Online trade – the measure of all things?

Randolph Heil

It has become an annual tradition that the online trade presents new record figures, and there’s no reason to believe that this latest holiday season was an exception to that trend. The average European spends about 480 euro shopping online every year, with the overall turnover exceeding 180 billion euros. That is a lot of money, but unfortunately, most of it is netted by the big e-sellers. Market consolidation in the online trade is quickly progressing, and at times, this development can be accompanied by peculiar methods and short-sighted prices.

Still, the important thing here is that there is growth, and while the smaller online retailers may not feel it quite as much, they still benefit from this development. Of course, they can’t compete with the top dogs, but as long as they know how to position their shop, they can grow and prosper. Put differently: When the pie keeps getting bigger, it’s secondary who gets the biggest piece. In the end, everybody has more on their plate. What’s more, small sellers can also harness the growth and popularity of the e-commerce giants by putting up marketplace offers on those sites. At any rate, there’s still lots of room for growth in the online market. In Germany, for instance, online sales only account for 13% of overall retail turnover at the moment. Expect this percentage to keep growing for quite some time.

Start-up costs in the online business are still relatively low, there are many agencies offering to help newcomers for a reasonable price, and with a little technical know-how, most people can get their online shop off the ground all by themselves. Of course, there are recurring costs as you go along, from return shipments to legal protection and the daily management of the website, to name just a few cost factors. But once you’ve taken all the necessary steps, once the foundation for online success is laid, your shop will benefit from improved visibility in the online marketplace.

Admittedly, you won’t create a second Amazon this way, but making that your goal would be highly unrealistic. The important thing is to focus on your strong points, and in the adult trade, that may well mean finding your niche. Online retailers should try to offer the same advantages that set specialised stores in the brick-and-mortar segment apart from big department stores: a carefully selected range of products and professional advice that goes beyond just knowing what you’re selling. Gaining the consumers’ trust is an invaluable resource in the online world.

The combination of online and offline is something we’ll be seeing a lot more of in the future, and there may also be other, new opportunities arising over the course of the next few years. In any case, it is a given that the internet will play an increasingly important role, not just in retailing, but also in marketing. So if smaller retailers don’t want to be left out in the rain, they should know this and prepare accordingly.

Matthias Poehl

Yes, growth rates in the online segment are speaking for themselves, but if you break them down you will see that the ones benefitting the most from this development are the big online companies. These usual suspects keep adding to their market shares, and the e-commerce market looks more and more like an oligarchy, with a handful of dominant players. The rest have to content with the crumbs that fall off the big boys’ plates. Looking at it from the viewpoint of a producer, this situation may not be so negative, after all, they still sell the same volume of products, or maybe even more as the big sellers keep growing.

In the long run, however, this development could force producers into a state of dependence, meaning that contractual terms and prices are dictated by the big commerce companies. And that, in turn, might push small producers to the fringes of the market even more because they can’t afford to match the low prices, short delivery times, or volumes. And if you look at this scenario through the eyes of the trade, well, then you might wonder: How are small online shops even going to survive when so much of the market is dominated by so few? Of course, things are not quite that bleak, after all, many successful online concepts have cropped up over the course of the past years. Be it individualised customer service or a focus on certain niches, the market is full of examples of smaller stores that manage to thrive even in the face of mighty competition. That notwithstanding, it will become more and more difficult for everyone involved to secure a piece of the ever growing e-commerce cake.

And of course, that’s just one side of story. I guess I don’t have to tell you that growth in the online segment has come largely at the expense of the brick and mortar trade. It remains to be seen how that segment keeps developing in the future, but dramatic changes are not to be expected. And while that probably means no explosive growth, it also means no withering away. No matter what some prophets of doom and gloom have to say, the tried and true concepts of the brick and mortar trade still appeal to a large group of consumers who enjoy the shopping experience in walk-in stores. And if you listen to the official announcements from the big e-commerce behemoths, you may have noticed that several of them are contemplating opening their own brick and mortar stores. If you look at today’s heterogeneous target audiences and dynamic markets, tapping into multiple sales channels is the way to go. Consumers use several channels in parallel when they shop for a product, and companies have to be able to offer multi-channel sales options to keep up with them. And that combination of brick and mortar and e-commerce – that is the market of the future.