the great leveler: ecommerce’s next move...ago. since that time, ecommerce has systematically...

The Great Leveler: eCommerce’s Next

Move

Benchmark Report 2013

Paula Rosenblum and Steve Rowen, Managing Partners

November 2013

Sponsored by:

Supported by:

ii

Executive Summary

When Richard Sears drafted a jewelry catalog in 1888, it was the first time anyone had

successfully separated product information from the product itself. While the early days of online

commerce served up little more than digital catalogs, eCommerce – arguably the greatest field-

leveling change agent in retail’s history - now stands on the precipice of becoming something

much more. Our retail respondents help us identify where eCommerce must head next.

Some highlights from the study:

• Retailers understand that Amazon.com’s march towards market dominance is forcing

them to differentiate their digital presence into something else. And the “new” consumer’s

influence is so powerful that not only does it permeate the external challenges retailers

face; it also creeps into the operational challenges they report. The Business

Challenges section on page 4 examines the ways they approach such tasks as inventory

management, shipping and fulfillment, and, ultimately, the need to retain margin and

maintain growth.

• While most retailers have made significant investments in eCommerce capabilities, the

assumption that current eCommerce platforms can and will be extended to become

retailers’ converged mobile (and ultimately – store) platform fuels much of the discussion

in the Opportunities section of this report starting on page 8. Will the eCommerce

platform ultimately become the digital platform used across all channels?

• Although lack of budget appears to have become an issue once more for retailers’

eCommerce initiatives, getting IT resources allocated has also risen as a concern. As a

result, many retailers are currently at a loss for how to overcome their internal

roadblocks. Winners, however, are steadfast, focusing on a streamlined platform or

infrastructure, as examined in Organizational Inhibitors.

• The differences between Winning and lagging retailers in the perceived value of new

eCommerce technologies could not be more stark. What’s more, the importance ascribed

to technologies carries through to their implementation as well. As you’ll see in the

Technology Enablers section of this report, Winners already have a serious leg-up on

their competitors. It’s not too late to catch up, but laggards need to get moving: now.

Throughout this report, we’ll refer to the finding that Amazon has forced most retailers into a

similar situation, and how imperative it is to establish their brands as something more than just

“low-cost eCommerce.” To that end, we’ll also offer several in-depth and pragmatic suggestions

on how retailers should proceed. These recommendations can be found in the Bootstrap

Recommendations portion of the report.

We certainly hope you enjoy it,

Paula Rosenblum and Steve Rowen

iii

Table of Contents

Executive Summary .......................................................................................................................... ii Research Overview ......................................................................................................................... 1

And Not Just Online ..................................................................................................................... 1 A Tale of Two Cities ..................................................................................................................... 2 Defining Winners and Why They Win .......................................................................................... 2 Methodology................................................................................................................................. 3 Survey Respondent Characteristics ............................................................................................ 3

Business Challenges ....................................................................................................................... 4 No One Else Matters .................................................................................................................... 4 Second Verse, Same as the First ................................................................................................ 5

Opportunities ................................................................................................................................... 8 Easier to Find, Easier to Browse ................................................................................................. 8 Leveraging the eCommerce Platform Across the Enterprise ...................................................... 9 Better Performers See a Big Future in the eCommerce Platform ............................................. 10

Organizational Inhibitors ................................................................................................................ 11 Budgets Running Dry? ............................................................................................................... 11 Problems May be Similar, But Solutions Vary Dramatically ...................................................... 12 What’s the Solution? Thought Processes Differ Dramatically ................................................... 12

Technology Enablers ..................................................................................................................... 14 In The Digital Domain, Shouldn’t Technology Be Important? .................................................... 14 Budgets May Be Down, But There’s a Lot on Retailers’ Radar ................................................. 15 Laggards Missing Many Technologies ...................................................................................... 15

BOOTstrap Recommendations ..................................................................................................... 17 Take a hard look at HTML 5 ...................................................................................................... 17 Forget about lowest price, think about lower costs .................................................................... 17 Consider discrete facilities for ship-to-store and direct to consumer ......................................... 17 Consider investment in a single streamlined technology platform............................................. 17 Find creative ways to finance..................................................................................................... 17

Appendix A: RSR’s BOOT MethodologySM

...................................................................................... a Appendix B: About Our Sponsors.................................................................................................... b Appendix C: About RSR Research ................................................................................................... c

iv

Figures

Figure 1: There’s No Such Thing as a Channel .............................................................................. 1

Figure 2: To Infinity… And Beyond.................................................................................................. 2

