KEY POINTS:
There's a growing belief New Zealand is on the tipping point of E-commerce growth. One of our most experienced online retailers said:
"We are at a turning point and this year is going to be a critical one for us." Richard Harrison, Woolworths E-commerce manager, (Herald, Feb 9, 2001).
Note the date - almost eight years ago - but you can hear any number of E-commerce advocates saying the very same thing today. By any estimate, online turnover has not reached even 1 per cent of total new goods retail sales in New Zealand yet. Why is that?
Ironically, it could have been the forward-thinking, risk-taking nature of a few that has created this lag. Remember Flying Pig? It was a high-profile failure from some visionary investors ahead of their time, and our traditional retail industry has been somewhat online-averse ever since.
For larger retailers, E-commerce was either an after-hours passion of the IT department, or a commercially-minded marketer recognised it as more than a media channel. For online entrepreneurs who saw the potential immediately, it's been a long hard road.
Consumer demand is less of an obstacle now, especially since a large proportion of New Zealanders purchase flights online or happily use Trade Me.
Online is still the quickest way to buy from home in many cases, and faster connections will most certainly drive frequency, average order value and broaden the online purchase repertoire across different product categories. There's more to be gained here than just from increased market penetration.
The big picture for E-commerce isn't about online sales, and it certainly isn't just about online purchases made by consumers in New Zealand. For bricks and mortar retailers, the biggest sales benefit they will get from their online investment is in their stores. For any type of retail business, the ability to access customers in international markets is where an online presence provides incremental sales.
Some of those orders won't even need to be delivered overseas expats drive average order values up when they buy for friends and family back home.
This dynamic works both ways. Many retailers are suffering from international competition that online selling has brought. www.strawberry.net is a prime example.
It's highly unlikely a New York professional is going to buy mascara from Farmers, but there's ample scope for New Zealand to sell unique products to the rest of the world wherever those products are made.
E-commerce isn't just about selling products to consumers. Smart, specialised software is a real opportunity to commercialise Kiwi ingenuity.
Here are five ways we could help ourselves achieve the commercial promise of ecommerce:
1. Learn from developed markets
Being a relatively small, isolated country is less of a hindrance in the internet age. After 250 years of isolation, Japan industrialised itself in 30 years in the later 1800s. One of the keys to Japan's success is easily within our reach: we need to be expert learners.
Japan was labelled a 'translation society' because it concentrated so much effort capturing the economic learnings of Europe and America. The government played a major part in galvanising this focus on learning instituting a Western-style education system, sending thousands of students overseas to study, and employing several thousand Western teachers to bring its people up to date in multiple disciplines.
We need to find ways to tap into the many excellent online retail networks and educational forums around the world - and we can do it without even leaving our desks. The US market alone has three organisations competing to be the best at educating the retail and vendor market in best practice of online retail:
www.shop.org, www.internetretailer.com and www.etail.com. Of them, two send the latest learnings in E-commerce to customers every day via email or RSS feed.
(See Easy access to E-commerce smarts below)
2. Master the basic drivers of success
We seem to be approximately five years behind the US market in terms of our proposition to consumers, i.e. the proportion of our retail, manufacturing and service businesses who transact online and the quality of what they offer. But even in a developed market like the US, most retailers still expect to see further payback simply from getting the basics right.
Shop.org has run its State of Retailing Online (SORO) research with Forrester for 10 years it is somewhat of a bible for a quantified read on their market.
Improving the legibility and effectiveness of product detail pages is still one of the key initiatives most retailers expect to focus on in 2008. Twice as many retailers see improvements to the product page as very effective compared to those that consider using streaming video as very effective, and the gap grows to four times when compared to flash or rich internet applications.
Getting the crucial building blocks of E-commerce right is a great area for retailers and suppliers to focus on. Ensuring accurate price and stock availability is fundamental, and requires automation to do cost-effectively and well.
Is all of the information the consumer needs to make a decision there? Is it clear, simple and in an obvious place? These are the things that will help drive sales, and there are many best practice examples to follow. Retailers and suppliers should work together to emulate online retail leaders around the world: Amazon, Best Buy, Gap, Land's End are all good sites to learn from.
3. Build a supplier ecosystem
Another key to our E-commerce success will be mastering outsourcing either as a retailer or a technology supplier. Retailers would be wise not to build their own E-commerce software. It requires a huge internal IT resource and associated problems better left to the experts to handle. This is also where one of the most exciting opportunities for New Zealand lies.
I can get any number of E-commerce services performed at a fraction of the cost of New Zealand suppliers by using www.elance.com. I recently posted a job for clear cutting of product images. Half a day later I had twenty quotes from all over the world, all under a third of the cost quoted by a local supplier - some at a tenth of the cost. These kinds of services go a long way to helping retailers cost-effectively create great websites.
