The end of retail as we know it

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Traditional retailers have no reasons to worry. Ecommerce is still only 15% of all retail. Even Amazon is opening physical stores… I hear that more often than you would believe. And, until only recently, it was almost possible to believe it.

However, the emergence of Covid 19 has only accelerated of what was already on the way – the demise of offline retail.

Why are offline retailers threatened by ecommerce?

It’s very easy to mock the threat of ecommerce to traditional, offline retail and my eMBA professors never fail to do it. Ecommerce is, after all, still only 15% of total retail and this percentage hasn’t changed a lot in the past few years. In China, often considered to be at the forefront of the ecommerce transition, it’s even less, between 13 and 14%.

However, if I was an offline retailer, I would have at least opened en ecommerce site a long time ago. Why? Because of Blockbuster.

Your asset is your liability

Blockbuster was the unquestionable leader in its vertical, DVD rental. There was a Blockbuster store in every American city and the brand recognition was as strong as McDonald’s. When consumer behavior suddenly started changing with the advent of Netflix, at the time also offering DVD rental but via a disruptive online subscription model, Blockbusters’s biggest asset – the physical stores – suddenly became its biggest liability.

The same is sadly happening to offline retail. Only a few years ago, a premium retail spot in the city center would be a prized trophy for a retailer. It’s enough for sales to drop just a little bit, just by, say 15%, for this retail spot to become just slightly unprofitable. The margins in retail are notoriously thin. The cost of a prime retail spot doesn’t budge with a drop in sales. The rest is as simple as doing the maths.

How is Covid 19 accelerating the shift?

The short-term impact of the coronavirus is impossible to miss. People stopped shopping in physical stores, excepting groceries, either because they have been shut down or by fear of contamination.

The long-term impact will come under two forms.

Bankruptcies

For some retailers who were already struggling to make ends meet, this will be the last straw. After a poor Q3 and a poor Q4, they were only staying adrift hoping for a strong Q1 or a strong Q2. All these hopes are now gone due to the sharp decline  in foot traffic. In line with some of the airlines, some retailers will not recover.

Change in habits

In his book The Power of Habits, Charles Duhigg famously states that habits are formed by three steps:

  1. cue
  2. routine
  3. reward

In case of shopping, the cue would be the trigger to buy something new, such as a changing season (I need new clothes for summer) or a need (I have run out of milk). The reward is, obviously, the pleasure we feel when we interact with our new purchase. The routine is the act of going to the store to purchase the product.

According to Duhigg, a way of changing a habit for good is to change the routine. If the habit you want to change is smoking, you need to leave the trigger and the reward intact and only to change the routine. If what triggers your cigarette is your morning coffee, don’t change it. If the reward is the feeling of alertness that comes from smoking a cigarette, find an alternative way of procuring it. If the trigger and the reward remain unchanged, it’s very easy to change the routine.

In case of shopping, with the stores being closed, we are now in the process of changing the routine. The trigger (I want/need something) and the reward (I’ve just bought something) are as they were. Conclusion – our habits are about to change and will have no incentive to change back once Covid-19 is over.

What should you do?

The most frequent advice from consultants working with physical retailers is not to worry and bet on experience. In the current context this is obviously impossible.

If you haven’t already, there is one thing you can do: bet on your online presence. Now.

Fashion comes clean

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Fashion industry is responsible for as much pollution as oil industry. It employs thousands of people in deplorable conditions, often risking their lives to deliver the latest trends to the developed world.

As consumers are ever more conscious of the human and environmental cost of what they wear, these brands want to prove that we can do better, in all areas, from production to shipping.

Fashion consumes 98 million tons of nonrenewable resources annually. Fashion employs garment workers paid as little as $ 0.35 per hour to work in extremely hazardous conditions. Factories producing viscose, a synthetic textile used in blouses, skirts and suits are regularly accused of water and air pollution with chemicals.

What can fashion brands do to align with the values of their increasingly “woke” customers?

Rent the Runway – buy no clothes

What better way to limit the disastrous impact of fashion on the world than to… stop producing fashion altogether? Rent the Runway is a service for fashion-conscious people willing to join the “rental revolution”. It sports thousands of designer clothes that are there for rental, not for buying. “Smaller footprint” is one of the site’s top selling points.

