter Dinklage’s character, Tyrion Lannister leads an outnumbered army against a potentially disastrous siege. His best choice is to use the “Wildfire” – a magical substance that acts as a very powerful and persistant explosive (consider sorcery to be the equivalent of technology in the Game of Thrones universe).
With the help of the Wildfire, Tyrion manages to save his castle and his life.
Now, just like the movies, technology is probably lurking somewhere around you. Be sure to reach out and use the best available technologies if you want to stay competitive.
4. Keep a look out for the new king product.
There is probably no secret to you by now that some products perform way better than others. For a limited time. Than some other products gain your customers best favors. And than others and so on.
Keep a look out for the king product. There is always a struggle on the market and while you can marginally influence the outcome you cannot predict it. It is really not up to you to decide what your customers want but rather what they can choose from.
Be sure to treat your king product or products royally and they will repay you. How can you do that? Here are some tips:
be sure to make it easy for your customers to reach your king product
bring on new customers by advertising your best sellers
if you don’t have one already – create a special products category
Remember though: different customers may be on the look out for different king products. Try to customize your online shopping experience according to each customer’s needs. With the help of technology.
And finally …
5. Kill your products.Well … not all.
Just because you have a virtually unlimited storage space doesn’t mean you really have to keep all products in your catalogue.
Some products are … well … underachievers. They cannot be kings. Or queens, or barons, or soldiers. They are not wanted. Your customers don’t buy them. Maybe they don’t even want to see them.
So – test your products and clean up the mess. You can handle an limited amount of products. Your customers want a limited amount of products, curated only for them. With the rise of flash sales focused on certain types of individuals online catalogues seem to be getting smaller and more focused on customer’s needs.
Don’t be afraid to cut out underperforming products. You get more time with your king products. Do the math – more focus on the best sellers, less on the underachievers. You can only improve.
When it comes to online retail conventional wisdom states that customers will choose the virtual over brick-and-mortar store mainly because of the price. While this may be true , it’s only partially true. Price is a big factor and probably the most rational factor when it comes to shopping online. However, choosing online shopping takes more than the rational.
Above you can see a chart on a recent study by PWC, that shows some of the reasons driving customers to shop online. Lower prices and better offers is the second most important reason people will buy online followed by the speed factor and things like better variety and better product information.
So – if you are managing, owning or part of an online retail operation, you should know your customers motivations.
Here are the top 5 reasons, other than price, that drive people to buy online:
1. Shopping online is convenient for anyone, anytime.
The usual trouble with business hours is that they are the same for pretty much everyone. Both shoppers and retailers. While movies portrait people as care-free, on-the-go individuals, the reality is that much of the time people are either stuck in an office, stuck in traffic or just at home, spending time with the family. Say customer X remembers he needs to buy a new pair of shoes at 2 PM, while still at work. Will it be possible for him to drive to the closest store? Will he just go online and buy his favorite pair of shoes, from a wide selection of brands and offers. Of course it’s the latter which brings us to …
2. Shopping online is easier and less stressing
Think about shopping centers. Picture the people, the crowd, the options. Hear the noise. Now think about looking for a parking space, walking to the mall, walking some more from store to store. Trying on. Maybe going home empty handed.
Now picture doing all that in front of the computer, listening to your favorite music, comparing the best deals, without anyone trying to convince you what is the perfect fit. Shopping online is just easier. Customers choose it because it’s stress-free, it’s rational and you can get the best deal without spending a whole afternoon looking for a pair of pants.
3. Shopping for products unavailable in the near area
Not longer than 10 years ago, most shoppers would have had to choose between the products available in the nearest store or not buy anything at all. There was no “shopping for that special bottle of wine I saw last year in Paris”. If the local wine store was not selling it, well … it simply wasn’t worth the hassle to look for it anymore. Now consumers can just “google” a particular brand or product and someone, somewhere, will be ready to sell it and ship it.
4. It’s easier to compare offers
To be fair, this one has a lot to do with price but than again comparison and especially easy comparison is a matter of convenience rather than pricing. Comparing prices online is way easier than any of the options offline stores have.
5. It’s just so much better to talk about
Remember the last time you talked about visiting a store while chatting with your best friend? Probably a long time ago. Truth is conventional retail stores are just so … available to anyone. Uninteresting. Common. You cannot brag about a new, indie, never before heard store that still offers a lot of products. Shopping online is just much more conversation-worthy.
Conclusion:if you are selling online – please don’t focus solely on price. It is so yesterday.