We won't make lots of money building businesses selling services that are supplied on Elance.com. We need to be smarter than that. At the internet Retailer conference held in Chicago in June, there were 325 online retail exhibitors in a 130,000-sq-ft exhibit hall.
SLI Systems, a Christchurch-based business specialising in smart internal search, was one exhibitor. SLI serves up around 100 million search queries every month on 300 websites across the world. This is the type of software businesses New Zealand need more of robust solutions for real business needs.
Access to a global software market means that it's possible to make businesses out of niche expertise like never before. www.bazaarvoice.com has commercialised the power of social networking and become a leader in consumer review technology in the US.
One of the latest niches is personalised alerts. My Buys "builds deep profiles and use a portfolio of algorithms and real-time optimisation to deliver highly relevant web and email alert recommendations". With some dedicated learning and thorough homework, more New Zealand-owned businesses like SLI could be making money from smart technology.
4. Make it mainstream at home
There are some smart pureplay pioneers that have built online businesses that consumers love. Some of them are even making money. Unfortunately, despite much publicity and providing an awesome experience for their customers, many have failed to crack the mainstream.
We'd benefit immensely if we could use a strong E-commerce market at home as a test market for our success internationally, and great E-commerce propositions from our large retailers would go a long way to achieving this. From the outside, you could be forgiven for thinking our retail industry is simply waiting, whilst the competitive landscape gets tougher and tougher.
Whitcoulls has invested significantly in E-commerce over the last eighteen months. With a behemoth international competitor such as Amazon, whose US sales account for 9 per cent of the total US online retail total dollar value alone; local pureplays such as Fishpond and Trade Me; increasing price competition from general merchandisers, it makes sense that A&R Whitcoulls Group's commitment to this channel continues to increase. It's a salient lesson other retailers can learn.
Look at Ferrit, Ezibuy, and The Warehouse. Ferrit is growing New Zealand's online retail market thanks to a massive and economically benevolent investment from one of the country's largest companies (Telecom).
Ezibuy is an example of how store footprint is no requirement for international expansion; and The Warehouse is perhaps our best E-commerce wake-up call for bricks and mortar retailers yet. Let's hope more of our top retail stores adapt to an effective online retail presence in 2009 and we should support those who are currently E-commerce effective.
5. Collaborate for the global coin
Great pureplays have increased competition for bricks and mortar retailers by creating irresistible consumer propositions online. It's easy to see why they've been first to embrace E-commerce:
Mulitchannel
Advantages: Established brand, store asset marketing budget, easier to absorb mistakes
Disadvantages: Legacy systems to integrate into, lack of visibility re stock, lower margins due to store overheads
Pureplay
Advantages: Understand the space, nimble, low overheads
Disadvantages: Unknown, resource scarce (people and funds), long term vulnerability if competing predominantly on price.
Rather than competing against each other, pureplays and bricks and mortar should be competing alongside each other, and even collaborating when it makes sense. In fact, large retailers are the start-up's exit strategy. A great US example is Callaway Golf's purchase of www.igogolf.com and Trade Up Commerce, from owner David Schofman. This strategic purchase resulted in incremental revenue streams of hundreds of millions of dollars for Callaway.
On the technology side, Kiwis are great at being a jack-of-all-trades, and if you take a local market view, specialisation makes no sense at all. However, if you take a global view, it becomes very obvious, very quickly, that you simply cannot compete by trying to be good at everything.
Being brilliant at your core service, and partnering with the Best-in-Field specialists is the smart way to become indispensable to your client's business growth. A great example of this is site analytics company Omniture.
Through their marketing integration product Genesis, Omniture enables their clients to plug digital marketing technology providers and consultants into their own version of the Omniture platform, thereby creating an 'analytics empowered digital marketing ecosystem'. This solves a real problem for their clients.
The internet has long been touted as a vehicle for New Zealand to reach international markets. It's only a matter of time before we reach the tipping point.
Easy access to E-commerce smarts
shop.org
internetretailer.com
imrg.org
internetretailing.net
forrester.com
Between these organisations, they host up to a dozen conferences dedicated to E-commerce in the US each year. Attending just one would reveal the depth of knowledge available, whether you are a supplier or a retailer.
Smart E-commerce providers have been attending these forums for some time. Several New Zealand retailers have accelerated and amended their business plans for E-commerce as a result of attending these conferences. The investment pays back - even if all it does is stop you investing in something that won't drive revenue.
- For more on E-commerce go to Start-UP.co.nz
