Sorry. Didn't mean to sound the alarm in such a negative-sounding way. But I did want to capture your attention and then ask you to think about e-commerce, as an industry, in an entirely different way.
ComScore stated that the entire e-com industry (not including Travel) in 2009 was worth $129.8 Billion. If you’re like me, you may find that figure somewhat shocking and alarmingly small.
After all, as taxpayers, we wrote a check for $183 Billion to just one company, AIG, to keep them afloat. Meaning that the check we gave AIG was $50BB more than that of all of e-commerce in aggregate sales. Them’s the facts.
Meanwhile the U.S. Census Bureau states that the size of what I’m calling Real Retail (meaning when consumers walk into a store, restaurant or auto dealership and buy stuff) is worth $ 4.13 Trillion. Stated differently, ecommerce hovers somewhere around 3.5% of what retail generates. And for lots of reasons, some predict e-commerce won’t grow to 10% of all retail, at least in our lifetime.
Lately, I've come to calling e-commerce what it really is…a nice-sized industry that is not the salvation for major retailers and brands, but rather, a small sales channel for most of these companies (unless you’re a pure-play like Amazon or eBay). Classic example: A major apparel manufacturer I called on earlier this year to talk about a new company we launched called www.click2mortar.com told me proudly “that his company generated over $400MM through their e-com site”.
I reciprocated his enthusiasm and responded by asking “Hey that’s fantastic.” I drilled a little deeper…”so how much revenue does the company generate through its retail and wholesale partnerships, and what’s the percentage of revenue contribution for e-com vs. wholesale and retail channels?” He didn’t have that exact number, in fact, he had no idea how much revenue his company generated through retail. But I did. When I told him his company generated $9.5BB in sales the previous year and that $400MM in e-com activity was less than 5% of total revenue, he made the classic come-back remark. “Well, our margins are fantastic and we’re our own #1 retail store”.
So on the surface, that’s sounds OK, I suppose, but usually, the margins that the typical eBusiness Director describes doesn’t always take into account the entire company’s P&L, just the e-com channel.
Much of the costs of bringing his products to market aren’t even accounted for in those margins.
Let me ask you. If you were this company’s CEO or CFO, would you think that the high-margins on $400MM in sales is a more productive business model to pursue vs. the $9.1BB in non-ecom related business? Or would you set about trying to figure-out how to make your Retail business more profitable?
I think the latter is the right answer for CEOs/CFO’s, and this theme is what I will be addressing over the coming weeks and months. You’ll have plenty of opportunity to poke, inspect, opine and maybe even agree on certain topics…
So stay tuned…
