Traditional retailers that failed to recognise the potential impact of eCommerce have been seeing casualties for well over a decade.
This isn't something new, it isn't a fad, it isn't about cannibalisation as some of them told me many years ago, it's about having the 3 wise monkey syndrome in the boardroom, not listening to the consumer and frontline employees, and not reacting quickly enough to what they can evidence.
I'm not naive, I've been around the retail sector for many years, I've operated across all areas of retail in a number of different countries, and I understand that they all carry a huge fixed and legacy systems cost base.
For many the biggest of those cost are indeed the physical retail store network, so I get that you can't simply cull stores overnight but to build the future you have to leverage the past, or as someone once quoted me "It's easier to give birth than it is to raise the dead".
"Internet and direct marketing retailers had the highest median market signal one-year probability of default of any sector at 8.1%, according to S&P Global Market Intelligence data and analysis from February."
Other sectors included home furnishings retail; apparel, accessories and luxury goods; department stores; and consumer electronics. retail dive
If you're the biggest and best in your sector today you won't be for long, the internet has allowed millions of people around the world to take what today might be a small bite out of your very large cake, and if enough of them do this consistently and better than you then it's inevitable they will quickly dilute what you think is a dominant position, the reality is the digital Pandora box is open, and it isn't closing anytime soon.
So are pure play retailers immune to the issues facing their physical retail counterparts?
Take Wayfair for example. The retailer, by design, sells a broad range of offerings in an effort to attract a wide consumer base. The problem is, so does Overstock. And Amazon. And Target. And Walmart. And a large swath of other major retailers.
Retailers that sell a lot of brands and don’t provide a differentiated product offering are primarily competing on price by providing customers with the biggest deals. Those companies, especially those operating primarily online, face challenges when it comes to both acquiring and retaining customers.
At no time in history has it been easier and cheaper to set up a business. If I understand the digital medium better than you I already know I don't need a database, I don't need to spend huge amounts of my budget and resource on advertising, and I can gain access to your incumbent and future customers. The really good ones create conversations that will make them think differently about why they should do business with me over you, and I will 'listen' to them because you don't.
When seeking to attract consumers on the endless void of the internet where competition is brimming, customer acquisition costs quickly add up, sometimes coming at the expense of reaching profitability.
Many pure-play retailers saw a huge boost during the pandemic as people were confined to home. COCA (cost of customer acquisition) was low as the consumer was looking for those that could enhance their 'stay at home' lifestyle.
Several businesses reported staggering growth rates and convinced themselves 9and investors) that this was sustainable. But that was then - this is now!
If you add the inflationary challenges which means their costs are going up and upwards in their supply chain.
Costs are going up, if you add to that that they are not bricks and mortar so everything is done by shipping, and you throw in multi-year supply chain disruptions, that's a real tough combination
Pure-play e-commerce retailers are twice as likely as retailers who have stores to report being unprofitable, according to a 2022 survey conducted by Ipsos for Publicis Sapient and Salesforce.
Pure-play e-commerce retailers are also nearly twice as likely to report they are struggling to make necessary investments to improve profitability.
Just as all those unknown online retailers nibbled away at traditional retail 'social commerce' is now doing the same thing for your eCommerce website.
So - what's your plan?
This is why several digitally native companies have since taken their products offline and opened stores. Physical retail can serve as an additional marketing channel to help acquire customers and can diversify brands as competition grows. Allbirds, Warby Parker, Casper and even Wayfair and The RealReal have turned to brick and mortar.