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Smaller footprint is one of the main reasons you would choose to rent rather than to buy

In a very smart move, Rent the Runway partnered with a hotel chain for a clothes delivery service. Rather than traveling with a bag full of clothes you can have your favourite styles waiting for you in your hotel room… without the guilty feeling of increasing your carbon footprint.

Vestiaire collective – buy again

For those who’d still rather buy than rent, the most environment-friendly option is to buy again. Vestiaire collective makes it possible to sell superfluous designer products cluttering our closets and to buy thousands of curated, pre-owned goods.

While dealing in second-hand products, it maintains a luxury, exclusive touch – a sign that buying pre-owned products is becoming socially acceptable for ethical reasons. The Real Real or Vide Dressing are other examples of the same trend.

Patagonia – repair and reuse

While remaining in the “buy new clothes” business, Patagonia makes a real effort to ensure long life for the clothes they produce. One of the most visible actions is their Worn Wear program.

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Patagonia’s mission is to extend the life of their products

On one hand, Patagonia encourages selling pre-owned Patagonia goods – either in-store or by posting them.

On the other hand, they organize road shows during which they meet their customers and repair their clothes!

Most of all, they commit to producing high quality product that can last for years, as “keeping clothing in use just nine extra months can reduce the related carbon, water and waste footprints by 20-30%.”

Rothy’s – recycle

Somewhat less radical but equally noteworthy is the concept of ethically sourcing raw materials.  The upper parts of Rothy’s shoes are woven from plastic water bottles thus giving a second life to the notorious polluter.

Rothy’s efforts to use recycled materials go a long way – even the blue ribbon used to seal the packaging is obtained from recycling.

Talking about the packaging, as an ecommerce pure player, Rothy’s are aware of the carbon footprint generated by shipping products. Their packaging is stripped to a bare minimum and “fully biodegradable.”

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Allbirds, also competing in the SSS (“sustainable shoes on Shopify”) category, takes a similar approach. While the shoes themselves are produced from natural, ethically sourced materials, laces are made from recycled plastic bottles and packaging – from recycled cardboard.

Guilt-free fashion

The most sustainable approach to fashion would arguably be to

  1. always wear the same clothes
  2. only wear self-knitted sweaters from the wool coming from one’s own sheep

As these are either complex to put in place or socially unacceptable, it’s good to see fashion brands waking up to the threat they have become to the world. Renting, re-using, repairing and recycling can visibly reduce our carbon footprint… while still making us look fabulous!

Why you should bet on Google Shopping rather than Facebook / Instagram this holiday season

photo of two silver giftboxGoogle Shopping is just the right tool to win this Holiday season

It sounds deceivingly easy. You have a great product. You create great visual content. Your packaging is instagrammable. The influencers say they love it. This will for sure translate into a lot of sales right? Right, only it doesn’t.

Or, not always. Or, it does only for some brands and requires a big budget, a unique product and a lot of luck (alternatively, having a celebrity as a CEO can be a big help). Anyone launching a skincare brand today will note that overnight success stories are of a bygone era.

Maybe it’s time to move away from the alluring world of community-building, customer evangelism and the whole brand building narrative and come back to marketing as a science, based on hard numbers and meaningful metrics. And numbers speak for Google.

Google makes it easier to get started

If there is one form of digital marketing that doesn’t require any advanced training to get started, it’s Google Shopping. If you’re using Shopify or BigCommerce to run your ecommerce store, the setup should take you minutes.

The basis of your Google Shopping campaigns is a product feed which can easily be created automatically by a third party app. If you have great products, with beautiful pictures and strong titles and product descriptions – in a nutshell, if you have a professional store – that’s about all you need.

Running Shopping campaigns is also relatively easy and doesn’t require any black magic or superpowers. Google offers many automations and if you accept losing some money for the first few weeks which the algorithm is going to need to learn your customers’ preferences, you can hand of your campaign management completely to artificial intelligence.

As long as you don’t mind losing some money at the beginning while the algorithm is learning, your Google Shopping campaigns can be fully managed by AIhigh angle photo of robot

Google Shopping does not devalue your brand

Forget the Glossiers, the Aways, the Kylie Cosmetics. Instagram is flooded with cheap products drop-shipped from China and this sad truth increasingly surfaces in the media. How do you stand out in this crowd? How do you make sure you are not considered as one of them?

