Tag: Amazon

“We believe retail is at a tipping point,” said Robert Peck of SunTrust Robinson Humphrey in a note to clients. “E-Retailers are leveraging new capabilities in old business models to expand existing and new markets like apparel, grocery and personal care, where e-Commerce had only limited penetration till now.” According to BusinessInsider, Peck calls it “E-commerce 2.0.”

Shopping online is growing fast, but still only represents a fraction of total shopping dollars, just under 8%, according to US Census data.

As of the first quarter 2016, the total amount of retail spending online (ecommerce) was $92.8 billion, which was only 7.8% of all retail sales. Ecommerce is in its infancy, which means that there are huge opportunities ahead, not just for the types of Amazon, but for small merchants and startups as well.

Worldwide retail sales, including in-store and internet purchases, surpassed $22 trillion in 2015, up 5.6% from 2014, according to a study by eMarketer. They say that retail ecommerce sales, those purchased over the internet, will make up 7.4% of the total retail market worldwide, or $1.671 trillion. By 2019, that share will jump to $3.578 trillion, yet retail ecommerce will still only account for 12.8% of all retail purchases.

Even though the internet and technology is the source of major disruption for retailers, brick and mortar is alive and well for the foreseeable future.

The study says that retail ecommerce sales are accelerating faster than previously anticipated and will jump 25.1% year on year in 2015. “Online sales growth will outpace brick-and-mortar sales growth by a more than 3-to-1 margin over our forecast period,” the report predicts.

Amazon Reshaping Ecommerce

Amazon recently passed Facebook to become the the fourth-largest US company based on stock market value. By 2020 analysts Rob Sanderson, Managing Director, Senior Research Analyst at MKM Partners, predicts that Amazon will be the largest US company by 2020.

“Amazon has a significant position in two of the largest secular growth opportunities there are,” Sanderson told Barron’s recently. What he was referring to were online retail and cloud computing.

As I said during my keynote @SohnConf, $AMZN is the most durable business in the world. $3T here we come…ps, you’re welcome.

— Chamath Palihapitiya (@chamath) July 28, 2016

Venture capitalist and part owner of the Golden State Warriors Chamath Palihapitiya of Social Capital said to a crowd at the Sohn Investment Conference recently that Amazon will be a $3 trillion dollar company within 10 years, almost ten times more than its current $366 billion market cap.

“Consider Amazon’s potential in retailing, said a Barron’s post. “It holds a 35% to 40% share of U.S. e-commerce, on its way to 50% by 2018, according to estimates from Doug Anmuth at JPMorgan published last month. And e-commerce is just 11% to 12% of U.S. retail, not counting gas, food and cars, on its way to more than 30% eventually, and 14% by 2018, according to Anmuth. In other words, Amazon is securing a quickly growing slice of a quickly growing pie.”

Internet Is Crushing Department Stores

There is one simple truth, internet retail is booming while brick & mortar department stores are in a free fall. The chart below from Standard Chartered Research tells the story

“U.S. private consumption has shown ongoing resilience,” says a note from Standard Chartered Plc via Bloomberg, “but this macro story masks sizeable divergence at the micro level, and this explains the wide interpretation of ‘how’s the U.S. consumer doing?’ The micro story is characterized by a parabolic rise in internet sales at the expense of ‘bricks and mortar’ stores, particularly department stores.”

The above stat isn’t as bad as you think considering that every department store also has an online presence and are working hard grow that aspect of their business. But even with that department stores are struggling online. “Digital sales continued strong, still growing double digits, but it too grew less rapidly than anticipated,” said Macy’s Chief Financial Officer Karen Hoguet during their May earnings call (PDF).

Internet business guru and financial analyst Robert Peck sees a shift in online shopping toward specialty boutiques and well run mom & pop stores. He says that as the internet generation grew up they don’t have reservations against online shopping like their parents did.

Presumably, one of the main drivers of online shoppers to Amazon was a belief that you wouldn’t get ripped off or have your credit card info passed around. This fear has dissipated over time but is completely non-existent with those that grew up with the internet.

Online Retail Will Diminish Need for Offline Stores

The Ovis report sees an “increasingly fragmented physical footprint,” with branded products moving to the internet. “Demand for large-footprint physical retail space will continue to fall,” says the report.

“Physical retail will still exist, but it will need a good reason to exist.” according to Dunkin’ Brands quoted in the Ovis report. The report portends that most new retail businesses will start online and later add some physical retail for showcasing products. They note that this is already the case in furniture. Retail will only play a supporting role in the future with new online retail stores in order to add trust with customers.