Online retail is the wonder kid of retail – it is young, energetic, it is growing fast yet it is still in its infancy. Based on 2010 estimates online retail amounted for no more than 7% of total retail purchases, as seen below.
The figure may not be exact as it amounts for purchases that happen exclusively online. Users tend to mix retail channels in their quest for a better shopping experience. They might know the brick-and-mortar store brand and order online because it is more convenient. They might also discover the online store, find the product best suited and than “feel” it in the physical store.
Multichannel tracking has not changed that much since the days consumers would receive coupons in magazines and advertisers would track these coupons to get a better view on what’s efficient and what is not in their marketing efforts.
What is Multichannel Shopping?
First and foremost – what is Multichannel Shopping? As you probably have noticed or done so yourself, shoppers tend to use multiple ways of combining online and offline activities. Here are the most important:
Shopping across multiple channels (brick-and-mortar stores, online shops, mobile apps, phone order etc.). Consumers will try to use the best channel available at the time. Say you are a avid online shopper but this evening your brother celebrates his anniversary and you forgot to buy him a present. You will rush over to the closest store and buy something from there, after you have searched for that store and the gift online.
Using more channels to purchase goods from a single retailer. Users that are accustomed to a certain brand will try to buy as often as possible from that particular brand. They will mix offline and online purchases, depending on the specific occasion, while staying loyal that brand.
Using multiple channels to complete a purchase. Users will use multiple channels sometimes, to get the best deal / the easiest way to get the goods. They might browse the online store, order the product on the phone and purchase / pay for it in the brick and mortar store.
How can we track Multichannel Shoppers?
As retailers increasingly look for new ways of tracking consumers and increasing sales they use a combination of old(er) and new(er) strategies, such as:
Multichannel loyalty programs – this programs are usually extended CRM programs, using identifiers such as member cards, phone numbers, unique ID’s or others. Consumers are encouraged through loyalty points incentives to use their ID’s on the different channels
Multichannel consumer life cycle – tracking the consumer through different channels by combining online and offline purchase steps (Ex.:buy online, pay offline, support on the phone)
Track users through wi-fi and mobile use – a rather cutting edge yet extremely promising strategy of trading free on-location internet (everybody wants some), combining it with personal online data (such as Facebook user accounts) and seeking trends in collected data, in order to increase sales and understand the consumer life-cycle better.
Here are 5 companies whose combined online sales in 2011 amount to almost $75 Billion, US and Canada only. Let’s also have a look at their background and how did they manage to reach the top 5. The winner is one of the fastest growing companies in the world, a company born and raised online and probably the future of global retail. Let’s first have a look at the runners up:
Dell is the only company in this top to have a negative growth. The decrease in sales is a direct result of global PC sales contraction in 2011. If your company is not named Apple and your business has something to do with PC’s, than 2011 was probably one of the worst years for you. In fact Dell’s PC’s shipments declined 8% throughout the year so that makes dell.com’s sales 200% better than the overall company performance.
Dell was one of the first companies to integrate ecommerce in their sales process. Its e-commerce operation started off as a static page in 1994, integrated online sales features and soon enough they were selling more than $1 million a year, which as you might remember, was $1 million more than most of the companies.
Dell’s innovative approach to online commerce (customize and buy) was a result of:
its business model that allowed companies and individuals to order customized computers via mail orders pre-internet era
an increase in losses due to aggressive competition from its arch-nemesis – Compaq. Dell recorded losses of nearly $100 million in 1994, before launching Dell.com.
Following the launch Dell expanded its online operations in Europe and Asia and by 2000 it was already the market leader in PC sales worldwide. It stayed in the pole-position until 2006, when HP reclaimed the throne. Not bad.
Walmart is big. Really big. It operates more than 10.000 retail units in 27 countries. It’s net sales in 2012 increased 5.9% to 443.9 billion dollars. Big as it might be, Walmart did miss the start and that’s one of the reasons it’s “only” no.4 on our list. But worry not – the company expands its operations online as aggressively as it does with its brick and mortar stores and soon it will be fighting for the top position.
The company, whose first store opened in 1962, had launched Walmart.com in 2000, after it incorporated it as a separate company, based in Silicon Valley. Accel Ventures had a minority stake in the company at the time but the two agreed to disagree and in 2001 Walmart bought back Accel’s share.
As of that moment Walmart.com worked as a subsidiary of Wal-mart Stores, Inc. and it slowly started its development. CEO Mike Duke, an alumni of Georgia’s Institute of Technology, showed he meant e-business when it turned the company from a rigid, unambitious company to one of the biggest challengers to Amazon’s ecommerce reign.
