The low-down Hide
Is ecommerce dead?
Considering online sales grew 44% during 2020 and are projected to grow to $5.4 trillion by the end of 2022, the first answer is: probably not.
But in innovation within ecommerce? That’s looking less healthy. Several well-funded ecommerce startups have turned slow and closed, and share prices for ASX-listed ecommerce businesses are plunging. Why is this happening when the sales figures are so strong?
The sector got its leg up when COVID hit and physical stores shut down. Holed up in their homes, consumers were quite literally a captive market.
Now bricks-and-mortar retail has stepped up their game to compete, and the endless scroll-shop is getting old, could it be that our changed habits are changing back again?
The ecommerce opportunity
During the pandemic, the world figured out that buying products online was often cheaper, less socially taxing (approximately 25 to 40% of people are introverts), and had more and better choices than the high street.
It was convenient – no need to shower, change, and travel. It was cheaper without the in-store mark up. And the product selection is global – much more variety than the local high street.
Considering the pandemic lasted for 2 years and it only takes 60 days to develop a habit, a large demographic was converted for good.
But everything isn’t perfect in ecommerce land.
Amazon dominates the ecommerce market in America, accounting for 25% of all ecommerce spending.
Alongside growing distrust among customers in the UK and Germany, Amazon is facing antitrust scrutiny regarding user privacy, how it sets criteria for supplier allocation, and how it categorises Prime label royalty programs.
Amazon’s American customers are beginning to hear about how it treats their employees, leaving them burnt out, underpaid, and mistreated. In the UK, workers are striking.
In a generation of online activists and socially-conscious consumers who are earnestly trying to support small, fair businesses, there are very much still arguments for buying local.
D2C doing it right
Amazon is ecommerce, but ecommerce is not Amazon.
From the perspective of the consumer, no one really does things “better” than Amazon. Bezos made sure of that, which is the reason it’s worth USD $1.4 trillion.
But there are steadily growing D2C brands out there challenging the consumer status quo and achieving virality through clever marketing or localisation.
It’s quite a time to be alive, and yet it’s nothing new. In the old milkman-style format, we can get anything from supplements to flowers to boxers to booze on automated delivery without having to take a step outside or use a single brain cell. Not to mention the actual return of the milkman.
Sydney startup Milkrun has now raised a whopping $86 million to get groceries to customers in 10 minutes or less. Whether it’s a sustainable business model is open for debate, but founder Dany Milham firmly believes so:
“Grocery in Australia is a $122 billion market. There aren’t many players in it, so you can make a $5 billion a year business just doing what we’re doing,” he said.
“We want to be iconically Australian… we want our riders to be like the local milk men and be part of our brand.”
Differentiation in ecommerce
Benefits for online shoppers are often pain points for online stores.
Rock bottom prices for the consumer mean tiny profit margins for the retailer. Jumping on the bandwagon of viral products means a tiny window before everyone else does.
Standing out in the sea of digital commerce is not easy. Unlike physical stores, the screen presents a great leveller, with little opportunity to surprise or differentiate. You can’t place a neon sign or a wacky inflatable arm-flailing tube man outside your customer’s laptop.
This is especially relevant for small D2C brands who don’t have the budgets for $100,000 websites. But they do have a major advantage in that they bring the “real” to the digital world.
Often, small D2C brands are cutting out middlemen, pursuing an ethical mission, or focusing relentlessly on the consumer experience. Many have heartwarming founder stories, and are small enough to personalise products and communicate directly with customers.
Other ways small ecommerce contenders can differentiate from faceless platforms include:
Understanding how your industry will adapt post-pandemic: was your product selling well online because it worked, or because of the necessity brought by the pandemic?
35% of cosmetics in Asia are still being sold online despite the pandemic ending, with sales still growing. But the cosmetics industry has the lipstick principle to fall back on (it’s an “affordable luxury” that consumers tend not to forgo even in adversity). This may not be the case for all products. Will clothes shoppers start to miss changing rooms? Will Gin Club subscribers pivot back to the pub?
Explore social media shopping: sales through social media channels are expected to nearly triple by 2025 globally. If it’s right for your brand, influencers and brand ambassadors – especially on TikTok where creators can link viewers directly to you – can help you generate hype. The best part is, they know their user bases and (hopefully) how those users will respond to your product. They create the content and devise the experience so you don’t have to.
Snap is vying for retailer attention by offering AR-generated clothes and jewellery sampling. Pinterest is pushing AI-generated “create this look” suggestions that link users to real products similar to those featured in posts.
You can then funnel this data yield back into in-platform advertising.
Create an experience: those operating via screen have to get super creative about customer experience. How can you speak to them directly? How can you imitate the in-person salesperson experience?
The big guns for ecommerce contenders
There’s not just one single type of innovation (in fact, there are more like 10).
Melbourne-based startup Preezie is based around this philosophy – there are many ways to surprise and delight customers through process, profit model, customer service, or customer experience.
Founded by Michael Tutek and Quoc Nguyen, Preezie is a guided conversion and product discovery tool for eCommerce personalisation.
They wanted online shopping to feel less like a quick and dirty Amazon purchase, and more like the welcoming and often educational experience you get at high-end retailers. Much like the IRL consumer experience, the tool works by asking the user a series of questions before displaying relevant merchandise.
If you’ve ever tried buying something like a baby car seat, Preezie is a godsend.
Clients’ end-to-end purchasing conversions are already up from 2% to 7%. In retail terms, that’s a huge value proposition.
But is tech necessarily the answer to the innovation problem in ecommerce?
In Michael Tutek’s words:
We have played around with lots of different tech… VR, AR, Voice, AI and so on. Most of it doesn’t really have real-world applications and becomes moot over time. Often, the tech is built outside the view of customer experience.
Their answer is to focus on the customer experience, then build tech. “Essentially, the technology really doesn’t even matter. As long as the customer experience is perfect, that’s all that counts.”
Ecommerce is a lazy giant. If it rests on its heels, it risks sending its customers back into the familiar arms of bricks-and-mortar retail. Especially those more tentative Gen X and Boomer adopters – huge consumer segments no industry can afford to alienate. Even if they do struggle to use TikTok.