trading intelligence quarterly_issue 1_140610

8/9/2019 Trading Intelligence Quarterly_Issue 1_140610

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The Trading

IntelligenceQuarterly

The most successful

retailers of thefuture will be thosewho understandprofoundly boththe physical andvirtual channels.Sir Martin Sorrell,

CEO, WPP

July 2010

Issue 1

eCommera

Welcome 03

The march to 0405real-time trading

Ecommerce performance 0609and priorities: early ndingsindicate route to success

Sir Martin Sorrell: 10re-writing the retail rules

Sir Tom Hunter: 11the role of the board

Ecommerce performance: 1214putting the K back into KPI

Spotlight on 15Amazon

Contents


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eCommera is a specialistretail-focused ecommerce

product and servicesbusiness.

We deliver robust andexible technology to

enable you to trade online,combined with deepecommerce insight to knowwhere to focus. Its our

blueprint for your success.We call it trading intelligence.For further information Email [email protected]

or [email protected]

Call us on +44(0)20 7291 5800

Or visit www.ecommera.com

eCommera


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Welcome to the rst editionof The Trading Intelligence

QuarterlyEcommerce is of critical importanceto retailers and brand owners, yetwe see many organisations failingto take it seriously and graspingthe opportunity it represents.

We hope to offer you insights and advice thathelp provoke your thinking on how to make yourecommerce more successful.

In our opening edition, we present the ndingsof independent research into how UK ecommercedirectors are viewing and developing online retailofferings. It offers a fascinating perspective on theroles, challenges and opportunities within thisnewly forming sector. While physical retail isa mature industry, with fairly consistent views

and approaches to growth, ecommerce is clearlymuch more diverse with organisations at verydifferent levels of development and understanding.This makes it an exciting place to be with hugeopportunities for those who innovate and adaptquickly to the new market dynamics.

We are also delighted to include thoughts fromsome of the industrys leading names. In thisedition, Sir Martin Sorrell discusses howecommerce is changing the rules of retail and

Sir Tom Hunter considers the critical role ofthe board.

It is clear that ecommerce is not the same as retail.To succeed online retailers must think differently.They must consider how to organise theiroperations. They must gain clarity on the metricsthat drive ecommerce success. If they are tocompete with companies like Amazon they mustmove towards real-time trading. They must graspthe opportunities for signicant growth, andnever be satised with growth rates benchmarkedto store like-for-likes.

I hope you enjoy this rst edition of The TradingIntelligence Quarterly, and nd it helpful as youconsider how to make the most of ecommercewithin your own business.

Andrew McGregor

CEO, [email protected]

03

www.ecommera.com

Sir Tom Hunter online retail belongsto the board, page 11

Michael Ross the march to real-timetrading, page 04

Sir Martin Sorrell re-writing the retail rules,page 10


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eCommera

The march to real-time tradingMichael Ross co-founder and director, [email protected]

The slow pace of physical retailRetailers live by their weekly trading meetings the rhythm of the weekly review of stock and saleshas been their engine for growth and works verysuccessfully for most retailers. The core aspects ofevery category their margin, stock turn and sell-through are so well known that a good retailercan quickly see where a problem lies.

However, despite being able to identify issuesquickly, resolving them is typically blunt or slow.

Technologys impact on physical retail hasbeen fairly evolutionary. Many retailers stilloperate successfully with basic trading systems,although a few such as Tesco and Walmart haveshown how growth can be achieved throughembracing technology.

The impact of technology on ecommerce will

be more profound: technology will transformecommerce in much the same way thattechnology has revolutionised stock tradingand airline pricing. After the 1986 Big Bang,stockbrokers who previously enjoyed a fairlyleisurely pace of trading had to deal withthousands of trades each second. Similarly airlineprices in the 1950s were xed and broadcast;while today with yield management, a typicalairline might set 100,000 prices a week.

Faster, faster, fasterEcommerce is not the same as physical retail it needs to be managed differently to stores,and as it becomes a larger part of retailersgrowth will require more fundamental changesto core aspects of their whole business.Recognising the need to operate ecommerceseparately and distinctly will be critical toecommerce retailers success.