Walmart started @WalmartLabs, and brought aboard the ship hundreds of talented engineers and business people, all focused on retail, social media and mobile. Yup, they do have all the buzzwords they need and as of 2011 they also have Jeremy King, one of the leading engineers at eBay, back in the day.
In 2011, Walmart agreed to purchase Kosmix, a social media startup founded by Venky Harinarayan and Anand Rajaraman in 2005. It’s worth to mention this just to get a glimpse in the kind of people and technology the company is now bringing aboard:
Mr. Harinarayan and Mr. Rajaraman previously founded and sold Junglee to Amazon for a reported $250 million
The two were angel investors in Facebook
Kosmix was funded by Lightspeed Venture Partners, Accel Partners, Dag Ventures and … wait for it … Jeff Bezos’ personal investment company Bezos Expeditions
Walmart is now acting as a Silicon Valley start-up when it comes to ecommerce – it’s lean, it values technology talent and it has a vision and a strategy.
As I am writing this post Exxon surpassed Apple to become, once again, the largest company in the world. However, Apple is still valued at $413 billion and it is still the coolest thing in technology. The company started its online sales operations in in november 1997, an year after acquiring NeXT Computers and bringing back Steve Jobs.
The whole online store was based at that moment on NeXT’s WebObject’s technology. This allowed fast implementation (1 year was needed to implement the whole online store) and a great online experience. As Steve Jobs declared at the time, $12 million worth of sales were generated using the online store, in the first month.
One of the cornerstones of Apple’s development for both offline and online sales was the Apple Store – the physical, brick and mortar, beautifully designed, concept store. When the first Apple Store was opened in 2001, Jobs wanted an experience rather than a shopping center. The Macs were beautifully designed, they worked better than most PCs but were still compared in terms of specs to PCs, as most consumers were not considering computing an area were design, experience or feeling had anything to do with a purchase decision. That was what the company needed to change.
The Apple Store started as a Store-within-Store experience when Steve Jobs stopped retail contracts with most retailers, except CompUSA. In exchange for being the exclusive Apple Dealer, CompUSA agreed to offer Apple a 15% area of all stores, and the right to have its own sales-person on-site.
People would walk in, experience the Apple ecosystem and even if they didn’t buy right then they would still remember the brand and later purchase online.
The Apple Store was a move that greatly helped Apple sell online. It was the most beautiful showroom, before online retailers even thought about having offline stores to increase market share.
The online shopping experience changed when, following 2001’s launch of the iPod, Apple released the iTunes Store in 2003. 5 years later, the iTunes Store was already the largest music vendor in the US and in 2010 it was the largest music vendor in the world. In Q1 2011 Apple’s iTunes Store revenue alone was $1.4 billion.
Along came the iPhone and, just as the company previously revolutionized the music industry with the iPod, the iPhone changed mobile, software and well…basically anything we humans do.
Apple’s retail concept is not just a store, it’s an ecosystem. It’s growing fast and it’s got a solid lock-in on its customers. Right now Apple’s online sales can only go up.
2. Staples Inc.
Online Sales: $10,600,000,000
2011 Growth: 3.90%
The first company in this list to cross the $10 billion in online sales threshold is Staples, the largest office supply chain in the world. Staples has more than 2000 stores in 26 countries but it plans to slash its brick and mortar space by 15% and focus on online sales.
The first store was opened in 1986, when the company was funded by certain private equity firms, including Bain Capital, co-founded by Mitt Romney (yeah, that Mitt Romney) who stayed on board for the next 15 years to help with the company strategy.
Staples.com was launched in 1998 and had a steady growth ever since, unlike its offline operations. Although often overlooked as a key competitor in the online retail arena, Staples did beat Apple and Walmart in this top so we should give credit where credit is due.
It’s main online sales channels are Staples.com, StaplesAdvantage.com and Quill.com. The infrastructure is based on IBM hardware and software and the company is ready to heavily invest in developing its online operations. It even started its very own innovation hub called E-Commerce Innovation Center.
Ok, long story short – the early bird catches the worm. Staples may not be the coolest brand in this list, but it was on of the pioneers in this field and it’s making lots of money online and unlike OfficeMax, and Office Depot, its main competitors, it has the best chance to make a shift online when its stores will stop being profitable.
1. Amazon.com Inc.
Online Sales: $48,080,000,000
2011 Growth: 40.60%
Yes, I know it may come as a shock but Amazon is, indeed, the largest online retailer in the world. It leads the online retailers’ top by a very long margin and it will continue to do so for a very long time, if we are to look at its continuous growth, its innovative practices and its aggressive expansion.
