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JULY 2008 No Retreat! Investing in eCommerce, Despite the Times.

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Presentation on theme: "JULY 2008 No Retreat! Investing in eCommerce, Despite the Times."— Presentation transcript:

1 JULY 2008 No Retreat! Investing in eCommerce, Despite the Times

2 p. 2 © 2008 Acquity Group, LLC | Confidential and proprietary information | Welcome! The webcast hosted by Acquity Group, featuring Lauren Freedman of the e-tailing group will begin shortly, No Retreat! Investing in eCommerce Despite the Times General Reminders: Audio dial-in: This is an operator assisted call, all lines will be automatically muted Q&A will be taken through the web and answered at the end of the session Concluding the session, you will receive an with a link to download the full whitepaper

3 p. 3 © 2008 Acquity Group, LLC | Confidential and proprietary information | About Acquity Group Providing comprehensive solutions for our customers since »End-to-end provider of strategy, technology and design solutions »Headquartered in Chicago with regional offices in Irvine, Scottsdale, Overland Park, and Dallas »Seasoned professionals with an average 10 years of experience »70% CAGR, privately-held and profitable »More than 300 customers

4 p. 4 © 2008 Acquity Group, LLC | Confidential and proprietary information | »14 years eCommerce consulting »Author, Its Just Shopping »50+ years traditional retail and catalog experience »Fortune 500 client projects ranging from strategic planning, merchandising, marketing, to technology development and messaging »Proprietary research studies on mystery shopping and merchandising, marketing and EMC (Evolving Multi-Channel Consumer), In-Store Pickup and Gift Registry »eCommerce expert and frequent speaker at industry events, trade associations About the e-tailing group

5 p. 5 © 2008 Acquity Group, LLC | Confidential and proprietary information | »e-tailing group Methodology and Project Goal »Macro State of Retail »Defining and Driving your Multi-Channel Strategy »Investing in eCommerce »Roadblocks to Success »Commitment to eCommerce »Executing Key Tactics »Readying your Company for Performance Checklist Agenda

6 p. 6 © 2008 Acquity Group, LLC | Confidential and proprietary information | »Are you truly committed to eCommerce? »Are you concerned you dont have the right investments planned? »Will you have the guts to make the necessary investments in the tough times? »Is your eCommerce hampered today based on your legacy systems? »Will you have the ability to evolve your multi-channel efforts in a timely fashion to keep pace with best-in-class merchants? Project Goal Understand where merchants stand on critical multi-channel and eCommerce questions

7 p. 7 © 2008 Acquity Group, LLC | Confidential and proprietary information | No Retreat Research Methodology Conducted one-on-one interviews »Questionnaires and in-depth interviews with 24 merchants specifically for this report Integrated research from the e-tailing group 7 th Annual Merchant Survey »1Q 2008 »200+ senior executives with eCommerce responsibility Americas Gardening Resource BeallsFlorida Borders Chicos Circuit City Crutchfield eBags Famous Footwear Godiva Golfsmith GSI Commerce JCPenney Orvis Petco Peets Coffee & Tea REI Sephora Sports Chalet Sports Giant

8 p. 8 © 2008 Acquity Group, LLC | Confidential and proprietary information | »Q online sales up 13.6% to $33.79 billion »Outpaced 2007 total retail sales growth of 3% »2008 eCommerce sales to reach $158.3 billion up from $136 billion in 2007 » average annual growth 12% »Currently 193 million US Internet users (2/3 of population) »New consumers coming online projected to be just 3.1% Macro State of Retail: eCommerce forecast

9 p. 9 © 2008 Acquity Group, LLC | Confidential and proprietary information | »Average 2-3 range »Relative to last year merchants saw somewhat higher conversions (45% vs. 35% LY while (24% vs. 35% LY) were about the same) Conversion Rates Remain Flat

10 p. 10 © 2008 Acquity Group, LLC | Confidential and proprietary information | »Maturing channel; Flatter growth »45% Somewhat satisfied »37% Very satisfied Senior Management Satisfaction is Waning

11 p. 11 © 2008 Acquity Group, LLC | Confidential and proprietary information | Limited Resources Devoted to eCommerce Staffing is not increasing commensurate with channel growth

12 How would you define your multi-channel selling strategy and how high of a priority is this strategy relative to other initiatives? EG Reports: Multi-channel efforts centered on the critical role, high priority, and significant status that multi-channel has attained in most organizations

