Dissecting the E-commerce business

With the end of the year quickly approaching, this week brought a plethora of new data and analytics to determine just what happened during the ever-evolving holiday season.

Because of the time of year and while the information is fresh, I decided to depart from the dialog on Market Share and Growth discussed in my last update to discuss a new topic that is shaping the industry on a daily basis.

The marketplace experienced unprecedented growth in online sales. I will be eager to review the national numbers once the data is published – we witnessed unprecedented market share growth for Q4 as well as an overall year that set records beyond what we have seen since setting up drop ship capabilities more than a dozen years ago.

If you take nothing more than this single piece of information from this post, hear this: if your company is not currently building the required infrastructure to drive E-commerce, you are already well behind the curve and you will be obsolete in the next 24 months.

I view E-commerce as a three-tier approach that must be evenly and simultaneously managed – Pure Plan E-commerce, Drop Ship Fulfilment/Direct to Consumer Shipping and corporate-owned internal websites.

In today’s post, we will address Pure Play E-commerce with future discussions touching onDrop Ship and company-owned websites.

Pure Play E-commerce
Pure play is the term often used to describe customers like Amazon and Wayfair. While Amazon is often thought of as the evil empire these days, companies sitting on the sidelines, not willing to work with Amazon, are falling behind.  

The complexities of working with Amazon today require dedicated teams often with employees onsite in the Amazon offices. Today’s Amazon no longer requires salespeople, but rather business managers heavily engaged in day-to-day analytics focused on navigating the ever-changing tools, assets and algorithms focused on capturing and completing the sale to the end-consumer.

Savvy companies are learning how to manage this love-hate relationship to minimize pricing issues and long-term brand equity challenges.
Robust MAP (Minimum Advertised Price) policies can be very effective but they must have real consequences. As clearly defined by the Robinson-Patman Act, manufacturers cannot dictate selling prices to retailers but they can limit funding support if retailers chose to go outside normal competitive pricing suggestions.

As with all retailers, Amazon continues to grow more revenue-hungry than ever looking for suppliers to help fund everything from free shipping offers to margin shortfalls on SKU’s with pricing challenges.
Thanks to this change of strategy, Amazon seems to be more willing to work with suppliers to ensure they don’t lose these funds as they are greatly needed to support the selling asset base.

As the assets available become more costly, dedicated teams must constantly work to evolve the asset investment strategy to maximize ROI.  Amazon is maximizing these costs and is no longer the cheap date they were only a few years ago, thus the massive turnaround in profits witnessed by the market in the last two years.

In my next post, we will address the second tier of E-commerce, Drop Ship capabilities and the opportunities and challenges this channel of E-commerce will present.

S. Darrin Johnston is a C Suite Management Executive in the housewares industry.