Existing pure-play online retailers will also continue to create physical locations, primarily to “enhance fulfillment and customer service.” They believe that much of this will take the form of the “click-and-collect models” which are common with UK retailers. “The UK today is the most advanced market for click-and-collect models, examples of which include ASOS and Boots, and eBay and Argos, a partnership that started in the UK and has been extended to Ireland,” says the report.

Click and collect is where the shopping is done online, but the items are physically picked up by the consumer at a fulfillment center or a retailer. Walmart in the US is one of the largest retailers offering this service.

According to the 2016 eCommerce Trends Report by Absolunete, an eCommerce agency based in Canada, depending on the types of products sold and the retailer’s network of physical stores, the proportion of consumers who prefer to pick up their purchase in store can reach up to 40%.

“Better still: offering customers the option to “Purchase & Pick-Up” often increases the average purchase value,” says the Absolunete report. “That’s right: 7% of customers who pick up their purchase in-store increase their spending while they’re on site (7% as measured in net sales). In Canada, where the prohibitive cost of residential shipping is an important challenge (the opposite is true in the U.S., where residential shipping is extremely inexpensive.), Purchase & Pick-Up becomes a win-win proposition!”

Absolunete says that “Purchase & Pick-Up” has advantages to the retailer:

• Increasing net sales once the consumers is at the store picking up their online order.
• Increasing conversion rates by making it easy for consumers to get their merchandise.
• Decreasing return due to in-store exchange options.
• Decreasing shipping costs and thereby increasing profit margins.

“We expect further partnerships to be made in order to allow Internet-based retailers to build up physical collection points,” states the Ovis report. “We also foresee noncompeting physical retailers collaborating to allow the collection of each other’s products in each other’s stores. This will allow them to maintain a virtual geographic presence despite the need to reduce their own physical store networks.”

From a showroom perspective, Amazon Books is a good example, where it has physical samples of not just popular books but all of Amazon’s products such as the Kindle, Echo and Kindle Fire tablets.

“The already blurred lines between physical-heritage retailers and Internet-heritage retailers will have been eradicated by 2026,” predicts the Ovis report. “The former will continue to reduce the amount of physical space they hold, switching their investment emphases online, while the latter will invest further in establishing physical presences to support the showcasing of brand and private-label products. While the large pure-play Internet retail brands will survive, the term pure play will be rendered obsolete.”

In-Store Digital

The Absolunete report predicts the rise of what it calls “in-store digital”, where consumers make online purchases while inside the physical store. Technology will be used to improve the customer experience and to make it a personal by “integrated gathering that allows retailers to better understand customers and customer behavior.”

The report suggest that it is increasingly common to see in-store advertising screens and tablets, enabling the consumer to search for products and to make online purchases while in the store, presumably of products that aren’t available in the store itself. “Going forward, customization tools and possibilities will go even further to improve customer experience. Paper posters and printed displays, for example, are being replaced by connected kiosks and displays which allow real-time, contextually-relevant messages to be displayed.”

Absolunete one interesting example by Rebecca Minkoff, partnering with Magento and eBay to create a Smart Dressing Room. They say that the system tracks what customers try on at the store and the sizes tried and what they buy and don’t buy. The store uses this data to send updates to the shopper if an item tried on is now available in her size or color. There are many more customization option being experimented with that may be available in the future. They say, “Think of it as cookies (like in your browser) that follow you around in the real world.”

“Engagement with the technology in Minkoff stores has been greater than expected,” said David Geisinger, who was previously eBay’s head of retail and mobile innovation but now is with Magento Commerce. “Engagement is on the customer’s terms, which I think is key, because it’s not intrusive.”

Technology is the Driving Force

eBay is in full preparation for the next commerce revolution and believes the heart of it is technological advancements coming together to reshape online selling. eBay CEO Devin Wenig believes that it is these innovations that will create an enormous opportunity for companies that are prepared to take advantage of them. And eBay is battle ready to just that, for years now seeing itself as both a great technology company… and a great ecommerce company too.

“We have seen the pace of tech innovation advance significantly — in artificial intelligence, cloud computing and virtual reality, all of which have the potential to reshape global technology dramatically in the next few years,” commented Wenig in a company announcement last week. “We are building eBay to be a vibrant and dynamic global technology leader for years to come, and we are starting to see results.”