Figure 3: A Brave New World .......................................................................................................... 4

Figure 4: Fully Operational? ............................................................................................................ 5

Figure 5: Birds of a Feather ............................................................................................................. 6

Figure 6: Find Me!............................................................................................................................ 8

Figure 7: Finding New Uses for eCommerce Capabilities .............................................................. 9

Figure 8: The eCommerce Platform Spreads Across the Enterprise ............................................ 10

Figure 9: The Budget Well Starts to Run Dry ................................................................................ 11

Figure 10: Winners Tread Lightly Around Org Change and Culture ............................................. 12

Figure 11: Different Strokes for Different Folks ............................................................................. 13

Figure 12: What Could They Be Thinking? ................................................................................... 14

Figure 13: Technology Improvements on the Horizon .................................................................. 15

Figure 14: Laggards Behind in More than Just Sales Results ...................................................... 16

1

Research Overview

It is a genuinely exciting time to be in retail. And while much as been written about how drastically

consumer shopping patterns have evolved in recent years (with consumers shopping and buying

in brand new ways seemingly every day) the seed of this change – the “electronic commerce”

component separating physical goods from a physical market – took root nearly two decades

ago. Since that time, eCommerce has systematically grown to become the great leveler.

Regardless of a retailer’s size, budget, or inventory, a cleverly designed (and well-executed)

eCommerce strategy has long-provided the opportunity for any brand to get in front of consumers

– where they live – with just as much regularity and influence as the most powerful and well-

known brands in the world. The results have been staggering. But today, as Amazon.com’s

march toward complete online dominance continues, retailers of all types are being faced with

new and unique challenges: the largest fear encroachment from Amazon. The smallest face

decisions about whether it is better to assimilate (at a cost) or fight on.

And as Amazon tinkers with ideas to merge into physical shopping points, more questions than

answers about the future of commerce emerge. As a result, successful eCommerce is effectively

being forced to become something else. And the results of this report show that retailers already

have a cognizant understanding of what that something will have to be: a combination of online

and in-store that render the online pure-play model an at-risk species.

In essence, retailers know they have to enable customers to live out their paths to purchase the

way they already do: the difference is, they need these pre-shopping/shopping/and buying

behaviors to be carried out under one brand – their brand – instead of the many consumers use

today (Figure 1).

Figure 1: There’s No Such Thing as a Channel

Source: RSR Research, November 2013

And Not Just Online In fact, our respondents tell us that eCommerce also has the potential to become the store’s

salvation, too. For the past several years now, our Store Report respondents have readily

admitted that the store is in vital need of a technological transformation. Where “websites” once

needed to be as exciting as stores, stores are now in desperate need of being as exciting as the

online experience. What’s fascinating is how reticent retailers who operate stores have been to

invest in store-based technologies; the fear of rolling out a technology that only briefly holds the

consumer’s interest becomes exponentially greater when the chain “store multiplier” comes into

effect. Indeed, they’ve been particularly stubborn to replace in-store POS systems – by far the

29% 39% 21% 6%5%The future of online commerce lies more withcross-channel or merged channel capabilities

Agree/Disagree

Strongly Agree Agree Neutral Disagree Strongly Disagree

2

greatest tech investment in stores. Has the time for an eCommerce platform’s ability to scale

beyond the online channel come? If not yet, our respondents tell us it is near (Figure 2).

Figure 2: To Inf ini ty… And Beyond


A Tale of Two Cities

But what is perhaps most interesting about much of the data in the following pages of this report

is the following: the great leveler, eCommerce, which has historically served as the primary

weapon used by smaller brands and retailers to help compete with larger brands by offering

wholly differentiated products, service, and/or buying experiences, is now being approached by

those at the bookends of the revenue spectrum with striking similarity.

As you’ll see, while the midmarket hosts its own set of challenges and plans, the smallest and

larges retailers are being pushed toward similar courses of action in an uncanny number of areas.

And while they report similar organizational barriers and tech perceptions for vastly different

operational reasons, they can both be tied back to one commonly-shared external challenge:

Amazon.

Defining Winners and Why They Win

RSR’s research always focuses on a category of retailers we call “Retail Winners”. Our definition

of Retail Winners is straightforward. We judge retailers by year-over-year comparable

store/channel sales improvements. Assuming industry average comparable store/channel sales

growth of three percent, we define those with sales above this hurdle as “Winners,” those at this

sales growth rate as “average,” and those below this sales growth rate as “laggards” or “also-

rans.”

