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Ecommerce: The challenges and changes shaping the etailing environment

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22nd May 2014
Managing editor MyCustomer.com
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Ecommerce sales continue to soar, and forecasts are projecting even bigger numbers for the future. All seems rosy in the world of online commerce. So why are analysts concluding that “retailers have their work cut out for them” in the coming years?

According to eMarketer's latest forecasts, worldwide business-to-consumer (B2C) ecommerce sales will increase by 20.1% this year to reach a whopping $1.5 trillion. Forrester estimates that US online retail sales alone will total $294 billion by the end of the year, and will grow to $414 billion by 2018. These are some mind-boggling numbers, but then there are powerful forces driving them.

For instance, rapidly expanding online and mobile user bases in emerging markets are super-charging sales. This year, for the first time, consumers in Asia-Pacific will spend more on ecommerce purchases than those in North America, topping $500 billion and making it the largest regional ecommerce market in the world.

In turn, this is encouraging a growing number of major brands to push into new international markets. In a Forrester report, 75% of US-based online retailers ranked international expansion as either “very important” or “somewhat important” to their overall business strategies. Although international ecommerce revenues are limited for the majority of brands today, companies like Asos.com and eBay Marketplaces that take in roughly 60% of their revenues from outside their home markets, are pointing the way.

“Internationalisation is a big trend,” notes Chloe Thomas, founder of indiumonline.co.uk and author of the eCommerce MasterPlan. “There is an increasing interest in UK ecommerce businesses to expand overseas and start shipping to other countries like Ireland and around Europe. This is a new one for ebusinesses in the UK, which have always kind of ignored other countries.”

Also driving ecommerce growth is the increased spend from younger consumers, with digital natives now older and earning salaries that provide purchasing power, and whom are more likely to spend a larger share of their wallet online.

And of course a huge influence on online sales has been the boom in mobile commerce. Forrester estimates that there will be nearly 200 million unique smartphone subscribers and over 100 million tablet owners in the US by the end of 2014. It is therefore unsurprising that retailers are reporting an ever greater share of their sales coming from mobile devices, with Shop.org’s recent State Of Retailing Online study reporting that 20% of retailer’s online sales are now coming from smartphones and tablets. Forrester predicts by 2018, 55% of online buyers will use their smartphones to make purchases. In the UK, retail mobile commerce sales are expected to top £6.61billion this year, according to eMarketer.

“Mobile is taking off way beyond the expectations that the industry had three or four years ago,” says Chris Fletcher, research director at Gartner. “On the one hand you find that people are using the smaller devices such as mobile phones for browsing. But then more frequently customers are doing the actual shopping or buying process through a tablet or traditional laptop environment when they get back to their desk or back home. But we are seeing, especially with the larger companies, that there’s a very high level of mobile shopping out there or mobile purchasing. Tablets in particular have gotten very popular. But that’s no surprise, I guess.”

Harder to turn a profit?

So why is it that in Forrester’s recent report, US Ecommerce Forecast: 2013 to 2018, the analyst firm concludes that “retailers have their work cut out for them in the coming years”?

“Retailers have to pay more money for mobile development, it will be more expensive to ship packages in the future, and there is going to be more price competition from companies like Amazon,” explains Sucharita Mulpuru, vice president and principal analyst at Forrester. “All of these factors will make it harder to have a very profitable ecommerce model.”

Elaborating on her first point, she continues: “You have to be thinking about how you develop your site from a technical standpoint, so that it renders well on different devices. There is no question that that is something that is an extra cost that every retailer needs to budget into their website execution now. A lot of it is design and functionality if the website, because that affects everything – it affects the conversion rate and the ability of customers to find content on different mobile devices and typically mobile is smartphone as well as tablet so that just makes the decision on what to do even more complicated.”