So why does ecommerce need real-time trading?

1. More data, real-time.There is quite literally a tsunami of dataavailable online, increasingly real-time andat relatively low cost. Web analytics data: every click from every

customer on every product Marketing data: every impression and click

across typically hundreds of thousands of

marketing touch points Operations data: the order, shipping and

delivery time of every order Competitor data: price and availability data

from competitors

2. More levers, real-time.Online retailers have considerably morelevers to pull when adapting their trading,many of which can be activated withinminutes. The challenge for ecommerce

Highlights

The impact of technology on ecommerce will be profound. The march to real-time trading is driven by retailer scale, increased

competition and the economics of ecommerce. Trading real-time demands re-thinking retailing basics.


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retailers is knowing which levers to pulland in what order and then having thecapabilities and systems to make them work.

Some of their options include: Running targeted promotions to customer/

visitor segments Changing delivery price or free delivery

threshold Changing keyword bids on Google

Sending triggered emails Changing product sort orders(e.g. upweighting margin, stock or newness)

Enabling preorders/backorders with a futuredelivery date

The growing pressure to trade real-timeThe move towards real-time trading israpidly gathering pace, driven predominantlyby three trends:

1. As retailers scale, the value of managing inreal-time outweighs the cost. It is an economicinevitability that retailers will be compelled tostart trading daily, hourly and, in due course,real-time.

2. Once your competitors start trading real-time,you will simply get out-traded if you stick toa weekly cycle. Amazon is already a master ofthis. They frequently change prices, both upand down, making any competitors surprise

marketing campaigns almost useless.

3. The economics of ecommerce demand thatretailers take action. If Amazon reduces itsprice on a product and you dont respond fora week, you can end up spending marketingmoney and sitting on aging stock.

www.ecommera.com

0405The Trading Intelligence Quarterly. The march to real time trading

Preparing for battleTo trade real-time competitively will requirere-thinking some retailing basics and I believethere are three fundamental building blocks:

1. Management skills.Managers have to oversee thousandsof micro-tasks (or inputs), such as Googlekeywords, landing pages, sort orders,promotions and triggered emails.

Many of these inputs are not easily visible.Managing in this world requires new skills.In particular, the people skills of the storemanager need to be augmented by processand analytical skills.

2. Data, KPIs and insight.Having the right data at the right time iscritical. Making sense of this data and turningit into useful insights can be complex.In particular, retailers need to distinguish

between input measures of activitiesthey control (e.g. availability), and outputmeasures which happen as a consequence(e.g. conversion rate). They should then focuson understanding the relationship betweenthese inputs and outputs.

3. Organisation.Organisations need to be completely aligned.For example, if you are overstocked ontelevisions, you may need to discount, spend

more on Google or offer free delivery. It is veryhard to make a timely decision if the budgetsfor these activities are owned by differentpeople, who meet once a week.

***Goldman Sachs predicts that by 2019, over 50%of the absolute dollar growth in US retail willcome from ecommerce. It is a brave retailer thatdoes not prepare itself for this new world.


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Ecommerce performance and priorities:early ndings indicate route to success

The data for this report is basedon independent research, frominterviews with 100 UK ecommercedirectors during April 2010.

Overall, there is an interesting lack of consistency

amongst the ecommerce directors, witha particularly wide spectrum of responseson organisation structure and performancemanagement. This is in stark contrast to thegenerally consistent approaches observed withinphysical retailers. The ndings suggest that whilesome online retailers are well prepared for growth,others are still feeling their way or failing to taketheir online sales channel seriously enough.

Growth

Unlike the market leaders such as Amazon andASOS, signicant growth eludes all but a few.Many retailers are facing growth rates similarto their store like-for-likes, maybe deludingthemselves that this is acceptable on the basisthat ecommerce is just another store.This signicantly fails to recognise the scaleof the opportunities for exponential growthfrom ecommerce.

eCommera

Highlights

Reporting lines are critical. Higher growth ecommerce operations reportto the CEO/board; lower growth operations report to the CMO or CIO.