Because online sales are growing inordinately to more traditional channels, our eCommerce

research adds the classification of “double digit winners,” those whose year-over-year growth

exceeds 10% to the “single digit Winners” category: those whose year-over year growth is

anywhere from 4% to 9% over last year’s results.

It is consistent throughout much of RSR’s research findings that Winners don’t merely do the

same things better, they tend to do different things. They think differently. They plan differently.

They respond differently. eCommerce is no exception.

27% 39% 25% 7%2%Our eCommerce platform will ultimately become

our digital platform across all channels

Agree/Disagree


3

Methodology

RSR uses its own model, called the “BOOT MethodologySM

,” to analyze Retail Industry issues.

We build this model with our survey instruments. See Appendix A for a full explanation.

In our surveys, we continue to find differences in the thought processes, actions, and decisions

made by retailers who outperform their competitors and the industry at large – Retail Winners.

The BOOT helps us better understand the behavioral and technological differences that drive

sustainable sales improvements and successful execution of brand vision.

Survey Respondent Characteristics

RSR conducted an online survey from September-October 2013 and received answers from 137

qualified retail respondents. Respondent demographics are as follows:

• Job Title:

Senior Management (CEO, CFO, COO) 44%

Vice President 10%

Director/Manager 19%

Internal Consultant 7%

Staff 12% Other 8%

• 2011 Revenue (US$ Equivalent)

Less than $5 Million 56%

$6 - $49 Million 12%

$50 - $999 Million 17%

$1 - $5 Billion 8%

Over $5 Billion 7%

• Products sold:

Fashion / Short Lifecycle 25%

Seasonal 14%

Replenishment Goods 20%

Durable / Hard Goods 34% Perishable / Food 8%

• Headquarters/Online Retail Presence:

USA 79% 66%

Canada 2% 31%

Latin America 1% 17%

UK 3% 22%

Europe 8% 23%

Middle East 3% 10%

Africa 1% 7%

Asia/Pacific 2% 15%

• Year-Over-Year Sales Growth Rates (assume average growth of 3%):

Better than average (Double digit growth) 10%

Better than average (Single digit growth) 28%

Average 35%

Worse than average (Laggards) 27%

4

Business Challenges

No One Else Matters

Our retail respondents are clear: the consumer has evolved from a somewhat predictable to a

wholly unpredictable entity. This has made retailers’ daily challenges much different than even a

short time ago. In fact, two of the top three challenges they are most apt to cite (uncertain

consumer demand and keeping up with evolving consumer shopping patterns) stem from this

“new consumer.” The challenges typically associated with eCommerce when it was merely a

digital catalog offering (managing online assortment and stemming cart abandonment) have

fallen by the wayside. Today, nearly everything takes a back seat to catching up to the consumer.

Figure 3: A Brave New World


These points become fascinating when viewed by performance:

• While retailers of all sizes look to maintain growth rates, laggards are inordinately

focused upon making sure their year-over-year numbers improve. This makes sense, as

they already struggle with sales. However, at 61% (vs. 42% of Double Digit Winners), this

may be indicative of laggards’ tendency to focus on the prize (growing sales), rather than

the work required to attain it (understanding consumers, et al).

• Laggards are also much more challenged to get consumers engaged with them online:

52% say getting consumers to engage more with their brand online is a top-three

challenge. Only 26% of Double Digit Winners report it as an issue, an indicator that

Winners have taken more steps to understand what they can provide online to keep

consumers intrigued, and moreover, that it is working.

• Winners, indeed, are focused on trying to understand consumer demand and keeping up

with evolving shopping patterns: they have a much deeper understanding of knowing how

8%

14%

21%

23%

33%

38%

39%

46%

47%

Price transparency

Stemming cart abandonment

Providing more ways for consumers to connectwith each other through our brand

Managing our online assortment

Generating acceptable margins

Getting consumers to engage more with usonline

Keeping up with evolving consumer shoppingpatterns: social networks, mobile, etc.

Maintaining growth rates

Uncertain consumer demand

Business Challenges

5

important it is to crack this nut, and are laser focused on nailing it before they move on to

other, ancillary challenges. They are, however, also serious about generating acceptable

margins. Fifty five percent of Single Digit Winners report this as a top priority: the biggest

challenge they face from the outside world by a long shot.

Second Verse, Same as the First

The new consumer’s influence is so powerful that not only does it permeate the business (or

external) challenges retailers face, but it also creeps into the operational challenges they report.

Forty-nine percent of retailers say that understanding and accommodating how different

consumer segments engage with their brand is a top-three priority (Figure 4). It is trumped only

by “finding a way to provide cost effective shipping.” Cost-effective shipping is a two-sided coin.