Most likely your consultant has been telling you, you need to be offering discount codes to more easily acquire new users. Alternatively, she’s been telling you to offer discount codes to convert your first-time buyers into repeat buyers. Whatever the case, she’s certainly been telling you to offer discount codes!

Unfortunately, discounts are only going to further devalue your brand and those buyers you acquired at a razor-thin margin may not want to come back and if they have to pay the full price.

Google is measurable

But what about the influencers? For sure relying on them to promote your products to their base is what you need to be doing (because just about everyone else is). Unfortunately, three out of four marketers say tracking ROI is their top challenge when it comes to influencer marketing.

This happens for an obvious reason – it’s not in the influencers’ interest to be commissioned on the sales they actually bring in – it is much more beneficial to charge for “reach” or contributing to “brand awareness”. These vanity metrics are not only just that – vanity metrics – they are also easy to skew by the creation of fake accounts for instance.

Advertising with Google is all the contrary – you get almost too much data and too many metrics. You can see how each of your products is performing, in each geographical area, at which time of the day, each device… You can spend hours analyzing this data.

As mentioned earlier, you can also choose not to do that and let the Google algorithm do the math and make the decisions for you.

Google is often cheaper

If there is one metric which is of real importance when running your digital marketing campaigns it’s the Return on Ad Spend or ROAS measured as total sales generated from a campaign divided by the total money you spent on the ads.

Google Shopping often offers better ROAS than any other digital marketing venue because the ads are shown to people searching for the particular product you advertise. I am going to be shown this gorgeous cashmere sweater only if I’m looking for one, not if I’m checking out the news or updates from my friends.

That’s why, this Christmas, when buyers explicitly turn to Google to search for products to buy, you need to make sure that your products are there to be found.

Happy Holidays!

Can Shopify save retail?

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When did shopping become so beige” asked an eBay ad targeting – not so subtly – their Seattle-based competitor. Try as they may, ecommerce retail did become synonymous with shopping on Amazon. Is this a bad thing? And can it be changed? I would argue, yes and yes.

It’s becoming increasingly clear however, that if someone is to beat Amazon in their game it’s not going to be eBay but a humble company from Toronto whose market value has recently exceeded that of many Sillicon Valley darlings.

How much does it really cost to sell on Amazon?

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Amazon’s market share is projected to reach 50% of the US ecommerce market by as soon as 2021. As its clout grows, so does its pressure on the retailers using the platform for their online business.

While the battle to get into the Buy Box has always been tough, it can’t go unnoticed that Amazon sellers increasingly see their profits diminishing since the advent of Amazon ads.

The Buy Box is a functionality of the Amazon marketplace which allows an Amazon algorithm to select the best seller offering a given product. Although buyers also get to choose and a sale can happen even if the seller hasn’t been pre-selected by Amazon, in reality more than 80% of products sold on Amazon come from the sellers who made it to the Buy Box.

In order to get into the Buy Box and increase the odds of her product being purchased an Amazon seller needs to do a few things:

  • have the most competitive price
  • have a high percentage of positive feedbacks
  • have competitive delivery times and rates (so ideally use Amazon fulfillment, which allows same day delivery)

It goes without saying that all of this comes at a cost: the marketplace commission itself is on average around 13% but can go as high as 25%. The price wars on the Amazon marketplace are a real race to the bottom as sellers compete on price with each other AND with Amazon, who incidentally is one of the world’s biggest retailers. Also, in order to win the Buy Box sellers may see themselves forced into offering same day delivery and using Amazon FBA which is an additional expense.

If the Amazon marketplaces continues to gain market share at the expense of its competitors it’s because sellers have always seen the value for their money from using it – it does drive sales. Many ecommerce businesses I speak with admit that 80% of their sales volume comes from Amazon with roughly 10% generated by their own website and 10% from other marketplaces.

This added value has become less obvious since the introduction of Amazon ads. To be found in the crowded marketplace, a seller not only needs to have a high quality product with a good title, description, keywords and pictures – she also needs to pay for advertising on the platform. Since 2018 Amazon has been increasingly aggressive in promoting their advertising platform, which allows the Seattle-based company to generate profits at a very low cost compared to a typical retail business.