Retailers are prioritising new customer acquisition over satisfaction andretention potentially a short term strategy.

Few retailers are actively monitoring their lost prot from products thatare viewed but not bought.

Over 100% 3%

3%81-100%

4%61-80%

6%41-60%

19%21-40%

29%1-20%

23%Stayed the same

Growth rate

0 5 10 15 20 25 30 35 40 45

13%Decreased


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Reporting linesThe reporting line for ecommerce appears to becritical. Of those businesses reporting growth, 61per cent of respondents report into either the CEOor the board. The lower growth businesses arethose where the ecommerce operation reports intothe CMO or CIO. Where ecommerce sits withinthe organization shapes both:

the ecommerce strategy (e.g., whether

technology or marketing led); and the ability of ecommerce to inuence overallbusiness decisions, budget and resource allocation.

We see many examples where a retailer is unableto expand their offer because ecommerce is treatedas another store that has to select product fromthe core range. Or others where protablemarketing is cut from ecommerce because theoverall marketing budget is reduced.

Ecommerce concernsThe greatest concerns for ecommerce managersare attracting new customers and online marketingeffectiveness. Whilst this is not bad in itself, itis a worry if combined with a lack of concernover how best to retain customers. This reectsour observed trend that retailers are obsessingover scatter-gun customer acquisition across allmarketing channels without understanding theirrelative protability.

Also concerning was the low interest in harnessingthe data that drives ecommerce. It is very hardto make good trading decisions if you do notunderstand what is driving performance.Harnessing ecommerce data is fundamentalto achieving this.

That said, we were encouraged by the lack ofconcern over social media, recognising that thisis currently a distraction. It is easy to get excited

about the next new thing but retailers shouldwatch this area closely in the future.

The Trading Intelligence Quarterly. Ecommerce performance and priorities 0607

Finding the

right staff25%

38%Improving

online marketing

effectiveness

16%Managing

technology

innovation

13%Analytics and

understanding

how to optimise

7%Planning an

international

strategy

5%Engaging social

media channels

40%

Attracting new

customers/clients

to the site

31%Retaining existing

customers/clients

0 5 10 15 20 25 30 35 40 45

What are the greatest concerns...

www.ecommera.com

16%Other

The Board 27%

30%The CEO

10%The CFO

9%The CMO

8%The CIO

Who does the ecommercedirector report into?

0 5 10 15 20 25 30 35 40 45


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eCommera

We do it daily 28%

17%We do it weekly

23%We do it monthly

12%We do it quarterly

4%We do it annually

16%We dont do it

How regularly is prot from

the website measured

0 5 10 15 20 25 30 35 40 45

Missed opportunities

This lack of trading insight is highlighted furtherby the small number of businesses measuringtheir lost opportunities through lack of inventory.Retailers are failing to keep track of how manypeople walk out of the shop because theycouldnt nd what they wanted.

This suggests that many businesses run theironline sales similarly to high street stores,measuring availability on an unweighted product/SKU basis. Few are analysing their web trafc

and looking at products that are not being viewedor being viewed but not sold. This data is criticalto understanding missed opportunities online.

How is inventory

availability measured

Weighted by

customer demand35%

13%Weighted by

number of views

on product pages

45%At a SKU

(stock-keeping-

unit) level

35%At a product

level

33%At an overall

stock level

14%

We dont

measure inventory

availability

0 5 10 15 20 25 30 35 40 45

Frequency of prot measurement

Part of the reason for the variations in growthrates excluding external factors such asthe economy may be that so few businessesare embracing the different trading modelof ecommerce.

The research highlights that more than halfof companies only measure the prot of theirwebsite monthly, or less frequently, while16 per cent of respondents do not measure theprotability of their online sales channel at all.