Virtually all retailers understand that to compete with Amazon (and even more so, Amazon

Prime), they cannot continue to offer shipping savings to the consumer at the expense of their

already-thin margins: they can’t change for it, so any way to lower fulfillment costs is a welcomed

pain reliever.

Figure 4: Ful ly Operational?


What’s amazing is that as the smallest and the largest retailers feel the pain around cost-effective

shipping the most (Figure 5). In fact, virtually all of the data from the previous chart becomes only

that much more interesting when viewed by retailer size.

11%

20%

20%

32%

39%

45%

49%

51%

Sharing accurate product data with our channelpartners

Coordinating price and promotions with otherdepartments

Processing and/or accounting for returns

Have not yet defined what a differentiated onlineexperience looks/feels like

Coordinating with other channels to create aseamless brand experience

Optimizing inventory deployment across allchannels

Understanding and accommodating how differentconsumer segments engage with us

Cost effective shipping and fulfillment

Operational Challenges

6

Figure 5: B irds of a Feather


In fact, with the exception of difficulties associated with coordinating channels for a seamless

brand experience, large and small retailers are in virtual lockstep with the operational challenges

they face. Granted, smaller retailers don’t have the sheer volume or number of channels that

mega retailers operate. Thus the fact that only 29% of mom-and-pop retailers report channel-sync

issues as an operational challenge is not surprising.

What is surprising is just how many ways their common competitor has forced the largest and the

smallest retailers towards the same day-to-day obstacles. In addition to shipping challenges, note

other areas where we find striking similarities:

• Optimizing inventory deployment across channel (53% for mega retailers, 49% for

independents)

• Understanding how consumer segments engage online (47% mega retailers, 51%

independents)

• Trouble defining what a differentiated online experience looks and feels like (40 and

38%, respectively)

• Processing returns (20% and 22%)

11%

13%

22%

38%

51%

29%

49%

56%

21%

29%

0%

14%

64%

43%

43%

21%

12%

41%

29%

18%

29%

53%

24%

59%

0%

13%

20%

40%

47%

53%

53%

53%

Sharing accurate product data with our channelpartners

Coordinating price and promotions with otherdepartments

Processing and/or accounting for returns

Have not yet defined what a differentiated onlineexperience looks/feels like

Understanding and accommodating how differentconsumer segments engage with us

Coordinating with other channels to create aseamless brand experience

Optimizing inventory deployment across allchannels

Cost effective shipping and fulfillment

Top Three eCommerce Operational Challenges

Over $1 billion $50-$999 million $6 - $49 million Less than $5 million

7

• Even price coordination across departments (13% of both groups reporting this as a top-

three operational challenge)

This data is a compelling confirmation that not only has eCommerce leveled the playing field for

retailers of all sizes, but that even the smallest (and theoretically – nimblest) retailers have the

same daily struggles battling Amazon’s presence. Now let’s find out where the opportunities lie

for the future.

8

Opportunities

Easier to Find, Easier to Browse

Overall, our respondents most frequently rate the ability to search for their site and browse

through it as a top-three opportunity. While it’s not clear how this will help them understand

uncertain consumer demand, their top business challenge, at least it will insure better conversion

rates (Figure 6).

Figure 6: F ind Me!


In keeping with our overview observation, this concern was relatively consistent across most

revenue bands, with only mid-market retailers ($50-$999 million in annual revenue) lacking in

interest at 19%.

Instead, mid-market retailers were most concerned about improving fulfillment processes. These

retailers are more prone by far to fulfill orders from a shared in-house distribution center (for

stores and eCommerce) and have likely discovered that increased volumes make this strategy

essentially untenable. In fact, a majority of Tier 1 retailers (53%) report they have a dedicated in-

house fulfillment center for their eCommerce operations, ironically similar to the smallest retailers

who are even more likely (69%) to report this as their primary fulfillment strategy.

Responses are fairly consistent across all products sold, with some minor differences: retailers

selling replenishable / commodity products are less likely to see much opportunity in providing

more product details, and retailers selling fashion/short lifecycle products are more likely than

their peers to be interested in cross-channel capabilities. Both differences are logical, as

9%

12%

17%

24%

31%

32%

34%

35%

36%

48%

Third party deal offers (Groupon, Living Social)

Branded deal of the day/promotional offers

Add additional selling channels (including thirdparty)

Improving the payment process

Targeted email campaigns

Investing in cross-channel capabilities

Embedding more social capabilities in our full site

Providing richer product detail information(photo, video)

Improving fulfillment processes

Improving search and browse capabilities

Top Three (3) Opportunities to Overcome Challenges

9

consumer needs for deep details on commodities are small, and retailer needs to maximize

inventory sell-through of fashion and short-lifecycle product any way they can drives interest in

treating inventory as a shared asset.