13 p. 13 © 2008 Acquity Group, LLC | Confidential and proprietary information | It is less of an initiative and more of an ongoing business concern. We continually ask ourselves, How is this accessible across all of our channels? It's part of our DNA where we allow the customer to make choices about the channel rather than forcing them to behave in a way that does not suit their needs. Knowing that, were hard pressed to see value in a single channel mindset. Golfsmith, VP Marketing & Brand The multi-channel strategy is ongoing and is institutionalized at this point where multi-channel is our first view. Five years ago we had our silos and subsequently also bit the bullet on Nexus. Its no longer an item on our to-do list, but something we feel weve accomplished where we drink the kool-aid every day. Orvis, VP, Global eCommerce Multi-channel is an Ongoing Concern

14 p. 14 © 2008 Acquity Group, LLC | Confidential and proprietary information | It is an incredible conduit for communicating with our customers about our brands. Chicos, Director of eCommerce Value Extends Beyond Sales

15 p. 15 © 2008 Acquity Group, LLC | Confidential and proprietary information | Multi-channel means delivering an enterprise-wide approach to serving our customers in a way that makes sense to them and leverages our channels in the way customers want to shop. It is certainly a priority given todays eCommerce environment...It is part of our overall strategy but must make sense for the customer where innovations are always about solving a problem. As customer communication evolves and we see shifts in media consumption, we want to understand her concerns and make the necessary adjustments. We also have to be focused; while we cannot pursue it all, understanding these customer insights, along with what our solutions can help them do, leads us in the right direction. JCPenney, Vice President, jcp.com Customers Demand a Multi-channel Orientation

16 p. 16 © 2008 Acquity Group, LLC | Confidential and proprietary information | The imperatives that made sense in the high growth days may no longer be appropriate in a period of economic weakness. Because of this, we may need to redirect our marketing and IT resources to efforts that we believe will produce better results. The onus is on our team to continually prove-out the eCommerce potential and bottom line contribution, then the investment will likely follow suit. BeallsFlorida, VP, Advertising & eCommerce Maintaining High Priority Status Impacts Performance

17 p. 17 © 2008 Acquity Group, LLC | Confidential and proprietary information | We don't call it multi-channel but instead refer to our efforts as cross-channel. We feel that multi-channel just means more than one channel whereas cross-channel is bringing together the strengths of each channel to create a better overall experience. Its an extremely high priority where if done right its our best chance of competing and winning. Borders, VP eBusiness Cross-channel Vision Moves Beyond Multi-channel

18 p. 18 © 2008 Acquity Group, LLC | Confidential and proprietary information | Multi-channel is still very important; internally the online channel is one of our eight key initiatives and areas of growth for the company. The company supports this position via requisite investment with seamless execution a selling point for shoppers. There is a top-of-mind awareness of how to use the channel where we are continually reinforcing multi-channel thinking. For us its not just about selling, we see ourselves as channel-less so consumers can get information or conduct commerce and have a very consistent seamless experience as we adopt the best elements from each channel. REI, Online Sales & Merchandising Mgr. Cross-channel Vision Moves Beyond Multi-channel

19 p. 19 © 2008 Acquity Group, LLC | Confidential and proprietary information | More than half the orders placed online are picked up in store. It's all about the store relative to how we compete against pure-plays. We're successful because we can make it seamless for the customer, but we understand it's a journey to get there. We cant change consumer behavior and the right away factor is always there with the customer wanting the reward. Circuit City, Director of Web Sales & Operations It Must Be a Competitive Advantage

20 p. 20 © 2008 Acquity Group, LLC | Confidential and proprietary information | Our job is to make it simple and easy for customers to access and enjoy Peets no matter what their shopping preferences are. As a historically regional business, we see our strongest growth in the grocery channel as we open distribution in entirely new geographic regions. This has impacted the online business resulting in flat growth. Peets Coffee & Tea, GM, Home Deliver Yet, for a Few The Store is The Focus

21 Who drives your multi-channel strategy? EG Reports: Collaboration is an ideal way to drive eCommerce as when all parties are invested through contribution and impacted by results, the right strategies can be put into place

22 p. 22 © 2008 Acquity Group, LLC | Confidential and proprietary information | Who is Driving Your Multi-channel Strategy? Strategy often starts with the CEO, likely based upon growing contribution to company revenues.

