NEW YORK — Over the last two years, e-commerce sales, as a percentage of total retail sales in the US, have risen from just seven percent to an underwhelming nine percent. Certainly, with the onslaught of digitally-native brands, not to mention the ongoing demise of legacy retailers, one would’ve thought that e-commerce would be in a far greater position today.
Amazon alone represents four percent of this total, and is of course a major force in overall e-commerce growth. But what about the remaining five percent — why has the overall industry not grown at even a fraction of what Amazon has?
There are many areas that both DNVBs and existing retailers alike can leverage to drive more digital transactions, and broaden the reach of e-commerce.
The purpose of this article is not to highlight the strengths of Amazon, a topic that’s more than well-covered at this point. Rather, it’s to explore how e-commerce can potentially increase its overall footprint and grab a much greater portion of all retail sales in the US.
The key in all of this is simple: In a world where retail continues to undergo a fairly dramatic shift — and with digitally native brands (DNVBs) rethinking the store as more than just a physical point of sale — there are many areas that both DNVBs and existing retailers alike can leverage to drive more digital transactions, and broaden the reach of e-commerce.
Opportunity №1: Easing friction at the point of purchase.
Cart abandonment is overwhelmingly rampant today among consumers. According to Statista, a market research firm, abandonment accounts for over 77 percent in e-commerce. What’s stopping shoppers from pulling the trigger here? Most of the time the friction is due to price, logistical expectations, lack of inventory information, and general fear.
Meanwhile, cart abandonment software typically only functions as a bandaid, using methods to essentially strong arm or trick shoppers into completing the purchase — think: email reminders or a reorganization of checkout features — but it doesn’t aim to get to the root of the problem, which is making online shopping a more natural, seamless, and personable experience for consumers. This software has generally been worthless, and, for that reason, has mostly been avoided by VCs. In fact, many of these products are just that: features and add-ons in Shopify or Magento, rather than full-fledged operations.
One way to solve this: Connecting online shoppers with retail staffers in a seamless way. Companies like Hero are providing shopper a simple and smart channel to speak to stores through video chat. If YouTube or Twitch are any indication of the what video can do to supplement a digital environment, this is a really interesting approach to conversion.
Hero is proof that the human need to ask a store associate for help hasn’t changed — and is now, thankfully, being made possible online. For retailers, they allow store associates to build their client sessions and log their relationships. Simply put, when there’s a lot of activity on a brand’s website, but little foot traffic at the store that day, Hero supplements that silence.
As a shopper, when you’re dropping a cool $5K on a designer handbag online, Hero can be that self assurance you need. And when you’re not sure if Adidas generally runs larger than Nike, or if that NMD you want is sitting in a store near you and available for pickup, Hero’s there.
For most of retail, where store associates experience an abundance of downtime, Hero could be the catalyst that activates web traffic, and hedges a monthly lease obligation.
Ross and TJ Maxx have a different situation.
But this doesn’t necessarily apply to every retail category. For example, discount stalwarts, Ross and TJ Maxx, both public companies, continue to do remarkably well — and Ross doesn’t even have an e-commerce business.
Their continued success is, in part, due to the unique experience shoppers get when they visit these stores. Shopping at Ross and TJ Maxx is all about the treasure hunt that happens there. The environment is tailor-made for it: There’s so much inventory being turned over, that for shoppers it becomes more about the deal they end up finding that day.
Shopping at Ross and TJ Maxx is all about the treasure hunt that happens there. The environment is tailor-made for it.
Perhaps the only direct digital comparison here is Hollar, the online dollar store that does in fact have apparel and home categories — although it’ll be interesting to see how the Hollar story plays out.
They certainly face an uphill battle in improving customer acquisition, winning out against incumbents’ brand exposure, and (most of all) bringing that same thrill of the hunt element online. CEO David Yeom recently made it clear at Fast Company that he understands what needs to be done: “[W]e watched every dollar,” he said. “But at the end of the day, [my mom] would walk out of the store feeling like a winner because she found a treasure. And that’s the exactly the feeling we want to replicate with our customers.”
Opportunity №2: Addressing logistical problems.
It goes without saying that most retailers can’t compete with Amazon Prime overall. That said, once something is shipped, they can compete on the reverse logistics side.
In general, consumers haven’t been able to return an e-commerce purchase at physical locations. Instead, they’ve had to wait in line at the post office, and are told to expect a refund a week or two later. According to the Washington Post, “An estimated 25 to 30 percent of online purchases are sent back, about triple the rate for items bought in-store. . . . For clothing and shoes bought online, the return rate can be as high as 40 percent.”
All told, Americans returned $260 billion in merchandise to retailers in 2017, or eight percent of all purchases, according to the National Retail Federation. These are big numbers — and a big opportunity for those smart enough to address the problem in a thoughtful manner.
An obvious solution: Easy in-person returns. This ‘easy’ part is absolutely critical. As it turns out, consumers overwhelmingly prefer to return goods purchased online in person. And that doesn’t mean waiting in line at the post office.
They want to be able to drop their package off at a physical location, and have that place take care of the rest. For many online brands — those who have a physical retail footprint, and certainly those who don’t — this isn’t something they’re currently able to offer shoppers.
As investors in Happy Returns, we’ve seen that giving consumers the ability to return online items in person, for an instant refund, helps both retailers and shoppers. It builds loyalty with consumers, and brands are able to significantly cut down on their shipping costs on these returned items. It’s a big reason why Happy Returns has enjoyed a surge in both NPS and retailer adoption over the past few months and shows no signs of slowing.
There’s ample opportunity here for brands to think laterally.
Making online returns easy, and helping shoppers speak with in-store associates with the push of a button, are just two solutions to helping e-commerce carve out a bigger portion of the overall retail pie.
These certainly aren’t the only solutions, though. There continue to be opportunities in last mile delivery, personalization services, and even overlooked categories like private label grocery and even mortgages, just to name a few.
More to the point, online brands need to think laterally. They need to behave like true Swiss army knives. For instance, H&M, though not a purely online company, does this well by using their supply chain strength to fuel rapid concept development. You can see this at play in their sub-brands: COS, & Other Stories, Arket, and most recently, their new ‘affordable luxury’ label Nyden. The end result here, is that they’re offering something for everyone.
And while today’s digital upstarts may not have the financial clout as H&M, there are affordable software and logistical solutions that they can adopt to help deliver a richer consumer experience.
I’m personally excited to see what the future holds here and look forward to meeting more founders tackling e-commerce, and bridging their offline counterparts.
Disclosure: The family office I work for, AFO Capital, is an investor in Happy Returns. My wife is an employee of Ross Stores.