Laggards and average performers maintain their faith in social selling (38%), while double-digit

winners overwhelmingly drive interest in improving search and browse capabilities (70%).

Leveraging the eCommerce Platform Across the Enterprise

Most retailers have made significant investments in eCommerce capabilities. In fact, until this

year, it has seemed as though money was no object – new implementations were human rather

than financial resource-constrained. Given those investments, it’s only logical retailers would look

to expand capabilities built into their eCommerce platforms across the enterprise. As we can see

in Figure 7, those interests have not translated into budgets yet, but have found their way into

corporate priority lists as ‘planned’.

Figure 7: F inding New Uses for eCommerce Capabi l i t ies


The promise of HTML 5 is evidenced in the assumption that current eCommerce platforms can

and will be extended to become the retailers’ converged mobile platform. This makes sense

across many dimensions including sheer reduction in the number of systems to be maintained.

Only laggards miss the boat on this one, with 45% reporting no plans at all to even consider this

convergence. The “why” of it is lost on us, we can only recommend retailers reconsider long-term

maintenance of separate platforms.

Similarly, we see a real separation in using eCommerce to support in-store employees. Thirty

percent of double-digit winners already use these tools, while fully 70% of laggards aren’t even

considering the possibility. Most other respondents report they’re in the planning phase of this

project, likely held back by lack of wi-fi capabilities in their stores.

7%

13%

21%

21%

12%

15%

13%

18%

6%

5%

12%

8%

21%

13%

27%

17%

54%

55%

27%

36%

eCommerce as in-store employee-facing handheldapplication

eCommerce as in-store kiosk

eCommerce as mobile platform

eCommerce as Point of Sale

Plans for Extending eCommerce Platform to Other Parts of the Retail Organization

Implemented Current Project Budgeted Project Planned, Not Yet Budgeted No Plans

10

Better Performers See a Big Future in the eCommerce Platform

To put an exclamation point on the data above, we asked respondents to think more generally

about their eCommerce platforms. We asked “Will your eCommerce Platform ultimately become

your digital platform across all channels?” As we can see from Figure 8, double-digit winners are

most emphatic in their vision for the future, while a quarter of laggards disagree.

Figure 8: The eCommerce Platform Spreads Across the Enterpr ise


RSR believes this vision is a wise one. As our industry struggles to integrate parts and pieces

gathered over the past twenty years into a coherent whole, seeing the future opportunities made

available from recent digital investments is a wiser approach. As long as the foundation is solid,

supporting current and future channels with one foundation makes all the sense in the world.

21%

27%

17%

60%

21%

45%

57%

10%

32%

24%

22%

20%

26%

4%

3%

10%

Laggards

Average Performers

Retail Winners

Double-digit Winners

Our eCommerce Platform will Ultimately Become Our Cross-Channel Digital Platform


11

Organizational Inhibitors

Budgets Running Dry?

Last year we noted a sudden and significant drop in budgetary concerns for eCommerce

initiatives. While budget was cited as a top-three organizational inhibitor by 51% of respondents

in 2011, in 2012 that number dropped to 38%. This year the percent selecting it has soared to

63% While some of this increase can be attributed to the high percentage of small retailers

responding to this year’s survey (73% cited it as a top-three inhibitor), it remains the one of the

most frequently cited across all revenue bands, from the largest retailers (42%) on down. A year

over year aggregate comparison is presented in Figure 9.

Figure 9: The Budget Wel l Starts to Run Dry


We see little to no difference when looking at respondents based on products sold or top-line

performance. It’s entirely possible that the seemingly endless well of capital available for

eCommerce initiatives is starting to run dry, or re-allocated to cross-channel technology

upgrades. We’ve seen a lot more focus on more efficient cross-channel fulfillment management

solutions this year.

Clearly, the lack of capital has taken the focus of concern off the existing technology

infrastructure and dearth of eCommerce resources. But getting IT resources allocated has risen

as a concern. This is a logical corollary to budget reallocation. We believe these funds and IT

resources have been re-focused on customer segmentation and brand-building opportunities.