23 p. 23 © 2008 Acquity Group, LLC | Confidential and proprietary information | Collaboration & Team Efforts are Clearly in Place The other dominant answer was a team effort – with CEO involvement; feedback on such a strategy including merchant-specific nuances follows:

24 Knowing your eCommerce growth relative to traditional store business, what impact will that have on investment in people and technology to support the eCommerce business? EG Reports: Requires forward thinking merchants who realize multi-channel investment is fundamental to overall retail growth

25 p. 25 © 2008 Acquity Group, LLC | Confidential and proprietary information | We're growing our web business faster than the rest of the company and we continuously strive to understand what it would take to drive eCommerce even faster. - Golfsmith Investments in eCommerce are Strong, Despite the Economy Were not in competition with the retail guys for funds; we're still investing where we think business can pay off. -Orvis

26 p. 26 © 2008 Acquity Group, LLC | Confidential and proprietary information | We have learned over time an online acquired customer is just as strong as offline. With catalog costs becoming more and more prohibitive we are investing more in the channel that can best deliver "the contribution" we need though its always a moving target. At the end of the day, we always want to get smarter about how to spend our next marketing dollar. - Americas Gardening Resource The Reality of Tough Retail Times Forces Smarter Decisions We need more people but conversely lost employees in a recent lay-off. - Specialty apparel merchant

27 p. 27 © 2008 Acquity Group, LLC | Confidential and proprietary information | Today home delivery is 3-4% of company transactions as a result of a store visit. Not only do we like to but we need to get this business. Multi-channel maintains its position as a high priority where were able to secure a greater investment for the web in terms of both dollars and people which we believe is very unusual in these tough times. - Famous Footwear Store Requirements Depend on eCommerce Investment

28 p. 28 © 2008 Acquity Group, LLC | Confidential and proprietary information | Today IT employs 40 people versus just 9 people three years ago. Thinking has evolved where they are continually evaluating outsourcing some technology, which was done infrequently in the past with their build versus buy mindset. There are inherent challenges. - eBags Investments are Heavy in IT

29 p. 29 © 2008 Acquity Group, LLC | Confidential and proprietary information | New ideas and strategies require investment and we can get more growth out of the business by extending the profitability of this channel. At Sephora everyone understands the payout and sees the opportunity so now its time to get the tools, especially those centered on Clientelling, in place. - Sephora Timing is Everything

30 p. 30 © 2008 Acquity Group, LLC | Confidential and proprietary information | An annual growth rate of 30% has allowed us to move from basic tools to more evolved technologies and from manual efforts to those that are automated. …recent and continuing investments were needed, as we've outgrown much of our technology and need a robust and flexible commerce platform. Our business has reached the stage where can no longer manage with lower level investments in technology. Our team continually evaluates tools until we're ready to deploy, as we are doing with both new and analytics systems this year. Sports Giant, CEO Continual Reassessment of Investments is Critical

31 What are your biggest internal roadblocks relative to advancing your multi-channel agenda? EG Reports: Roadblocks of time, money, and resources will likely continue unabated

32 p. 32 © 2008 Acquity Group, LLC | Confidential and proprietary information | Money is a factor in every business, including multi-channel selling. People do not always have an accurate understanding of how much money, effort, and time are required to truly be multi-channel. We believe our direct business can do anything, but inevitably something else will certainly suffer. - Godiva Understanding TCO is Imperative

33 p. 33 © 2008 Acquity Group, LLC | Confidential and proprietary information | Theres an uncertainty and fear of the unknown regarding the growth path for the online business – many knowledge voids exist. Given the newness there is not enough collective experience for organizations to be confident with their web strategies and investments and its a fast moving and constantly changing environment to deal with. -Sports Chalet We always want to do more; more user functionality and more ways to better merchandise for the customer. Any time one is dealing with systems it takes longer than estimated so it will always be a matter of prioritizing initiatives against one another. -Orvis Needs Outpace Knowledge

34 p. 34 © 2008 Acquity Group, LLC | Confidential and proprietary information | All roads lead to IT. We have needs to quality assure and small things can often turn into big issues. Were multi-country now where platform changes impact every location. It becomes a classic case of prioritization as the entire company (120 people) needs to be in sync. In the past we prioritized pet projects that were not necessarily in the best interest of the company but it is essential to remain focused. Its easy to lose control and to have silos so were continually working on this challenge. -eBags Many of our needs are in place, so now we have to figure out how to grow content and community online to maintain our competitive advantage. We continually struggle with the issue of doing things internally or leveraging a third party, our preference has leaned internally. We prefer that control but will test third party providers as they are quicker to market and often best-in-breed. -REI IT from Systems to Sophistication Pose Challenges