The company was founded in 1994 by Jeff Bezos and Amazon.com went online in 1995, way before any of the other companies in this list were. Amazon was one of the few companies to exit the 1997-2000 dot-com bubble still intact. It would take another year after that for the company to turn a profit – in 2001 Amazon had its first profitable quarter – $5 million in profit on revenues of over $1 billion. Not very much but it proved its model.
It got sued by Barnes & Noble and Walmart (you might recognize these companies as some of those most affected by Amazon’s growth), it acquired some great startups (such as Kiva, Zappos, IMDB.com) and in 2007 launched its revolutionary device, the Kindle.
Although there is so much to say about Amazon one thing is clear: it is the top online retailer and it is eating into the large offline retailers’ sales too. Soon enough it might take their place.
I hope you enjoyed this list. Keep in mind that this post is based on Internet Retailer’s top 500 online retailers and features companies in the US and Canada. Figures are based on 2011 sales provided by different sources, usually the companies themselves. I recommend having a look at the full top and, as I will also do, purchase the full guide.
Amazon has already changed the way we think about online retail and its influence and disrupting force of change and inovation has just began to sink in. The company reported a $48.07 billion revenue in 2011, making it by far the largest online retailer, followed by Staples and Apple ($10.6 billion and $6.6 billion respectively). The company started by selling books and later expanded into CD’s DVD’s, MP3, ebooks but also jewelry, electronics, furniture, apparel and even food. Here are some of the reasons why Amazon is going to be a game changer in offline retail in the following years.
Lack of innovative competition.
It was probably Jeff Bezos visionary strategy that led the company but it also had something to do with established industries refusing to change. As you probably know it was Amazon that bet big bucks on eBooks and eBook readers but it was the lack of competition that made it so successful in that department. While the team at Lab 126, Amazon’s Kindle research team, was working hard to launch its first viable product, the competition was ignoring or at most distantly observing the emerging market. It took Barnes&Noble 2 years to launch Nook, after the first Kindle hit the market.
After eBooks proved to be such a successful story Amazon moved on to selling what the market demanded – tablets that run an Android powered, Amazon flavored operating system, allowing the company to research consumer preferences (by analyzing Kindle Fire web traffic), and most important – selling apps. As a direct result of this move Amazon is now the largest Android apps seller, closing in to the iTunes AppStore.
Amazon has a few tricks up its sleeves
Amazon is not just a retailer. It is a brand loved by customers partly because of its previous underdog image (long time gone as it is estimated to overtake Walmart by 2020) and partly because it sells things people love – books, music, apps even jewelry and furniture. But there is more. Here are some of its “to be loved” products:
1. Amazon TV
Amazon is known for selling media. Books, music, video – it’s all media. Why not join the soon-to-be-trendy market for digital TV? It has already shown it can use it’s market share to launch a digital product that streamlines media consumption (the Kindle) – so why not TV?
The company’s model features low cost (even under production costs) hardware retail as a way to create an infrastructure to deliver content profitable so TV might just be the natural choice in post-Kindle business development.
2. Amazon Offline stores
Amazon Lockers is the first step toward an offline presence. It may sound strange but Amazon will need to create offline stores in order to tackle the offline retailers. Why? Online retail is big and is growing fast but if you look at the bigger picture it is still only 8.9% of total retail revenue, even in the US.
Such a bold move may be a little different than what we expect. Brick and mortar stores have basically stayed the same for the past century so maybe there is a need for a change. Amazon Lockers may be the store of the future, not just an experiment.
3. Amazon’s private label
So far Amazon worked as a rather large market place for all kinds of products and suppliers. It may be time for the company to tackle some of the largest and most profitable companies in the world. There is speculation of an Amazon private label, that could produce everyday items such as personal care, child care or clothing. Such a bold move would really be disruptive as the competitors in this market are P&G, Unilever and others such.
The global economy can’t handle the “classic retail”
The global supply chain puts too much burden on consumers. P&G’s margin was down from 25% (dec 2008) to approximately 7% (dec 2012). To handle the global operations, marketing costs supporting dozens of brands and still turn profit in a recession means that P&G’s products must start with a rather large margin, supported by mass market advertising.
Amazon is a different kind of business. It doesn’t need large margins. It’s flexible and fast. It can adapt and can tackle markets even before incumbents notice it as a threat. My bet is that Amazon’s influence, not only on retail but on global economy as a whole, is just beginning to show.