22%

25%

18%

27%

53%

42%

53%

38%

12%

18%

29%

29%

35%

42%

44%

63%

The marketing organization does not understand thedigital strategies we need to support eCommerce

Stores don't understand the mobile or cross-channelopportunities

Difficulty getting IT resources for eCommerce projects

Stores are a higher investment priority

The existing technology infrastructure is preventing usfrom moving forward

ROI is hard to quantify

We don't have enough eCommerce resources tomanage all the available opportunities

Budgeting - there is little capital investment available

Top Three (3) Organizational Inhibitors

2013 2012

12

Problems May be Similar, But Solutions Vary Dramatically

As much as we saw concurrence on the organizational inhibitors preventing the enterprise from

taking full advantage of the opportunities they see, we see significant differences in the solutions,

especially when digging into responses performance. In Figure 10 we can see the overall year-

over-year trend, which shows a rising interest in experimentation and declining focus on almost

every other answer choice.

Figure 10: Winners Tread Lightly Around Org Change and Culture


Let’s dig deeper to see how thought processes vary.

What’s the Solution? Thought Processes Differ Dramatically

Double-digit winners are un-ambivalent. A majority cites investment in a streamlined

technology platform as a way to overcome their inhibitors. Given the sudden lack of budget and

continued lack of resources, the more streamlined the better. We see almost no difference across

revenue band or products sold. This is clearly a Winner’s story.

We do see differences by revenue in a desire to increase reliance on third party marketplaces.

Retailers with $6-$49 million in annual revenue are most often interested (38%) while only 7% of

Tier 1 retailers see opportunity there. But only 29% of independents want to increase that

reliance. Having noted these differences, we must say revenue differences are ultimately dwarfed

by performance differences.

26%

11%

21%

21%

36%

36%

25%

51%

57%

19%

20%

24%

25%

25%

35%

39%

40%

44%

Vendor ecosystems/partnerships that make pointsolution selection easier

Case studies/success stories in my vertical

Greater reliance on third parties (marketplaces orvendors) for technology and fulfillment infrastructure

Solutions that don't burden our IT department

More coordination with marketing

More coordination with stores

More experimentation

An executive tasked with managing and improving theoverall customer experience

Investment in a streamlined technology platform orinfrastructure

Top Three (3) Ways to Overcome Inhibitors

2013 2012

13

The same is true of vendor ecosystems. While smaller retailers are more apt to cite this as a top-

three tool to overcome issues, the difference pales in comparison to performance statistics.

Figure 11 shows the somewhat dramatic differences we found.

Figure 11: Different Strokes for Dif ferent Folks


Laggards and average performers want to experiment, while double-digit Winners want vendor

ecosystems and partnerships. Laggards focus on coordination with stores. Winners want

solutions that don’t burden IT departments.

We don’t find any fault with laggards’ points of view. We already know they have fulfillment issues

– it’s likely they are looking to stores to help solve their problem, and we applaud the decision of

laggards and average performers alike to experiment more in the face of falling budgets. We can’t

even argue with average performers hope that improved coordination with marketing may help

get things moving internally. We’ve seen many reports of issues between marketing and other

departments. These accounts include completely separate marketing IT budgets and personnel,

along with friction with other departments. Given these battles, we can accept that improved

coordination with that group will help retailers move forward.

10%

29%

48%

43%

52%

24%

19%

24%

33%

41%

21%

47%

38%

32%

18%

15%

15%

47%

27%

33%

30%

43%

27%

10%

20%

27%

43%

0%

10%

20%

30%

30%

40%

40%

50%

60%

More coordination with marketing

Solutions that don't burden our IT department

More experimentation

An executive tasked with managing and improvingthe overall customer experience

More coordination with stores

Vendor ecosystems/partnerships that make pointsolution selection easier

Case studies/success stories in my vertical

Greater reliance on third parties (marketplaces orvendors) for technology and fulfillment…

Investment in a streamlined technology platformor infrastructure

Overcoming Organizational Inhibitors

Double-digit Winners Retail Winners Average Performers Laggards

14

Technology Enablers

In The Digital Domain, Shouldn’t Technology Be Important?

Ecommerce is, by definition, a technology dominated channel. After all, without digital technology,

what would eCommerce even look like? Given that seeming tautology, we were really surprised

to see the relative lack of importance placed on technologies by laggards, vs. the value ascribed

by better performers. This is a consistent trend: the better the performer, the more highly prized

the enabling technologies. We culled the data presented in Figure 12 down to the best and worst

performers for the sake of readability. Differences are stark, and sometimes staggering.

Figure 12: What Could They Be Thinking?