“Everything we’ve done so far has been about positioning eBay for a future we can see advancing quickly towards us, in which innovations in technology platforms have the power to dramatically reshape the commerce experience,” Wenig says.

“We are entering what we call the Age of Everywhere — the profusion of cloud-connected devices that will bring the Internet to you, globalize the market, and make things faster and more on-demand,” said Wenig.

A report by Ovum, The Future of E-commerce: The Road to 2026 (PDF), predicts that over the next ten years instant gratification, powered by technology, will be a driving force in ecommerce. The report concludes that online retail today is “largely driven by price and convenience”, but by 2026 consumer expectations of the “ecommerce experience” will change dramatically.

“The desire for instant access and fast turnaround, 24/7, will be the norm by 2026, driven in particular by millennials (born approximately 1980–95) and also by Generation Z consumers (born
approximately 1996–2010),” the report says. “Generation Z are digital natives to the power of 10, with technology use their second nature. These generations are constantly connected and inhabit an online environment where events happen in real time without them having to wait, and where social media enables them to dictate terms.”

By 2026 the report predicts that consumer expectations will force online retailers to vastly improve customer support, will have to live up to expectations on the goods or services being delivered and shoppers will expect free delivery anytime and anywhere.

Mobile is the Internet

We Are Social’s Digital in 2016 report illustrates how both mobile and social media will will be key drivers of ecommerce going forward.

“Smartphone penetration is reaching new heights around the globe, and we are fast approaching the point where being an internet user means being a smartphone user,” commented Felim McGrath, who is the Trends Manager at GlobalWebIndex, in a blog post presenting the report. “This means that mobiles have the potential to become essential online commerce devices.”

McGrath backed up his comment with examples of how in Asia people are just as likely to shop online with their smartphones as they are a desktop computer. “Last month, close to half of South Koreans used their mobile to shop online,” he said. “And in China, mobile commerce has become the norm, with consumers now almost as likely to complete a purchase online via their mobile as via a laptop/PC.”

McGrath says that even though most consumers in Europe and North America are not mobile shoppers at these levels yet, it’s only a matter of time before they are.

The Ovis Report thinks that the trend toward more powerful smartphones with larger screens will help drive ecommerce and that retailers are optimizine the shopping experience for mobile. “Together, these developments are turning the smartphone into a platform that can support the whole shopping journey, from product search and discovery, to comparisons, recommendations,
and payments,” says the report.

The report notes that Android will continue to dominate iOS and that competition for payment systems won’t just be between Apple and Android, but will include multiple payments sytems on the the Android platform.

Social Media is a Key Driver of Ecommerce

Felim McGrath also believes that social media will be a driving force encouraging online shopping. He says that one third of the world’s population is now on social media, which is up an astounding 10% over last year.

“With such a significant amount of online time devoted to social media, there’s clear potential not only for advertising and marketing via social networks, but also for directly monetising users via ‘social commerce’,” said McGrath. “The last year has seen some of the world’s biggest social networks, like Facebook, Twitter, YouTube, Instagram and Pinterest, testing or introducing integrated commerce options, acting as the middle-men between buyers and brands. The networks themselves have a clear interest in pushing this trend, both to increase engagement with their platforms and to open up healthy new revenue streams.”

The research from GWI shows that consumers are now becoming brand aware because of social media and are also using it to research products. McGrath sees this as an important step to using social to complete purchases. “Social commerce has a bright future,” says McGrath.

The Ovum report also predicts that the need for people to document their experiences on social media will motivate retailers to “increasingly align not only their brands but also the
shopping experience itself to this consumer desire for encounters worth sharing.”

“This can already be seen with the emerging trend for integrating social media with in-store retail, with the aim of creating socially driven shopping experiences,” the report notes. “In 2015, Victoria’s Secret encouraged shoppers to take selfies in front of displays and show them to sales assistants in return for a free gift – and hopefully share their selfies/experiences with friends.”

“Any doubters about social media’s powerful role in converting prospects into customers need to immediately re-evaluate their position,” notes the Absolunete report. “Like, now. Though their pure conversion rates are lower than those of organic results or Email, they are powerful tools that promote brand loyalty and are a great way to share the brand’s values. Through community-logic, social media is a valuable resource to convert curious prospects into new customers.”

According to Absolunete, with good social media management online stores can generate results that are sometimes superior to search marketing strategies such as Google Adwords. Social platforms such as Pinterest, Facebook and Twitter are working to enhance their value to online retailers by adding functionalities that will guide the shopper towards a products pages with goal to convert their users into online retail customers.

