Regional retailers can no longer dither on e-commerce

Rapid social change is one of the leitmotifs of today. In every field of life, the way people dress, their food, drinks, how they are eating — everything is changing.

Just look back at the last 25-30 years and see how we went from a pen-and-paper society to faxes, emails and, now, to social media — all within a single generation.

In business too. a quiet revolution has been taking place. For hundreds of years, the structure of commerce was built on a value chain starting with producers who sold their products to agents who sent them to distributors, who passed them on to retailers who eventually offered them to customers.

Even while production gradually moved to outsourced suppliers in lower cost locations, the basic structure of the value chain continued with each link extracting a cost for its services.

Over the last few decades however, the power within the chain began to shift towards those who had control of the relationship with the customer — the retailer. Recognising this, many producers began to cut out pieces of the value chain — the agent or the distributor — working directly with retailers.

Other producers eliminated even the retailer, setting up their own stores to serve their customers directly. Thus over the last few decades we saw the explosion of company-owned boutiques and showrooms across the spectrum of products, be it in fashion, jewellery, electronics or even food.

The intrinsic problem with this strategy was its tremendous cost and high risk. As we know, retailing costs are largely fixed. While markets are booming and there is growth these are easily absorbed, but when there is a slowdown or a downturn, the costs begin to hurt and soon drastic measures need to be taken.

This results in a double-whammy — a loss of sale. but more importantly it also results in loss of visibility of the brand, and therefore the loss of market share. While all this was happening on the retail front, another phenomenon was gradually taking root — online shopping.

Out of nowhere a new business model emerged, which did not require expensive real estate investments nor did it need the fixed costs of a highly trained sales teams.

It called for other skills. An understanding of the customer’s wants and needs and the solution for this; the ability to offer this knowledge to her in a cost-effective way; and the means to reach the product directly to her.

The marriage of these three skills became possible with the digital information explosion, the growth of social and online media, and the maturing of logistics as a business. Together, they put into the hands of the entrepreneur for the first time an affordable solution to actually reach the product right into the hands of the consumer — it was like finding the holy grail!

Here at last was the means to take a product and sell it across an entire country — and then across the globe, theoretically from one single location. What made the business even more exciting, is it enabled the vendor to offer to the most particular customer a specific product that would be perhaps too specialised for most mainline retailers to carry.

Eventually, this long tail made it possible to even sell really specific products, to the most exacting buyer, thereby empowering both the seller and the buyer with abilities that they did not have.

The early excitement has settled down and we now look at online commerce as another one of the sales channels. In the US where the business is most advanced, eCommerce comprised a total of 8.4 per cent of total retail sales in the year November, while it grew by a healthy 14.8 per cent.

According to eMarketer.com, estimates of global eCommerce sales are at 6 per cent of global retail sales of $22.6 trillion (Dh83 trillion) in 2016 and predicts it will reach over 14 per cent by 2020. The trajectory is rapidly moving upwards and a lot of this growth will be driven by eCommerce in China and other developing countries.

That the business is going to grow in our region as well is widely accepted. As always, it is difficult to get figures about the business in this region, but one estimate is that in 2016, eCommerce will be 0.11 per cent of the GDP.

Contrast that with China which is currently 1.6 per cent of GDP. eCommerce still has a long way to go here and the entry of new and loaded players will at least increase awareness and acceptability among buyers.

Like all disruptive changers, if it does take root, it could take off quite rapidly. So if you are in retail, it’s time to get your eCommerce business going as well.

— The writer is a senior executive with a large retail group in Dubai.