Why Do Online Retailers Fail?

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

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

Why do online retailers fail?

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

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

amazonjeff-bezos
Jeff Bezos – Amazon

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

You should know that …

Amazon is an exception.

Staples is an exception.

AliBaba is an exception.

Ebay is an exception.

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

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

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

There are patterns in online retail failure

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

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

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

1. Lousy and/or not enough products

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

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

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

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

2. The wrong price

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

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

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

3. Not paying attention to customer care

Actual Zappos Call-Center
Actual Zappos Call-Center

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

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

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

4. Ignoring logistics

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

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

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

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

5. Outdated or limited technology

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

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

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

6. Bad management

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

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

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

6 things that can lead to failure for online retailers

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

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

 

The 7 Most Important Components of an Ecommerce Business … that are usually ignored

When it comes to ecommerce most of the information you’ll be able to find online is marketing related. Because marketing is the easy part. That’s why almost everybody assumes that all it takes to build an ecommerce operation is good marketing, a technological sound shopping catalogue solution and a lot of luck.

Marketing and frontend ecommerce solutions are just the tip of the iceberg and in this post I’ll walk you through the most important areas you need to focus on (and you probably don’t) when building an online commerce business. Not site, not catalogue, business.

ecommerce-iceberg

What does it take to build a great online store?

No successful store was ever built on luck and marketing alone. Top online retailers got where they are selling great products at great prices, delivering fast and making sure that customers are well rewarded for their choice. That takes a lot of work in areas most of us never notice, areas such as:

1. Suppliers and supply chain management

You are or plan to be a retailer in an increasingly competitive market. It means a lot to come up with a great idea, drive good traffic and convert it to sales but you can’t do that without the right products, delivered at the right time, with a price the market is willing to pay.

Suppliers meant a whole lot when ecommerce was not around. Now – even more so. When it comes to ecommerce, suppliers can provide you with the right merchandise but they can also take the stocks burden off your shoulders. Amazon, for example, relies heavily on its marketplace partners to increase listed products number, without buying stocks for those products.

Key take away: before starting an ecommerce operation make sure:

  • you have enough and the right merchandise suppliers
  • they are financially and operational safe
  • they are able to provide real-time stock inventory
  • they are able to deliver purchased products fast

[Read more Supply Chain Management in Omnichannel Retail]

2. Warehouse operations

Post brick-and-mortar retail relies on electronic communication and product display. But when a product is bought it has to come from somewhere, right? Seal the deal with the suppliers and it’s off to the Warehouse, that magical place where online retailers pick products from the shelf, pack them neatly and prepare those products to be delivered.

Sounds simple? Well, usually, it is not. A decent store with its own warehouse operations has thousands of products at any time on its inventory, employs at least a couple of dozens of people to store products, pick and pack, and prepare for delivery. That’s why so many large companies choose to outsource their fulfillment operations to “third party logistics” suppliers such as Anchor 3PL or the ever-growing Fulfillment by Amazon so they can focus on what they do best (usually purchase the best assortment of merchandise, service customers and marketing).

Key Take Aways: A much larger post regarding 3PL/YPL (third party logistics) will soon be available on Netonomy.NET but until then, let’s have a look at things to consider when developing your own warehouse operations:

  • technology is the key – all 3PL service providers use technology (warehouse management systems) to know at all times where the products are, what’s the most efficient way to pick those products, who should be the person in charge for each package and others
  • think about the season – some seasons (such as the Holidays) are more operationally intensive then others. Be ready to employ temporary workforce to fulfill your orders
  • everything needs to be tracked and monitored – security and accountability are the key to handling large numbers of orders and workforce

3. Shipping and returns

Just as mentioned above your merchandise may be displayed and marketed online but it has to be packed and reach its destination in the real world. That’s why you need a good warehouse management and that’s why you need a great shipping service.

Shipping is usually an outsourced service. The best thing to do, unless you’re swimming in cash and you want to start competing the likes of FedEx and DHL, is employ one of the shipping providers and negotiate your way to a marketable shipping cost. Such a cost is likely to be, in the future, one you will be paying yourself – so pay attention.

Once you’ve contracted these shipping providers integrate their system with yours so you can streamline packaging and delivery.