“You may have noticed more and more “direct purchase” options popping up on social media platforms like Twitter, Instagram, Pinterest and most notably Facebook, which is responsible for 64% of social sales worldwide,” noted the report. “Retailers need to move quickly to capitalize on this; once the big, established eCommerce players will have fully implemented these tools, it’s going to be a lot harder – and more expensive – to stand out.”

On Instagram, for instance, you can now go directly from a picture to a product page which are being used by brands such as Banana Republic via StylePick. What’s more, celebrity endorsers are now being used by brands in this process leveraging their huge numbers of followers to create commerce.

93% of Pinterest users have bought something online in the last 6 months, according to Absolunete. They also note that Pinterest is the source of 16% of all social sales, with their “Rich Pins” allowing retailers to fully integrate online stores and automatically synchronizing product pages with the products “Pin”. J. Crew, Gap and Nordstrom all utilize this effective Pinterest ecommerce motivator.

Ecommerce while Messaging

Another emerging trend is the integration of ecommerce into messaging apps, which is already happening in Asia. McGrath notes that Line and WeChat have already integrated multiple commerce features and other “opportunities for monetization.” He believes this revenue opportunity is the “inspiration” behind Facebook’s move to make Messenger a separate app and their motivation to focus on messaging so aggressively. Indeed they are very focused on messaging, having paid $22 billion for WhatsApp in 2014, a startup that only had revenues $10.2 million in the year before its acquisition.

Again, Asia shows the way forward here. Messaging apps like Line and WeChat have pushed beyond simple chat apps to integrate a broad range of commerce options and opportunities for monetization, forming the clear inspiration for Facebook’s recent development of Messenger Platform. All these developments mean that social commerce has a bright future.

Artificial intelligence also plays a role in messaging. “During this time, we’ve seen artificial intelligence reach an inflection point,” Wenig said. “This innovation is already beginning to take hold of the messaging space with the arrival of conversational assistants. Artificial intelligence has the potential to bring an era of deep personalization to the commerce space.

VR, AR and Wearable Devices

“Due to the proliferation of wearable devices and technology, smart TVs, connected cars and household appliances, beacons, and other technologies, the consumer journey in 2026 will increasingly look like a pretzel that twists, turns and loops back on itself,” noted the Ovum study. “Consumers can start and end their shopping experiences on a mobile platform, in store or online. It is a fluid movement that by 2026 will be even harder for retailers to keep up with or predict because it will include a growing number of devices and touchpoints.

It is key for retailers to not only keep track of consumers across many devices and touchpoints, but to also accurately measure where sales are coming from. This will require retailers and their advertising partners to build to significantly improve ad tracking technology.

One of the key drivers of wearable technology is virtual reality and augmented reality. “Virtual and augmented reality will be the next platform revolution,” says Wenig. “This is already prevalent in the gaming world, but it has the potential to be far more disruptive.”

The Ovum report predicts that by 2026 consumers will expect a more “real” shopping experience which will mean an integration of augmented reality into online stores. Consumers will expect an an “event experience” that will rival walking into a brick and mortar store.

“This will translate into interactive, highly engaging online and real-world retail environments where augmented reality (AR) plays a key role,” the report says. “The provision of distinct and tangible shopping experiences, online and real-world, will become a key means to enhance and differentiate a brand’s value proposition.”

One of the key drivers for augmented reality being used by online stores is increasing the conversion rate. Generally, retailers do much better when a consumer walks into their physical store locations compared with internet shopping, because there is no human connection.

Epson’s Moverio smart glasses are one solution for retailers, where an online shopper can click the the “GoInStore” button and a sales associate at the physical store will walk the customer through high value products with wearing the smart glasses. Clicking the button initiates a two way voice call and a one way video stream of whatever the sales person is looking at.

Luxury car dealer Amari in the UK uses the glasses to show off their extremely expensive cars to online prospects. “Our sales team know every single detail of these cars, even to the level of knowing the tyre pressures,” said Sheikh Amari, CEO of Amari SuperCars in an Internet Retailing post. “This knowledge is difficult to bring across online and we have been looking for ways to bring our expertise into the online environment.”

“This new technology enables our customers to travel to our showroom in real-time and experience the cars remotely – giving us a competitive edge and the ability to close sales quicker, providing our customers a totally unique, convenient and trusted car buying experience,” said Amari. “Our customers – who include investors and collectors – are very busy people, based all around the world, who typically know what they want but often have to rely solely on the pictures that are on the website.”