If businesses dont have transparency of weeklyor daily prot, it makes planning and reactingto opportunities far more difcult. One retailerran a 2-week free delivery above 30 promotionand it took six weeks to discover it had cost themtens of thousands of pounds. Had they beenmeasuring daily prot, they could have adjustedthe threshold. In addition, if you are competingagainst retailers who are measuring protabilitydaily (as 28% are), you will simply get out-traded.

Trading Intelligence Quarterly. Ecommerce performance and priorities


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Measuring performance

Perhaps most surprising of all is how feworganisations are measuring a complete setof ecommerce KPIs. Only 59% of therespondents measure customer satisfaction,despite it being critical given the delayedgratication of online retail.

In addition, retailers are treating metrics suchas average order value and conversion rate asKPIs. In our opinion they are lower levelperformance indicators that need to be tracked

but are subsidiary to prot per order.

Few respondents measure return on inventory,so they are unlikely to think creatively aboutwhere best to hold stock in the supply chain something that Amazon has turned into a science.

0809

www.ecommera.com

What website Key Performance

Indicators (KPIs) do you measure?

Return on

inventory 28%

20%Lost demandcaused by

inefcient order

processing?

29%Lost demand

due to customer

cancellations?

24%Lost demand

caused by lack

of inventory

36%Gross prot

per order

48%Conversion

50%Average order

value

21%Lost prot

through fraud?

25%

We track lost

demand from

customers we

have declined and/

or charge backs

59%Customer

satisfaction

0 5 10 15 20 25 30 35 5040 5545 60

The Trading Intelligence Quarterly. Ecommerce performance and priorities


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eCommera

Sir Martin Sorrell:rewriting the rules of retail

Shopping plays a very importantpart in all of our lives.

Like many aspects of our lives the pace ofchange is fast and the speed with which changeis happening is accelerating. The rapid growthand importance of ecommerce is proof that in the

fast paced world of retailing the rules of the gameare being re-written.

It was not long ago that consumers were reluctantto buy online anything other than books and CDsand retailers resisted selling them anything else.How absurd that feels today! Today it is difcultto predict if there will be anything that cantgenerate sales through ecommerce.

Online retailing has passed the experimental stage

and is now an important part of creating andgrowing shareholder value. But it is not easy.Like anything that is new and fast growing itpresents multi-dimensional challenges acrossall business functions inside retailers and theirsupplier partners. It requires different skills anddifferent types of business metrics to measuresuccess, pinpoint areas for improvement andisolate the new drivers for protable sales.Brilliant, entrepreneurial merchants will alwayshave an important place at the heart of retailing.

But they will need to marry their intuitive feelfor buying and selling with the metrics andthe analysts that can isolate and harness theabundance of data available in the ecommerceworld, if they want to understand why a productis turning or not.

Ecommerce is moving at different speeds indifferent countries but its all moving in the samedirection. Consumers across the world wantaccess to information in real time to help them

make informed choices, undertake research,involve their socially networked friends in their

decision making and to make a purchase at atime and at a channel that works best for them,not which is convenient to the retailer.

The growth of ecommerce does not mean theend of shops, not by a long way. Consumers lovephysical stores and the physical environmentoffers many things that the virtual one cannotmatch. But it does mean that the most successfulretailers of the future will be those whounderstand profoundly both the physical andvirtual channels and learn the lessons from eachto build and operate a solid and integratedmulti-channel retail brand. Such unions of

physical and virtual, merchants and analystswill require wisdom and humility. But they willproduce remarkable competitive advantage.

Sir Martin Sorrell, CEO, WPP


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eCommera

Ecommerce performance:putting the K back into KPIMichael Ross co-founder and director, [email protected]

A successful retail CEO oncetold me that he could work outwhat was going on in his businesssimply by looking at like-for-likesales. This single data point perstore allowed him to differentiatebetween a bad manager, a badlocation or a bad economy.

He added that he could walk into a poorlyperforming store and know immediately whatwas wrong be it staff, layout or product.Great retailers operate on this combinationof basic data and gut instinct. Unfortunately,you cant run an online business on gut feel.