35 p. 35 © 2008 Acquity Group, LLC | Confidential and proprietary information | Multi-channel takes serious commitment with continued strong investment and to succeed as a company we have to keep putting money where our mouth is. -Chicos Ultimately Merchants Make a True eCommerce Commitment There are many aspects to commitment. Its financial, mindset, and teamwork and it will take all three combined to make it happen. -Borders

36 What level of commitment do you believe is required to compete with the best in your category? Are you ahead? Behind? EG Reports: Commitments vary based on business strategies, eCommerce evolution and category competitiveness

37 p. 37 © 2008 Acquity Group, LLC | Confidential and proprietary information | Its essential in these challenging times that we continually get smarter about our investments and do the required due diligence. -Bealls Be Smart About the Investments JCPenney leads our competitor set – In fact, we have the largest home and apparel site on the Internet. Yet we continue to make progress enhancing the customer experience and usability of the site. Thanks to our catalog business, however, we are ahead of our competitors in areas such as fulfillment. -JCPenney Retailers must recruit and invest in people to be successful although the expense is substantial and good people take time to find. -Sephora

38 p. 38 © 2008 Acquity Group, LLC | Confidential and proprietary information | We're behind, but we have a strong, established brand so in some ways we're actually ahead. Today we could benefit from an expanded assortment, evolved functionality, and new technology. -Godiva Being a Brand Counts We have a brand and store to fall back on. Pure-plays are pushing ahead and were behind in terms of having a true community site but know that keeping up will be essential. -REI

39 p. 39 © 2008 Acquity Group, LLC | Confidential and proprietary information | Be Smart About the Investments Were 100% percent committed; communication and understanding internally are essential to our success. Prioritization must be crystal clear where half our initiatives are focused on the conversion rate and the other half are customer focused. We know what we need to do and now must nail the execution. -eBags Even though you're a small specialty store, your customer is also buying on Amazon, Best Buy and Netflix. Consumers don't cut you slack regarding technology you don't have; they hold every site to the same demanding standards so even smaller merchants must have a certain threshold level of technology commitment. With that in mind, we're constantly working to bridge the gap as best we can. -Sports Giant

40 On a scale of 1-10 how aggressive will you be in 2008 with your Commerce investments? Answers broke out into very distinct groups: The Aggressors The Funders The Hopeful Investors

41 p. 41 © 2008 Acquity Group, LLC | Confidential and proprietary information | Merchant Funding Chart

42 Where do you see your main inefficiencies in your current eCommerce platform? EG Reports: Inefficiencies centered on content management, flexibility, and admin tools and beyond that they tended to be unique to each merchant

43 p. 43 © 2008 Acquity Group, LLC | Confidential and proprietary information | Top 10 Technology Inefficiencies

44 What is your technology prioritization process? How often do you review the investments being made? EG Reports: Annual efforts were a standard though the pace of the industry pushed merchants to review their priorities throughout the year

45 p. 45 © 2008 Acquity Group, LLC | Confidential and proprietary information | Technology Prioritization Process Most Often Annual The chart below shows merchants review and prioritize technologies on an annual basis with some adhering to a multi-year roadmap. Given the pace of the eCommerce industry and impact of any given technology, 1/4 of the merchants more actively monitor efforts to ensure they have made the right choices for the remainder of the budget cycle.

46 p. 46 © 2008 Acquity Group, LLC | Confidential and proprietary information | We follow an annual cycle; preparing a wish list in the fall via a full day of brainstorming with our entire department. Its essential for us to continually re-evaluate the list, assessing what is the best priority for us today as there are continually new opportunities arising so nothing is set in stone. - Petco An Annual Review is Essential

47 p. 47 © 2008 Acquity Group, LLC | Confidential and proprietary information | Relative to technology decisions we take it one step further by putting all potential projects through an extensive scoring process, with an even more arduous ROI process that ranks each on potential return. All may be worth investing in but everything can't be a priority; with capital expenditures we must wait until the annual budgeting cycle or seek emergency funding, and money is a precious commodity. -Americas Gardening Resource Prioritization is a Rigorous Process

48 What are your top 3 initiatives on your eCommerce to do list that you plan to tackle in 2008 and why? EG Reports: Initiatives are as varied as the interviewed merchants though re-platforming and redesign efforts were top-of-mind

49 p. 49 © 2008 Acquity Group, LLC | Confidential and proprietary information | Executing Key Tactics Our 2008 Annual Merchant Survey addressed the initiatives being funded this year and the rationale for investing in chosen areas. The top 5 included: »targeted programs »site redesigns/upgrades »improvements to onsite search »enhancing merchandising features »cross-selling Aside from our interviewed merchants confirmed similar plans throughout the coming year.

50 p. 50 © 2008 Acquity Group, LLC | Confidential and proprietary information | The Re-platforming Mode Engulfs Many Merchants Merchants acknowledge that despite the process they needed to upgrade technology to marketing standards because their current platform is holding them back from achieving company objectives. Our 2008 Annual Merchant Survey concurred: »almost 1/3 of will swap out their platform in the coming year »an additional 29% will be in the market within 3 years

51 p. 51 © 2008 Acquity Group, LLC | Confidential and proprietary information | New Technology is Built to Plug & Play–but Not That Simply As much of their infrastructure dates back to , eBags knows all too well the world has changed and Cobbs analogy rang true for me. Imagine you had a Sony 27" inch Trinitron which had two outlets; nine years later its all about the Xbox and PlayStation and of course one needs full HDTV. The vendors say you just hook in but it's not as easy as just plug-in and add. It takes time to integrate; massive changes are required for even the simplest of things. We are building the highway of the future and simultaneously keep current business flowing which can be a challenge tied to a high price tag, but one we must incur in order to wisely move forward. -eBags

52 p. 52 © 2008 Acquity Group, LLC | Confidential and proprietary information | Merchandising Tactics Illustrating the breath of merchant choices this chart delves in to the details with an array of others tactics under consideration.

53 p. 53 © 2008 Acquity Group, LLC | Confidential and proprietary information | Growing Assortments Merchants are looking at a number of ways to grow assortments beyond their current inventory investment. »the majority of merchants will increase skus »split personality where 40% will add significant skus »an equal number of will consider some additional skus on their site

54 p. 54 © 2008 Acquity Group, LLC | Confidential and proprietary information | Its easy to get skus online but we need to understand what impact that has on the brand; weve found one also needs to market the product to get interesting and significant results. -Circuit City Profit Aspirations Drive Additional Skus We're maxed out with drop-ship already in place; were starting to rationalize skus and question do we need the 98th or 99th sku or should we optimize the best 20% of SKUs with added features and functionality to drive higher velocity on the best sellers. -Golfsmith

55 p. 55 © 2008 Acquity Group, LLC | Confidential and proprietary information | We cant leave our business to chance; we need to invest in our brand and leverage the power of our manufacturer partners and get better alignment of our mutual objectives. Consumers will come to expect this. - Sports Chalet Merchants Expand Assortments in Many Ways Today we only have 10 percent of our store skus online and that mass load capabilities will be required to achieve parity with the stores. - Anonymous Merchant

56 p. 56 © 2008 Acquity Group, LLC | Confidential and proprietary information | Readying Your Company for Performance… »Be cognizant of the economy and make timely adjustments to your business strategy »Devote dedicated resources (time and money) to ensure the success of your eCommerce business »Make multi-channel a top priority; continually extending cross-channel conveniences to your customer »Build a spirit of collaboration within your company to foster eCommerce success »Make wise investments as fueling eCommerce in good times and bad is a prescription for strong company-wide performance

57 p. 57 © 2008 Acquity Group, LLC | Confidential and proprietary information | Readying Your Company for Performance (continued) »Understand any roadblocks and build a culture that believes in eCommerce, working hand-in-hand with IT and/or outside third resources to execute technology requirements »Commit the necessary level of investment and monitor priorities to keep the right tactics on top of the list »Avoid inefficiencies by securing a platform and partners that represent your requirements and mesh with your organizational structure »Keep a keen eye on the economy, your customers, and your competition to maintain best-in-breed status

58 10851 Mastin Blvd. 82 Corporate Woods Suite 150 Overland Park, KS (913) North Scottsdale Rd. Suite 170 Scottsdale, AZ (480) OVERLAND PARK, KS SCOTTSDALE, AZ CHICAGO, IL (HQ) DALLAS, TX 500 West Madison St. Suite 2200 Chicago, IL (312) Granite Parkway Suite 950 Granite Park III Plano, TX (972) MacArthur Blvd. Suite 1200 Irvine, California (949) IRVINE, CA Lauren Freedman President, the e-tailing group (773) Chris Hauca Vice President, Acquity Group (312)


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