Bill Loller, vice president of IBM Smarter Commerce, adds: “Mobile is really changing the game for design and technology investment.  Adaptive and responsive websites are now a basic requirement for servicing the mobile market and the UK market has embraced that model. If you look at sales of PCs vs laptops vs tablets and smartphones, it’s pretty clear that the desktop-centric world is dead. Why investment in desktop experiences anymore? The rate of adoption of mobile devices is only going to continue. And what happens when wearables actually hit mainstream? Someone is going to be running your app or website on a watch. And that world will come very quickly. Companies need to be thinking about a mobile only world and even the fact that the definition of mobile is changing.”

Fletcher agrees that it is a moving target. “It is not so much a challenge with the larger and more established ecommerce platforms - if you look at what IBM, Oracle Commerce, SAP Hybris, they’ve all done a good job at supporting these dynamic resizings of ecommerce sites. But some of the internally developed applications, which smaller retailers have, mean they’ve got a real challenge here. One of the problems for the smaller retailers or for companies that have ecommerce developed in-house, is that you’ve got to continually keep that site refreshed with new technology, new experience, different mobile devices. And it’s a real challenge for retailers working on very thin margins.”

Thomas, however, is optimistic that this mobile obstacle isn’t insurmountable. “Ecommerce businesses shouldn’t get too hung up on whether customers are using a tablet or desktop. They should make sure their website works well across all of them, and make sure you’re making it easy for the consumer to buy from them. So if you’re seeing a lot of mobile traffic then it’s time to put PayPal in pace, or some merchant account which means that the consumer doesn’t have to key in the 16-digit credit card number on their phone, which is painful for anyone who’s ever tried to do it. If you’ve got PayPal on your phone, two clicks and you’re done. So it’s a bit of a mindset change to embrace these things and I think it’s quite reassuring now that the industry talks mobile in terms of responsive design, not in terms of building apps. Because responsive design is something that even the smallest ecommerce business can manage to implement and it not increase their daily workload, whereas an app does increase your daily workload.”

Omnichannel challenges

Other challenges that etailers can expect to face include the growing demand for a cross-channel or ‘omnichannel’ shopping experience. What this means is that retailers must blend the experience they provide with their ecommerce sites with the in-store experience and all the other channels that they have. And this is not easy.

“The biggest challenge by far is how to get all your sales channels to talk to each other,” suggests Max Childs, marketing director at Amplience. “If you’re going to sell via your website, mobile app and high street stores then you need a way to synchronise and deliver new campaign materials to them all at the same time in an integrated campaign.”

Fletcher adds: “On the one hand you’ve got the worst case example where you put an order in online and then you want to change something on it so you call and of course the retailer has no visibility. That doesn’t happen very much anymore, but what we find does happen is that somebody will order online and want to pick up from the store; they’ll order online and want it delivered to their house then they’ll want to return it to the store, and these kinds of complexities are really creating some headaches for retailers. A lot of it is dependent on the back-end systems which are not very glamorous and don’t get as much coverage as they should. But things like order management and distributive order management, inventory and warehouse management systems, the financial management systems – all this plays a really important part of that cross-channel experience.”

Also related to this is the growing importance of having not only visibility of the customers visiting your site, but also an understanding of them.

“The most significant tech-related challenge for etailers is when it comes to using technology to understand their customers,” warns Loller. “As customers’ expectations of commerce mature, businesses are beginning to understand that the customer experience is no longer just about the number of sales, website clicks or social media mentions. Instead, businesses with ecommerce platforms need to know what prompts customers to behave the way they do – what different types of customer behaviour exist, how issues impact their behaviour and how this can help ebusinesses improve the overall online customer experience.

According to our research, over three-quarters (78%) admit that they are more likely to have limited or no understanding of the behaviours of different visitor types, while 73% admit they’re unaware of the reasons customers leave the site without converting.  While businesses consider this information very valuable, they fail to gather the actionable insights to help them improve the overall customer experience.”