Online differs from physical retail in two

fundamental ways. Firstly, physical retailers makethe mistake of thinking of online as a single retailstore but online is not constrained by footfall.Secondly, trying to re-create the experience ofwalking the store online misses the point thatonline customer behaviour is highly variable andcomplex. There is no typical customer experienceand the website is only one part of it.

Growing an online business necessitatesa command of the data. Retailers applyingtraditional retail metrics online will at bestsub-optimise, and at worst risk beingoutmanoeuvred by more sophisticatedcompetitors.

This article explores the importance of KPIs,

why ecommerce KPIs have missed the targetthus far and posits what I believe are the vefundamental ecommerce KPIs.

Importance of KPIsFirstly, a little bit of history. For many years,airlines focused on prot per seat. Then in the1960s, an MIT professor observed that protper ight was a better metric, more closelyaligned to airline protability. This directly ledto the birth of the low-cost carriers which now

represent some of the worlds most protableairlines. In the car industry, Toyota developeda set of KPIs for waste which directly led tothe development of lean manufacturing andhelped make Toyota the worlds leading carmanufacturer. For supermarkets, the insight thatprot per linear foot was the right metric led tothe discipline of category management that everymajor supermarket operates under today.

Highlights

You cant run an online business on gut feel. Growing an online business demands a command of the data. Ecommerce KPIs must be aligned to prot and must drive behaviour.


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1213

So what makes a good suite of KPIs?Overall, the set of KPIs should be:

Holistic KPIs must cover everything good,bad and ugly that can happen in the enterprise.There should be nowhere to hide; and

Hierarchical from the CEO to the coal face,all KPIs should roll-up with no more than

3-5 KPIs at any level. More than this leadsto paralysis.

At an individual level, a KPI should be:

Aligned with prot an improvement ina KPI should increase prot (all other thingsbeing equal); and

Actionable KPIs must drive behaviour.Specically, this means that they shouldbe non-nancial. While P&L/balance sheet

metrics are good measures of historicalperformance, KPIs need to be indicatorsof current and future performance.

Why ecommerce KPIs are hard to deneFor the past 10 years, the rapid growth ofecommerce has masked a lot of poor onlineretailing. Many online retailers have watchedsales grow without needing to do anythingclever. But times are changing: ecommercegrowth has slowed; online has become much

more competitive as all retailers have lookedonline for growth; and online retailers arefocused increasingly on driving prot. In this newenvironment, tracking the right KPIs moves frombeing a nice to have to being fundamental toonline success.

The challenge is that no-one can agree on theright KPIs. For example, many online retailersuse these KPIs:

Conversion rate and average order value(AOV), missing the point that a free deliveryoffer will increase AOV and conversion butat the cost of protability.

Web analytics, learning nothing about prot,inventory or the end-to-end customer experience.Over-generalised averages that miss, for example,

the distribution of customer service responsetimes to emails.

The ve ecommerce KPIsThe ecommerce industry is still at an early stageof its evolution so the denitive list of KPIs is yetto be set in stone. Based on my 15 years in theindustry, I believe that the following ve are

a good starting point.

1. Number of orders.The number of orders placed on the website.In due course, as retailers better understandcross-channel behaviour, this will also include theofine purchases inuenced by online browsing.

2. Prot per order.The key to growing an online businessprotably is to understand the trade-off

between order volume and prot per order.Online retailers have lots of levers to pull increasing marketing spend, personalisedoffers, exing free delivery thresholds as wellas the traditional retail toolbox of prices andpromotions. The challenge is that exing theselevers independently gives no insight into theiroverall impact on prot.

The Trading Intelligence Quarterly. Ecommerce performance


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eCommera

3. Lost prot per order.Good mail order retailers measure lostdemand. When a customer calls to placean order for a sold out item, this is captured.Online retailers have many ways to losedemand between order and net sales cancellations, declined orders, fraud, returns

or lack of availability yet measure few.Understanding lost prot is critical fora retailer to decide whether to focus onoptimising prot or reducing lost prot.