It’s quite obvious that having one platform with so much power doesn’t benefit ecommerce retailers and many are quite desperate to differentiate their sources of income and sway away from Amazon. But can anyone, apart from regulators, stop Amazon’s ascension?

How is Shopify different from Amazon?

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Tobi Lütke, the Shopify CEO. Source : Toronto Star

On the opposite site of the North American continent, in Toronto, a new rival is gearing up in the battle for the future of ecommerce.

From a seller’s point of view the Shopify value proposition is quite the opposite of Amazon’s. Where Amazon requires uniform experience, Shopify offers hundreds of themes. Where Amazon controls the purchasing process from the discovery to the delivery, Shopify only takes over the checkout and lefts the rest to the retailer’s discretion. Finally, and most importantly, the Shopify commission can go down to as little as 2.4% of sales which is quite unlike the 25% (+ FBA, + ad spend) merchants may need to pay to Amazon.

The Shopify platform makes it incredibly simple to set up an online business. So simple, that overtime it has drawn a lot of criticism pointing out that many of its users can barely be called professional sellers. Stories abound about teenagers setting up stores in no time to sell low quality goods imported from China. On the other hand, the platform’s marketplace of apps and third parties makes it equally easy for these businesses to scale. That’s why the company can boast having Kylie Cosmetics and Allbirds among its customers.

Being on Shopify allows sellers to build their brand and re-engage their customers with emails, retargeting and social media. Therefore, even if the cost of customer acquisition is higher (as sellers have to buy media themselves, rather than rely on a marketplace to do it for them), so is the customer lifetime value. Retailers who were suffocating under all the constraints imposed on them by the marketplaces find themselves empowered to run their businesses as they deem wise.

What comes next?

Shopify can save ecommerce retail. But is it going to? There are signs that the Toronto-based company may have different plans.

Shopify has recently changed their Terms of Service for independent apps to have more control over their sellers’ data and very publicly parted ways with MailChimp who didn’t wish to comply. They are also investing in their own fulfillment solutions. Are they quietly building their own marketplace, unifying all the beautiful independent direct-to-consumer brands they helped create?

As a Canadian proverb says “Patience is a tree whose root is bitter, but its fruit is very sweet.”

US Sales tax – what do you need to know when exporting to the US?

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Anyone who has read Brad Stone’s fascinating The Everything Store will be familiar with this story – Amazon has decided to build their first HQ in Seattle, Washington in order to avoid paying high sales tax. Back in time, in order to pay sales tax in a given state, a retailer would need to have physical presence in this state. As a consequence,  ecommerce retailers established their businesses in states with low sales tax rates and low population, avoiding states such as California or Texas.

South Dakota v. Wayfair shakes things up

About everything has changed with the recent Supreme Court decision in South Dakota v. Wayfair. The court decided that “the physical presence rule for state tax jurisdiction is incorrect and not a requirement under the Commerce Clause of the U.S. Constitution.” Thus, in order to be eligible for paying the Sales Tax, the merchant does no longer need to have physical presence in a state – it’s enough if she has what’s called an economic nexus.

What’s an economic nexus?

The economic nexus means that a business has economic activities in a given state. Each state defines the nexus individually and the thresholds that make a business eligible for paying the sales tax vary from state to state.

Thus, an ecommerce business selling to buyers from California needs to make 200 transactions to California or exceed $ 100K of sales volume to this state in order to be eligible for the California sales tax of 7.25%.

The same business would need to exceed $ 500 K of sales volume to Texas in order to have to pay its 8.25% sales tax.

A very handy map showing all the thresholds per state can be found here.

What does it mean for non-US sellers?

Whereas the Supreme Court ruling does not explicitly mention businesses exporting to the US, there is no reason to believe that non-US sellers would be exempt from collecting and paying the Sales Tax if they have an economic nexus in a given state. The linked article from TaxJar cheerfully explains that the only way not to be eligible for the US Sales Tax is not to make any sales to the US. The other solution is to make so low volumes as to not be eligible for the Sales Tax. Any exporter who exceeds the per-state thresholds will need to face the reality of having to establish a tax presence in various US states and collect and pay the Sales Tax per state.

As a result, the ruling which was initially aimed against Amazon, ends up by hurting SMB’s for whom the need to figure out the new taxation rules may be daunting to say the least.