April 15, 2014

Successful E-Commerce Brands

Last month, a catalog advocate left a comment ... this smart person pointed out that there are terribly few e-commerce brands that have achieved "scale" (meaning that the business became very large and dominant).

Her point was that e-commerce needs an "assist". Amazon aside, unless the e-commerce brand has retail stores to market the website, or unless the e-commerce brand has catalogs to market the website, e-commerce is unable to achieve critical mass.

This opinion, of course, was offered as a defense of maintaining a catalog marketing strategy.

Last month, one of our long-time retail/catalog/e-commerce readers sent a very well-written article, penned in the past year, called "E-Commerce is a Bear" (click here).

That's a well written piece, don't you think? It should have, at minimum, caused you to think!

If there's one thing I've learned, it is that e-commerce fits within many different business models.

  • Judy-Centric Cataloging:  Here, the e-commerce business model is the "order form" business model. For so many catalogers, e-commerce ultimately replaced the catalog order form.
  • Jennifer-Centric Search Business: These businesses don't "scale", as the pundits say, but who cares? These are e-commerce models that are built on search, they quickly approach $10,000,000 in annual sales and $500,000 in annual profit, then stall. Businesses that "scale" require secret sauce. Search (and email) are not secret sauces, are they? Honestly, these businesses are the modern parallel to the New England based catalog business of the 1980s - New England was host to a thousand businesses that grew to a small but profitable size that printed money for the owner.
  • Jasmine-Centric Social/Mobile Business:  For Jasmine, e-commerce is the mobile/social order form. Again, it's terribly easy to build these businesses to $10,000,000 with $500,000 of annual profit, but then you need secret sauce.
Once a business hits the $10,000,000 to $30,000,000 range, secret sauce needs to be applied.

It's not much different in retail, by the way. Wal-Mart applied the secret sauce (everyday low prices), running the non-scale oriented downtown department stores out of business. Look at what Best Buy did to electronics sellers. Or what Staples did to office supplies stores.

The article speaks of a fundamental truth ... there is no longer room for "mid-sized" businesses. It's easy to get a business to $30,000,000 ... then secret sauce is needed to get a business to a billion or bigger. Secret sauce frequently requires branded merchandise sold at lowest prices or at deep discounts, allowing the billion dollar plus business to generate 3% profit.

We should probably do the opposite. We should probably sell proprietary merchandise, becoming a mid-sized business generating 10% pre-tax profit. Unfortunately, too many of us are willing to spend somebody else's money trying to figure the secret sauce out on the fly.