4. Return on inventory.All sophisticated retailers monitor stock turnand sell-through as key measures of inventoryefciency. The online world has further subtleties.Increasingly, retailers work with a number ofdrop-ship or just-in-time suppliers and can make

more subtle trade-offs of inventory vs. prot.Return on inventory exposes where best to holdstock in the supply chain.

5. Customer satisfaction.The delayed gratication that is a featureof all online retailers selling physical goodsmeans that monitoring customer satisfactionbecomes critical. One component of this isdelivery on promise which systematicallymeasures the distribution of orders that arrive

before, after or as promised. It is staggeringhow few retailers actually track it. As retailersincreasingly rely on drop-ship vendors or just-in-time suppliers, delivery on promise becomesever more important.

So the next time your CEO asks you whatsa good conversion rate, you can say withcondence that its not a good question!

This article featured in Internet Retailing, 2009

The Trading Intelligence Quarterly. Ecommerce performance


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www.ecommera.com

1415

Amazon is the grandmaster ofecommerce the largest onlineretailer in the world with salesof $24.5bn. It is the competitivebenchmark every online retaileraspires to.

This regular feature will highlight differentaspects of its business model to learn from whatit does well and where it may have potentialweaknesses.

Amazon does many things exceptionally wellbut at its core is a unique metric-driven approachto trading.

Extract from Jeff Bezoss letter to shareholders,

April 2010:

Senior leaders that are new to Amazon are often

surprised by how little time we spend discussing

actual nancial results or debating projected

nancial outputs. To be clear, we take these

nancial outputs seriously, but we believe that

focusing our energy on the controllable inputs

to our business is the most effective way to

maximize nancial outputs over time.

Our annual goal setting process begins in the

fall, and concludes early in the new year afterweve completed our peak holiday quarter.

Our goal setting sessions are lengthy, spirited,

and detail oriented. We have a high bar for the

experience our customers deserve and a sense

of urgency to improve that experience.

Spotlight on Amazon

Weve been using this same annual process for

many years. For 2010, we have 452 detailed

goals with owners, deliverables, and targeted

completion dates. These are not the only goals

our teams set for themselves, but they are the

ones we feel are most important to monitor.

None of these goals are easy and many will not

be achieved without invention. We review thestatus of each of these goals several times per

year among our senior leadership team and

add, remove, and modify goals as we proceed.

A review of our current goals reveals some

interesting statistics:

360 of the 452 goals will have a direct impact

on customer experience.

The word revenue is used eight times

and free cash ow is used only four times.

In the 452 goals, the terms net income,

gross prot or margin, and operating protare not used once.

We lose count of the number of trading meetingsweve observed where people debate why as anexample average order value (an output)went down last week, triggering a urry of in-meeting opinions and post-meeting analysis tohunt the culprit. By the time an answer is found,it is typically too late to take action and was thewrong question in the rst place!

Retailers need to understand the drivers oftheir business and the pertinent input measures.They should then focus their trading meetingsdiscussing and making decisions on the thingsthat are actionable.


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eCommera

eCommera is a pioneering provider of intelligentecommerce trading solutions, enabling brandowners and retailers to sell efciently andintelligently across multiple channels.

A selection of our clients include Asda Direct,

Hamleys, House of Fraser, Magasin Du Nord,Horze and the London 2012 store.

Take control of your ecommerce business throughour exible and multichannel retail trading platform

An end to end platform with a full complementof trading levers

Modular & pre-integrated for rapid time to market Empowers you to take control without IT intervention

Trade intelligently using our ecommerce dashboardand decision support tools Unique ecommerce dashboard provides a holistic

view of ecommerce performance Decision support tools rapidly identify next best action

Full service intelligence and decision support acrossthe ecommerce enterprise

Give us responsibility for managing and evolvingyour ecommerce technology Delivered on demand - but with you in control Continuously evolved to keep you ahead of

the competition You stay focused on trading not IT

eCommera Limited1st oor84-86 Great Portland StreetLondon W1W 7NR

www.ecommera.com

Tel: +44 (0)207 2915800Email: [email protected] D

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