The importance ascribed to technologies carries through to implementation as well. As we’ll see

later in this section, better performers have been using these technologies to support their efforts

longer than their peers.

Some responses fly in the face of conventional wisdom and documented results. The relative lack

of interest in user and retailer product reviews, for example, is almost inexplicable. Again, it’s not

as though they’d tried these technologies and found them wanting. In fact, only 33% of laggards

have implemented user-generated reviews vs. 60% of double-digit winners. They just don’t seem

to get the importance.

10%

0%

24%

29%

33%

29%

29%

19%

15%

33%

43%

38%

14%

52%

30%

40%

40%

40%

40%

40%

50%

50%

60%

60%

60%

70%

70%

90%

Community management platforms

Online chat (Click-to-Chat)

Site internationalization

Distributed Order Management

Integration to manufacturers' product and content

Content Management Systems

Call Center/CRM solutions

Site experience surveys

Self-learning personalization of site information

Online analytics

Site performance monitoring

Retailer reviews/recommendations (text, video)

Product-level social network integration

User generated reviews/recommendations

Percent Rating Technologies Very Valuable

Double-digit Winners Laggards

15

Budgets May Be Down, But There’s a Lot on Retailers’ Radar

Even though our respondents report suffering from budgetary constraints, they are clearly still

actively pursuing new technologies to fill out their eCommerce portfolios. Figure 13 shows us that

in aggregate, even without considering refreshes of existing portfolios, retailers have big plans,

and in many cases, they’ve got the budget to act on them.

Figure 13: Technology Improvements on the Horizon


We’re happy to see that one-fifth of respondents have budgeted for Content Management

Systems and another 17% are at least planning for them. In truth, it’s hard to imagine how a

retailer can manage content across marketplaces, web sites, channels and brands without this

type of solution. Similarly, it’s hard to imagine how a retailer can assess the merchandising on

their sites without online analytics. Yet just slightly under half of aggregate respondents view

these analytics as very valuable for their success.

Laggards Missing Many Technologies

As we observed earlier in this section, laggards seem somewhat underwhelmed by the value of

enabling eCommerce technologies. True to their word, they have also lagged in investments in

these technologies.

We took a look at technology implementation the same way we looked at its relative importance –

comparing double-digit winners to laggards. The results can be seen in Figure 14.

29%

30%

31%

31%

35%

37%

38%

39%

39%

41%

43%

45%

49%

52%

54%

55%

55%

17%

10%

13%

11%

17%

8%

16%

20%

12%

13%

17%

17%

13%

13%

19%

17%

6%

8%

14%

14%

12%

19%

17%

9%

17%

11%

12%

8%

13%

14%

15%

14%

14%

8%

Manufacturer-supplied feature-function…

eCommerce platform as a SaaS solution











Non-traditional payment methods



Online analytics


Involvement with Technologies

Implemented Budgeted Planned

16

Figure 14: Laggards Behind in More than Just Sales Resul ts


These results are telling. While we have a strong appreciation for the spiral laggards encounter:

poor sales beget tighter budgets, which beget a weaker site experience, which begets poor sales,

etc. there are ways to break these cycles. The value of cloud and SaaS solutions is their “going

in” costs are relatively low compared to site licenses, and creative financing can be used to

spread payments across time, either above or below the EBITDA line. When the only area of

technology parity is in site experience surveys, we know that something must change.

32%

24%

35%

21%

26%

26%

26%

26%

33%

33%

53%

53%

37%

50%

30%

40%

40%

40%

50%

50%

50%

50%

56%

56%

60%

60%

60%

67%











Online analytics




Percent Who Have Implemented Technologies

Double-digit Winners Laggards

17

BOOTstrap Recommendations

Take a hard look at HTML 5

A quick glance across nearly any retailer’s various on-screen channels will reveal a lack of true

synchronicity. While RSR’s previous research on the mobile channel has recommended that a

mobile offering should be something much different than a cut-n-paste version of the eCommerce

channel, it is specific to functionality. The look and feel of a mobile offering should not be so

varied from the eCommerce site that a user gets the sense they are looking at two different

retailers: HTML 5 presents a serious opportunity to sync online content across multiple channels,

and will make maintenance simpler and less expensive over the long haul.

Forget about lowest price, think about lower costs

There’s no avoiding the elephant in the room. In the1990’s, store-based retailers learned that they

could simply no longer compete on low-price model against Walmart. The retail giant’s supply

chain efficiency made it impossible to offer the same products at lower prices – but in a way, that

reality forced many retailers to generate more creative offerings: more interesting products, or in

most cases, a differentiated service experience.