How to respond

Forrester recommends three areas to focus on to ensure that retailers will continue growing their online sales:

  • Have a laser focus on site execution. With retailer conversion rates remain still very low, companies must ensure that their sites continue to render quickly across the various devices that shoppers use to access their content and make sure they enable shoppers to easily pay for products with as little friction as possible. Responsive design frameworks and well-designed experiences are vital.
  • Keep a close watch on order fulfillment. Perhaps the single most important moment of truth in ecommerce is when the consumer receives the product she has ordered, so they must get it right. Forrester advises that retailers engage omnichannel tactics to drive shoppers back to stores and leverage store networks to capture orders at critical busy time periods when they are at the mercy of the carrier networks.
  • Craft a plan to expand their site assortment. Online retailers need to create private-label offerings, customised products, or products co-created with customers to attract and retain business. Companies such as Everlane, Skinit.com, Threadless, and Quirky all execute such initiatives and represent the “future of retail”, says Forrester.

A recent burst of innovation in the ecommerce world demonstrates how brands are indeed responding to the present (and future) challenges.

Click-and-collect services, for instance, have proliferated due to their popularity with shoppers. UK retailer Argos has reported that its ‘check-and-reserve’ service accounted for 31% of total online sales in Q4 2012, while 86% of all of Halfords sales are now for in-store collection after it introduced click-and-collect three years ago. Furthermore, research by Econsultancy into shopping habits during the Christmas period revealed that 45% of online consumers used reserve and collect over the festive period.

“Click-and-collect is part of a wider trend for ecommerce sites to integrate with the external world,” suggests David Winterbottom, technical director at Tangent Labs. “For instance, Korean grocery stores have started to embed a 2-dimensional version of themselves on subway platform walls. Customers can scan QR codes to get items delivered for dinner that night. QR codes may have been laughed at to start with, but that’s perhaps because we’re only just starting to see the real use-cases.”

Elsewhere, ecommerce giant Amazon has been trialling a range of innovations, from anticipatory shipping to Amazon Dash to delivery by unmanned drones. Its Prime service has also been a huge success. Shopping cart abandonment levels hitting a record high of 72% in 2011 thanks to the “sticker shock” that occurs once shipping prices are applied, so Amazon launched Prime to offer shoppers the opportunity to resolve the issue of slow and unreliable delivery. For $79 annually, Prime users get free two-day shipping with no minimum purchase, among other benefits such as free digital content. McKinsey reports that Prime members spend over four times more with Amazon than non-members, due to their increased transaction frequency that would not have otherwise happened without their benefits. Now, other etailers are looking to follow suit.

“There are US companies at the moment that are trying to enter the UK market who have a cross-business prime account where you can pay, like Amazon Prime, but it counts for multiple websites,” says Thomas. “P&P charges remain the number one barrier to conversions, so if you can find a way of dealing with that and also incentivise someone to continue buying from you rather than someone else then these yearly delivery charges, then it becomes a real customer acquisition tool and customer retention tool. And the supermarkets are now also bringing these in as well.”

Thomas continues: “Customer service and delivery are huge battlegrounds at the moment. You’ve got the likes of Next and Ironmongery Direct that offer ‘order by 8pm tonight and get free delivery tomorrow’. It’s incredible from a consumer perspective when you think about what they have to do to enable that to happen. And there are a lot of interesting tactics coming in – Amazon has pretty much done the deal to buy all the Transport for London tube station ticket offices to have them as parcel collection points. It totally changes the game in terms of customer service and ease of getting your goods. Watching those big businesses, you can see where the industry’s going and the easier we make it for the consumer to get the goods, the more likely they’re going to be to buy.”

Little wonder that projections for online commerce are so robust. But with such innovative thinking serving to further create an ultra-competitive environment, etailers must ensure that they have the technology, the experience and of course the offers to go toe-to-toe with the other players. With that in mind, in the coming weeks we'll be examining how to be an ecommerce leader, from creating a strategy, to putting the technical infrastructure in place to building an ecommerce team. 

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