The email came from a leading catalog vendor. The vendor promoted a series of articles in the email message. One of the articles spoke of the resurgence of catalogs, and offered a prophetic and biting comment. "Don't listen to the fools who tell you that catalogs are dead, for if they were dead, brand x wouldn't be innovating by mailing a catalog".
If you actually speak with e-commerce executives, if you actually analyze the data of e-commerce businesses, you learn a simple truth, a simple truth that tells you why e-commerce businesses are opening stores, are printing catalogs, and are advertising on television. If you do the actual (hard) work of measuring e-commerce customer behavior, you learn the real reasons:
- With the exception of Amazon or eBay or a handful of others, e-commerce customer repurchase rates are horrifically bad.
- When repurchase rates are horrifically bad, any change to the marketing expense structure becomes magnified, greatly limiting growth potential.
- E-commerce owners/shareholders demand growth.
There are two things happening, at the same time, pushing e-commerce businesses out of e-commerce. Nobody talks about them because almost nobody actually analyzes actual customer data. When you actually analyze real customer transactions, you can clearly see what would push an e-commerce business out of e-commerce.
Issue #1 = Cannibalization: New channels grow via cannibalization. The new channel takes sales that would have happened in an old channel, and shifts those sales to the new channel. Ask any cataloger. Catalogers were obliterated in the 2000 - 2005 timeframe, as e-commerce businesses cannibalized cataloger sales, and as within-brand sales at catalogers shifted from the phone to the web. The cannibalization phase of e-commerce is ending. E-commerce is now a mature channel, and will be threatened in the future by mobile. The end of cannibalization opportunities, coupled with the threat of mobile-centric cannibalization means that e-commerce growth is now exposed. Low e-commerce repurchase rates are exposed as new names via cannibalization dry up, requiring even more new names that are even harder to acquire. #OhBoy.
Issue #2 = Expense Structure: In case you haven't noticed, Google and Facebook are charging for names. Free, easy-to-acquire names are drying up in e-commerce, being cannibalized from the bottom by mobile, being dried up at the top by the aging of the Baby Boomer population. This dynamic exposes the expense structure - so many "free" names offset the names e-commerce brands acquired via tolls (Google, Facebook, etc). So when the free names dry up, you're left with slowing growth, and then you pile on increased expense (Google, Facebook), and all of a sudden you're facing big problems. All of a sudden, that expensive catalog is seen as a testable option, given the rise in the overall expense structure. All of a sudden, expansion into retail makes sense, as the expense structure seems acceptable given the rise in costs online and the slowing growth rate. It doesn't matter that these folks will create awful catalogs, terrible television commercials, or unverified store experiments ... they have to try these things in an effort to grow. Remember how bad retail e-commerce was ten years ago? They figured it out, after a decade of trial and error. The same seems to be happening in e-commerce. They'll figure it out, or they will quit experimenting. Either way, dollars will be spent, and pundits will speculate as to why. Go to the actual customer data to find out why.
None of this is validation of the comeback of catalogs, or the comeback of television advertising, or the validation of the omnichannel thesis. None of it.
I freely admit, my analysis of the situation could be 100% wrong. I'll get the typical array of emails from the vendor community ... "you're wrong, and I'm going to tell you why".
E-commerce, in my analysis, is in trouble. Not "trouble" in the way that Sears is in trouble. But trouble, in the sense that all of the easy, free cannibalized growth is drying up, while at the same time the marketing expense structure is getting worse. This is a bad dynamic, one that forces an e-commerce business to test catalogs, to test television ads, and to test opening stores as alternatives to an ever-deteriorating expense structure. And with annual repurchase rates being 20% lower in e-commerce than in other comparable business models, the pressure to grow via acquisition of new names is heightened, forcing these businesses to try catalogs, television ads, and new stores.
Think carefully about what it means when these things happen to e-commerce:
- Annual repurchase rates are lower than in comparable business models.
- It's getting harder to acquire new customers.
- Cannibalization of Baby Boomer names is drying up.
- Mobile is going to stifle bottom-end growth among younger customers.
- Google / Facebook are getting more expensive.
If you were facing headwinds like that, then you, too, would experiment with other channels, wouldn't you? You'd have to, in order to keep your job.