I'm in the market for a new espresso-capo machine — maybe. And I had time to kill this week, sidelined by a sick computer. So I bounced around the retail world doing research and due diligence: a U.S. website, coffeegeek, that compiles consumer-written product reviews; a couple of Canadian on-line stores (Espresso Planet, Espressotec); and a tour of the Italian importers (Faema, Gaggia, Saeco) in Toronto's Davenport-Dufferin zone.
The compound geekiness of my project (espresso machine lust made manifest in a virtual/real world hunt) should come as no surprise to this column's readers. But I must say I found the experience a tad frustrating. And in my frustration is a question for big Canadian retailers: Why are you absent from my search, niche though it may be? In the United States, I could easily buy my Italian brands — along with more popular ones — on-line from Amazon and other big mass marketers. And I can also get just about anything else I might imagine, quickly, easily and with lots of free information and advice. Indeed, a new study from shop.org, an association of on-line retailers, suggests that on-line sales in the United States are on a tear. But not so here.
Canadian retailers who breathed a collective sigh of relief after the dot-com disaster and made do with tacky, second-rate on-line stores at best should take a close look at the shop.org study. It reveals not just an industry that's hot — and no doubt preparing to follow Wal-Mart, Home Depot, Williams-Sonoma and Amazon across our border. It also paints a picture of an industry that is gaining precious lessons from experience, lessons that will be difficult to replicate by lumbering fast-followers in the muskeg.
The U.S. on-line retail scene includes aggressive players in three categories: Pure Web-based companies (such as Amazon); store-based retailers that sell on-line (Williams-Sonoma); and catalogue distributors that have also gone electronic (Lands' End).
In 2003, U.S. on-line retail turned the corner — big time. Of the 150 companies across the three categories in shop.org's survey, 79 per cent reported positive operating margins for their on-line sales businesses in 2003, and in aggregate the industry reported margins of 21 per cent. Pure Web-based retailers switched 2002 losses of 16 per cent into profits of 15 per cent. Excluding sales of $42-billion (U.S.) for travel-related purchases, U.S. on-line retail grew to $114-billion, a 51-per-cent increase from 2002. This represented 5.4 per cent of all retail sales, up from 3.6 per cent the previous year.
While these numbers are impressive enough, it's the subtle advice in the report that is worth noting — not just for its intrinsic value, but also for what it indicates about how on-line retailers in the United States are learning from experience. For example: Web retailers improved profitability in part because of falling technology prices. Also, as on-line survivors have gotten bigger, they've gained buying scale, which let them cut the cost of goods as a proportion of revenue. But they spend more on marketing than traditional retailers, who benefit from the marketing presence of stores and catalogues. As store-based retailers bring their less tech-savvy customers on-line, their budgets for phone support, for example, must increase.
Customers, especially those of store-based retailers, increasingly research products on-line only to buy in stores. The downside is that on-line customers may not seem to be spending. But one in four off-line purchases is influenced by the Web.
To capitalize on this, smart retailers provide a useful, seamless "cross-channel" experience. Even when a customer buys on-line and then actually returns the product to a store (which 87 per cent of retailers now permit), the benefits are significant. Eight per cent of orders bought on-line are returned to a store — but 25 per cent of these visits convert into other in-store purchases.
Nearly all store-based retailers have redesigned their websites and search capabilities, while using measurement and analytics tools to identify buying pitfalls. Most also use modest, cost-effective techniques to track the activities of customers as they move between Web and physical stores.
Growing numbers of retailers integrate on-line and store planning. They use Web data to help with buying and marketing decisions, and using single teams to plan programs for all channels.
These insights, bracing as they may seem from the Canadian context, are but the tip of the iceberg. Much more is happening at the level of individual retailers, who've got proprietary strategies and market-entry initiatives that the study doesn't reveal. Consider, for example, the elemental fact that Amazon has begun selling diamonds and other high-end jewellery in the United States with margins in the 15-per-cent range. Birks, take heed.
In the United States, the time is nearly past when on-line is something unique and separate from what big merchandisers do. It's just another part of doing business, and those who miss this point risk being out of the game. Canadian retailers should wake up and smell the digital cappuccino.
David Ticoll's new book is The Naked Corporation: How the Age of Transparency Will Revolutionize Business, written with Don Tapscott.
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