Why e-commerce pure players are dead ?

I can already imagine you reading this note and linking it to Amazon’s recent decision to stop allowing the combination of free delivery and a 5% discount on books in France.  But that’s not what this is about.

Amazon is indeed a unique among e-retailers, because of its strategy but also because of the funds that have enabled it to hold on for so long despite being in the red at times.

So why this assumption ?

In reality, the idea isn’t a new one because back in 2011, the CEO of Ebay had announced the death of e-commerce.  This concept was in fact expanded upon in a very good white paper published by the Federation of E-Commerce and Mail-Order Sales.

A few things to understand when talking about e-commerce

1. It’s only one retail channel

E-commerce accounts for a tiny segment of retail (5% in France, 8% at best in the US), and will never exceed 20% because consumers (with the exception of some areas such as travel) like to go into stores even if they buy online.

In the case of Darty, at least 40% of customers who purchase online go instore to pick up.

The physical element is therefore essential.  Furthermore, an e-retailer must have considerable weight in order to negotiate with brands.  A pure player must represent an important percentage of e-commerce sales in order to count (50% of 5% is still 2.5% of total sales).

Omnichannel is the buzzword on everyone’s lips, mostly because it refers to a commercial reality in many sectors.

This probably explains why Pixmania had opened stores before being sold for one symbolic Euro.

CDiscount is a bit different, but the e-retailer does rely on the network that belongs to the Casino group, its parent company.

2. The business model is definitely questionable

We all love the idea of receiving our purchases overnight or 2 days later.  But this race for the shortest delivery time has a cost (which ideally no one wants to pay).

The business of retail involves stock management, optimized logistics ; this costs money.

Add on top of this the race for visitors – in this context the SEA and the SEO can quickly amount to a lot of money.  But more importantly, each has its limits.

In a market where margins are very small, you have to sell a great deal in order to find a break even.

In fact, the analysis in Virginie Carteron’s thesis, comparing margins across main players in France, is ambiguous :

virginie carteron analyse

Even then…one look at the evolution of Amazon’s profits tells us that they are losing more and more money.

AMZN LTM Net Income_0.jpg.CROP.article568-large

The situation is increasingly problematic, as stores are managing to be less expensive than Amazon.

Vente Privee created a model in which there is no stock to manage.  They place their orders with brands once the sale is over and they deliver within 14 days (a far cry from 1-2 days).  “Under promise and Over Deliver” is their motto.

Nevertheless, the launch of Rosedeal and the acquisition of a start-up that sells discount coupons via mobile is proof that Vente Privee needs to venture out into the physical world.

 

The consequences :

1.  The e-commerce market will concentrate on a few players (mergers are to be expected), to conform to the critical size necessary for survival.  This is what Amazon has been doing for years.

2.  Small specialized players will be profitable.

3.  In the end, with the exception of certain sectors and niches, those who have a card to play will be the brands with multi-channel distribution.  This will also be the case for existing distribution networks.

4.  Digital completely changes our relationship to retail, obviously.

5. 3D printing will also have its impact, but it will take time before this is fully integrated in the market.

gregfromparisAuteur: Grégory Pouy
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