Multichannel retailers and established retail brands with a Web presence may have an edge over pure-play e-commerce merchants as the online marketplace develops, according to Safa Rashtchy, managing director of investment firm Piper Jaffray.
Rashtchy told an audience at the Internet Retailer 2006 meeting in Chicago that the top ten Web-only e-commerce companies now account for less than 20% of all U.S. e-commerce. The remaining 80% is done either by the Web channels of more traditional brand names or by small players who have managed to get found through search marketing. “Those are the key trends that have created the picture of e-commerce: search, and traditional companies coming online,” he said.
Rashtchy pointed out that after suffering setbacks in the dot-com bust, traditional retailers have spent the last three years coming back online. This time, he said, they’re armed with the Internet savvy that once made successful Web-only merchants, and they’re delving into e-commerce more intelligently. “Amazon’s knowledge is now common knowledge,” he said.
Rashtchy pointed to comScore Networks’ tally of the 30 most visited retail sites for April 2006, which featured brands like WalMart.com, Target.com and JCPenney.com alongside eBay, Netflix and Overstock.com. “Not only have these companies learned how to direct people online, but they’ve learned online merchandising too,” he said.
The rising cost of search marketing due to the entry of branded companies and increasing customer acquisition costs will continue to squeeze pure e-commerce merchants, Rashtchy said. Those Web-only companies will have to concentrate on keeping marketing costs down by optimizing their sites for organic search, he said. They may also need to investigate offline channels to keep costs in line.
That offline move may be a smart play in light of another trend, Rashtchy said: the rise of local search and the option to discover products online, then purchase them locally in a retail store.
Local search began with Yellow pages-style listings of basic business information, but it has already grown to include richer content, interactive maps and photos, and contextual listings that show searchers where to buy a product they’re investigating without waiting to be asked.
The next development will be including actual inventory in local search, so that a user can not only find a local store that sells an item but will be able to tell from the listing whether that item is in stock and what its price will be. With the novelty of e-commerce wearing off, Rashtchy said, many users will adopt a pattern of locating goods on the Web but then transacting offline and locally.
In this environment, small merchants will be best able to succeed if they have unique product offerings and can keep their operating costs low—something the Web can do for the right players. But among big players, the Internet will favor large-scale operational efficiencies and low customer acquisition costs. That may well give an advantage to multichannel merchants who have more contact points with buyers and better brand recognition, Rashtchy said.
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