Why doesn’t retail learn? Hesitant eCommerce investments bring nothing!

Every week I talk to companies about planned digital initiatives. In the last two months, I’ve dealt with two companies that couldn’t be approaching the topic of digital more differently. One has a chance of success, for the other I see black. A few thoughts on minimal investment budgets, promising solutions and technical token exercises. Once again, strategy and culture will determine success or slow demise.

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Let’s get straight to the point: I think Brick & Mortar Retail is particularly prone to making stupid investment decisions in the digital space. Both of the companies mentioned have a large (+1Bn) retail business and masses of stores (+500). Such a store costs between EUR 1 and 8 million to invest, depending on its size and equipment. The turnover that can be achieved with a store is around EUR 3 to 8 million.

The branch for EUR 100k

So why do I often receive the business requirement that an eCommerce platform should only cost between EUR 100k and EUR 600k from these retailers? And why is it mentioned in the same document that they plan for the “online channel” to generate 50 million in sales in three years? Then, in the vendor briefing, a Cxx explains to me that they are currently working on the digital transformation and that eCommerce is of the utmost importance. I see.

In such companies, anyone would probably be fired immediately if they were to plan or propose a new branch with only 300k investment but an expected turnover of 50 million. In the digital sector, such nonsense can be demanded even at C-level. Why is that?

“No plan” and “don’t believe in it” are married

I think it’s usually a mixture of not having a plan for digital business models and more or less secretly not believing in the digital transformation. It’s usually a mixture of both, because to a certain extent one requires the other. However, this does not prevent these mostly high-ranking management representatives from talking about the “digital shift” non-stop. If they had digital expertise (for which, by the way, you don’t have to be a digital native at all, but simply a bright, eager to learn and risk-taking intrapreneur), someone in these management bodies would recognize that investments need to be made in what is important to them. And stand up and say “stop”.

The extras

The fact that such plans are usually nonsense is usually well known in the company. As a rule, there is always an employee somewhere who recognizes the mistake, expresses this to us vendors, but inwardly resigns because his superiors don’t listen to him anyway. Especially when it comes to investments. They are always a “matter for the boss”.

The doomed pilot

It becomes particularly tragic when the small investment is then justified with a pilot phase. À la: We are now making this small (read: super cheap) store and measuring whether this eCommerce thingy works for us. If it works, we intensify our investments, if not, we look for strategic alternatives (read: e.g. redesigning the print catalog). This is the direct road to ruin. Because the investment is so small that not even a minimum viable product (from the online customer’s point of view) can be created (or one with serious quality defects), the online business is guaranteed to fail.

Of course, this does not mean that the customers of retailer XY would not like to buy online, but that they will buy elsewhere because it is easier. The bottom line is that this is a perfect system for making the wrong strategic decisions.

There is another way

You will now say, yes, but there are also representatives who have understood what it is all about. Of course there are. They do exist. But they are in a vanishingly small minority. Fortunately, I had the pleasure of meeting another such customer a few weeks ago.

When asked why they wanted to do the eCommerce project, the answer was: We will be around for the next 30 years.

Someone analyzed the changes in their customers and came to the conclusion that new business models will be essential for the company’s future success. Accordingly, the discussion about budgets was of secondary importance; this customer was much more interested in what exactly we can do to make eCommerce really successful.

Retail is dead, NOT.

I don’t really want to join in with the “retail is dead” chants that consultants and analysts in the digital economy have been singing for a while now. eCommerce will not replace the brick & mortar store. But digital will permanently change shopping behavior in brick & mortar stores. Respectively, it already has. And will continue to do so!