Once in a while customers do not like what they’ve bought. You will need to handle the returns and reimburse customers for their purchase. Here you can team up with the shipping provider but your store has to handle all the communication.

Key take aways:

  • hire a shipping provider – It’s probably not worth it to have a shipping service of your own
  • pay attention to systems integrations when it comes to online store – warehouse – shipping flow
  • handle your returns as gracefully as possible – it may mean the difference between an unsatisfied customer and a lifetime brand ambassador

Before we skip to the next component I just wanted to make sure you’ve noticed I haven’t yet mentioned anything you would expect would be ecommerce related or innovative. So far – it’s just plain ol’ supply chain management and logistics. Got it? Great. Let’s move on to …

4. Client Relationship Management (CRM) – software and policies

Before even considering selling – you need to think about how are you going to treat your customer and keep him coming back. That’s where CRM comes in. While the term is usually used to describe a type of software, it is actually the term describing the whole policy on how are you going to handle interactions between you and your customer.

CRM needs to be “customer-centric”. Big words – but what do they mean? It just means that everything you do needs to be done “for the customer, by the retailer”. You need to understand the customer purchase patterns so you can recommend the most suited products. You need to record purchases, interests, preferred channels and basically all there is to it when it comes to understanding your customer.

Then act on that – after you’ve analyzed data make sure customer care, warehouse operations, shipping providers and even your purchase operations – all know who the customer is and what it wants.

Key Take Aways:

  • CRM is not just software – it’s a company policy on how to treat clients
  • Profiling is a must – understand as much as possible about your customer so you can serve better
  • “Customer-centric” is not a buzz-word – it’s common sense
  • There is no “client service department” – everybody working in an ecommerce store needs to know who the client is, record interactions and treat customers accordingly

5. Ecommerce catalogue and product display

Here’s one you surely expected, maybe not so down the list: your online store catalogue. Of course – this one is important. Without one we would be back to mail orders and inventing the wheel. However, as you’ve probably seen so far – it is just a small part of the whole ecommerce store business.

When it comes to it some things you really should be taking into account:

  • make sure you don’t over-design your store – your products are the most important items. Make them shine.
  • analyze and predict: predictive analytics is the practice of analyzing users behavior and predicting what would they rather buy at any given time. Read more about it here.
  • search, search and let’s not forget search: most of your customers will be using a search engine to navigate to your store (1) . Make sure your store is optimized. Once there, when in doubt, they will want to search for products (2) – make sure your site search works. Finally – when their order was shipped they will want to search for its location (3). Show them.

6. Marketing and loyalty programs

I know, i know – one includes the other. But for the sake of the argument let’s just assume that maybe loyalty programs online are so important that they should be a separate item to marketing. Because they are.

Loyalty is really hard to acquire these days. Especially when it comes to ecommerce. Most users will be searching for the lowest price and buy from whomever the seller is. But you can fight the trend with loyalty programs such as:

  • rewarding purchases – reward your users with points they can spend on your store. It’s really effective in keeping your customers tied to your brand, as well as making them feel great about it
  • social shopping – make your customer feel like a king when he can give out discounts and freebies to its peers and friends
  • reward social media – most online users have some kind of influence in their micro community of friends. Encourage them to take part in your story, share your products and reward them with freebies, discounts and … well …sometimes “Thank you” is enough

As for marketing at large – there is an increasing number of marketing solutions you an use to market your products and store but not all are alike. Not all are as efficient. Focus on:

  • Search engine optimization and paid search results
  • Email marketing
  • Social media
  • Branding

They may not look like much but together the “incredible four of ecommerce” can mean the difference between a failed startup and the next Amazon.

Last but not least …

7. Showroom and offline purchases

What – you thought that brick and mortar is all gone? Of course not. Online retail is still at just 7% of total retail but growing fast. One of the things that’s helping it grow is showrooming. That is the practice of checking a product in-store and buying it (usually cheaper) – online.

Don’t think about ecommerce as online-vs-offline. Think in terms of customer. The customer wants to feel the product before it makes the purchase. So you’ll need to show it to him. Even a small offline showroom can work miracles for your online store.

So now you have it – online retail is a rather big iceberg. Most of it unseen. Check where others don’t look because that’s where you’ll find success in ecommerce.