So is it today online. Amazon’s growing might is undeniable. But creative sellers will find ways to

differentiate, while still remaining at least competitive on price. There’s a lot more to an online

buying experience than just price. In fact, a large part of Amazon’s appeal is how it makes it for

consumers to purchase – a great place to start. Economizing wherever possible plays a vital role

in achieving this price/experience balance.

Retailers should take heart from supermarkets’ ability to survive and thrive in the face of

Walmart’s encroachment. Walmart continues to hammer on its pricing advantage, yet many of its

competitors are showing better year over year performance. They stay close on price, but

engender far more loyalty for their shopping experience.

Consider discrete facilities for ship-to-store and direct to consumer

We were surprised to find that even the smallest retailers perform better when separating their

customer and store fulfillment operations. Mixed distribution facilities just don’t seem to work well

over the long haul.

Consider investment in a single streamlined technology platform

Though eCommerce budgets are undeniably tight these days (and the human resources needed

to manage exciting new tech functionalities are equally scarce), a single streamlined technology

platform actually helps to ease problems around both. Making the case for such a serious

investment during tough times – particularly for those whose sales are already lagging - is not

easy, but can be greatly aided if the proposed plan includes ways to bring that functionality

across channels: many store POS systems are in dire need of replacement. If an eCommerce

platform can be leveraged in such a way in the future, it may well serve as a cure to many

different ailments.

Find creative ways to finance

Cash is king for retailers of all sizes. We therefore encourage retailers to contemplate alternative

financing sources for technology investments. We continue to believe leasing is a viable

alternative to an immediate outlay of cash. Leases, of course, come in different flavors and each

18

retailer should choose the flavor that’s right for them. Capital leases typically involve a lower

buyout at lease-end, while operating leases involve a higher (typically 10%) payout. What’s most

important is finding creative ways to get needed technologies into the portfolio.

a

Appendix A: RSR’s BOOT MethodologySM

The BOOT MethodologySM

is designed to reveal and prioritize the following:

• Business Challenges – Retailers of all shapes and sizes face significant external challenges. These issues provide a business context for the subject being discussed and drive decision-making across the enterprise.

• Opportunities – Every challenge brings with it a set of opportunities, or ways to change and overcome that challenge. The ways retailers turn business challenges into opportunities often define the difference between Winners and “also-rans.” Within the BOOT, we can also identify opportunities missed – and describe leading edge models we believe drive success.

• Organizational Inhibitors – Even as enterprises find opportunities to overcome their external challenges, they may find internal organizational inhibitors that keep them from executing on their vision. Opportunities can be found to overcome these inhibitors as well. Winning Retailers understand their organizational inhibitors and find creative, effective ways to overcome them.

• Technology Enablers – If a company can overcome its organizational inhibitors it

can use technology as an enabler to take advantage of the opportunities it identifies.

Retail Winners are most adept at judiciously and effectively using these enablers,

often far earlier than their peers.

A graphical depiction of the BOOT MethodologySM

follows:

b

Appendix B: About Our Sponsors

Mozu is a commerce platform for the new global marketplace. With Mozu, retailers can manage

their commerce, content and customer experience across every channel, on any platform, around

the world. With endless extensibility, customizations and refreshing usability, Mozu provides truly

limitless commerce to an ever-changing business landscape. To learn more, visit

www.mozu.com.

Kiva Systems takes a totally different approach to warehouse automation for Omni-channel

fulfillment operations by using fleets of autonomous mobile robots and sophisticated control

software to simplify operations, reduce costs and increase flexibility. Kiva solutions enable

extremely fast cycle times with reduced labor requirements, from receiving to order picking to

shipping all in a single solution.. The result is a building that is quick and low-cost to set up,

inexpensive to operate, and easy to change. With Kiva you pick faster, pack perfect and ship

now. For more information about Kiva Systems and its solutions, please visit

www.kivasystems.com.

c

Appendix C: About RSR Research

Retail Systems Research (“RSR”) is the only research company run by retailers for the retail

industry. RSR provides insight into business and technology challenges facing the extended retail

industry, providing thought leadership and advice on navigating these challenges for specific

companies and the industry at large. We do this by:

• Identifying information that helps retailers and their trading partners to build more

efficient and profitable businesses;

• Identifying industry issues that solutions providers must address to be relevant in the

extended retail industry;

• Providing insight and analysis about a broad spectrum of issues and trends in the

Extended Retail Industry.

Copyright© 2013 by Retail Systems Research LLC • All rights reserved.

No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher. Contact [email protected] for more information.

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