You often read stories like this.
In short, they claim: eCommerce pureplay is not profitable, multichannel is better.
When you talk about the profitability of retailers and manufacturers – no matter in which channels – then you have to argue in business terms.
Any business model is, quite simply put, profitable if you make more than you spend.
But many eCommerce players spend more than they earn. And one could therefore conclude that they are not profitable. That could be a misjudgment. If we look at a prominent example here, then we see that Amazon is investing heavily in growth at the expense of profitability. But the company makes so much cash that Jeff Bezoz, if he wanted to, could turn Amazon stock into a value stock overnight. That’s clearly something you have to realize when you look at the current quarterly figures, which have just come out.
When you look at the profitability of business models, there are a few things that are easy to confuse, because there are different definitions. There is pureplay, multi-channel, omni-channel and cross-channel.
There are many definitions out there but for the sake of my argument, let’s look at them from a retail perspective.
A player such as Fressnapf (Zooplus), for example, sells pet food to end consumers via their retail outlets. It is a pure stationary retailer.
At least up to the point where Fressnapf has also opened an online shop.
At that moment they were suddenly a multi-channel retailer. Fressnapf sold in two channels: online and stationary. Multi-Channel means: the channels are not connected, they are silos.
But there are also pure players who only sell online. Zooplus for example, Fressnapf’s competitor, is growing faster. Why is Zooplus growing faster: because online pureplay is generally cheaper than stationary trade. You need fewer brick & mortar stores and less trained staff. Scale is not achieved by opening new stores, but simply through an increase in online marketing measures and logistics. Of course this is a simplified view.
Where is the opportunity for multi-channel retailers? They are closer to the customer and have stationary data in addition to online data. If this is used and linked correctly, for example with a customer card, then you may have an advantage over pure pure players. You can serve the customer on several channels. A higher service level: ordering online, picking up at the branch, etc. This is then called cross-channel or omni-channel, if there are more (catalogue etc).
But why is it still difficult for Fressnapf to keep up with Zooplus? Why is it difficult for brands to do B2C eCommerce?
The answer is the channel conflict.
Fressnapf’s franchise partners may not like the competition in their own company. The Online Shop – because of the lower costs – could make lower prices. The retailers certainly don’t like it if brands suddenly sell directly, for the same reason.
The trick is to position yourself correctly here as a cross-channel retailer or as a brand and to profit from the positive effects of greater customer proximity and a higher service level – without simultaneously scaring away your sales partners. This is a balancing act. But it is the only way, especially for stationary retail, to gain ground here compared to the pure players.
I hope that my perspective helps here to put the terms in the right order and to understand the different positions.
I made a video update of this (German language only), if you prefer that format over reading: