E-tailing and the Net Generation

Winnovation: Rowan Gibson's May Column
By Rowen Gibson
“Hey Dad, can I have your credit card number? I need to buy something online”. This is not just an annoying question my sixteen-year-old son seems to ask me two or three times a month. It’s a harbinger that e-tailing is set to go ballistic as soon as today’s teenagers get their first paychecks.

Rowan GibsonLet’s face it, most of us came to the Internet when we were already in our twenties, thirties or forties, so the concept of shopping from a personal computer is not something we grew up with. We likely recall the novelty of making our very first purchases on sites like Amazon, eBay and Expedia, and the excitement in those heady days about entering the new “Wired World”. We also remember how the whole bubble burst at the end of the Nineties, leaving us burned, disillusioned and asking ourselves whether the future of retail may have arrived way too early.

It turns out, however, that when the dotcom dust settled we were still buying tons of stuff online (much to the relief of Jeff Bezos et al), and we’ve watched the field mature and expand over the last decade to the point where e-commerce is finally coming of age. But, to many of the people running the world’s biggest companies, electronic retailing is still something of a wild, new frontier, where only a few pioneers have so far managed to succeed in winning the trust and the money of a significant customer base.

Enter our kids, who of course look at e-tailing through an entirely different frame. To them, buying stuff online is as natural as the sun rising in the morning sky. My own kids are from Generation Z, which means they were born with the Internet and have grown up totally intertwined with it. They have essentially never known life without the World Wide Web, email, mobile phones, instant messaging, text messaging, MP3 players, iTunes, YouTube, and Facebook. In fact, they walk around every day with all this stuff in their pockets. So for the “Net Generation” – the children of the digital age – it’s almost second nature to reach out and click an onscreen button whenever they want to order or buy something.

Viewed from the perspective of their own lifespan, e-commerce has always existed, and to them it simply represents the easiest and most practical way of buying anything. Like, duh!

When you think about it, they are so right. Just last week I went past a major bookstore and tried to buy my wife a particular French novel. Not in stock. I asked them to order it for me. Not currently available from any of their distributors. When I returned home, I ordered it on Amazon.com in less than a minute and it was delivered the very next day. As it happens, the book was a present for a weekend trip we were making to the Côte d'Azur in France, which I had arranged and purchased just two weeks beforehand on Expedia (in about twenty minutes). Planning the same trip at a bricks-and-mortar travel agency (does anyone still use them?) would have been infinitely more difficult and time consuming.

This same principle is now being applied to a whole spectrum of other product categories. Want to buy a certain shirt, jacket, or pair of jeans from Levi’s, for example? You could spend hours searching for that item in your local stores and come away empty handed. Or you could take a couple of seconds to log onto LeviStrauss.com, and order exactly what you want, in the color and size you want, direct from the source. On the other hand, perhaps you’re looking for the very latest Barbie doll for your daughter, or some Hot Wheels Tub Racers for your son. You could choose to fight your way through traffic, then search the endless aisles of a giant toy store only to hear, “Sorry, we’re sold out right now”. Or you could go straight to MattelShop.com, which opened last year, buy the particular toys you want and have them shipped to your home for free.

These are just some of a growing number of consumer-products manufacturers that are taking their first tentative steps into online retail or expanding existing online stores. The biggest newcomer is without doubt Procter & Gamble, the world’s largest consumer goods company, which has just started selling products direct to consumers via its brand new “eStore”. The online store, which offers over 2,000 products across the P&G portfolio – from Crest toothpaste and Gillette razors to Pantene shampoo and Pampers diapers – is part of the company’s drive to understand and address the changing shopping habits of today’s consumers. Kirk Perry, Vice President for P&G North America, says, “We know this where the consumer is going. We know she is moving to online shopping every day around the world.” And as Bob McDonald, P&G’s CEO, has clearly expressed it, “We want to be where the consumer wants to shop”.

This bold, strategic move by a player the size of Procter & Gamble has prompted a wave of interest in e-tailing from other consumer companies.

Many of them are setting up e-commerce operations with Alice.com, founded a couple of years ago, which acts as an intermediary, letting manufacturers sell products online at no charge and offering services like free shipping, while making money by selling ads. Other companies such as Elastic Path Software and Art Technology Group help manufacturers create their own turnkey e-commerce sites complete with inventory management and shipping. These firms have seen their orders for new “Store Front” sites go through the roof in recent months as more and more manufacturers try to reposition themselves as online retailers.

Part of the pressure to sell direct to consumers via the Web has actually come from the retail end of the business. It’s a response to the rising threat from cheaper private-label products that are now crowding the shelves at retailers like Target and Wal-Mart Stores. According to research by Nielsen, private-label goods accounted for 22% of consumer-packaged products sold in the U.S. in 2009, up from 20% the year before. Another powerful driver was last year’s recession, which prompted consumers to do more shopping online where it’s easier to do comparison bargain-hunting. Then there’s the fact that e-tailing is not just a way for manufacturers to sell more products and increase revenues, but also a way for them to form a direct connection with consumers.

This helps explain why direct selling by consumer-brand manufacturers is now one of the fastest-growing areas of online retail, increasing almost 13% in 2009. And that’s just one piece of the overall e-commerce puzzle. For example, in 2009 web-only retailers such as Amazon.com and Drugstore.com gained a staggering 25%. Even luxury goods (from fashion clothing to Swiss watches to diamonds), which are supposed to be more suited to a tactile shopping experience, are experiencing surging revenues online. According to Bain & Co, the online luxury market grew by 20% last year (in the middle of a recession!). In fact, Forrester Research estimates that online sales in general will reach 12% of the total retail market by 2012, up from 6% today. Some believe e-commerce could even account for as much as 50% of all retail sales by the end of this decade.

For a glimpse of the future of e-tailing, you might want to look at China. After a slow start, internet shopping is now exploding. In fact, overall online revenues are currently doubling from year to year. People are buying everything from iPods to rice cookers, coffee-makers, underwear, paper, milk, toilet paper, shampoo, DVDs and everyday groceries via the Internet. More than 10% of the baby gear (like diapers or baby milk formula) purchased in China is now sold online, along with an increasing share of cosmetics.

Products are usually sold on the Net at a hefty discount relative to bricks-and-mortar stores (a survey by Credit Suisse revealed an average discount of 21%). And for just five Yuan ($0.73), a scooter driver can deliver the goods to your home or office in less than an hour. With over 400 million people in China already connected to the Net (over half of them with Internet access via the mobile phone), it’s not difficult to see where this is all is leading.

The next big thing in e-tailing is “Social Commerce” – selling products and interacting with consumers online with the use of social media sites. Part of the appeal of these tools is that they help recreate the social dimension of traditional shopping, which has long been about sharing opinions on products and brands with a network of friends and family through word-of-mouth. Dell, for example, has had great results selling products on Twitter, as well as with “Dell Swarm”, a feature that offers savings for group buyers. BestBuy has been astounded by the success of its “Shop + Share” Facebook tool, which generated a fanbase of over 900,000 consumers in just the first six weeks. And it’s reputed that Apple is also currently creating an immersive online social shopping tool.

Now go back and think about Generation Z – the most tech savvy, socially networked generation we’ve ever seen. Think about them not just in the context of your home market but globally – particularly in emerging markets like China. Remind yourself that these kids will be earning their own money in just two or three years, and when they start spending that cash they will prefer to do it online, which is set to change the game in retailing forever.

That doesn’t give your company very much time to think about how you are going to capture one of the biggest market opportunities of the next decade – e-tailing to the Net Generation. And remember this: if you fail, by doggedly clinging to retail’s past instead of playing an active role of its future, you could end up losing serious money sooner than you think.

© Rowan Gibson 2010

Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation. He is also one of the world's most in-demand public speakers. Rowan's books have been translated into over 20 languages. His latest book Innovation to the Core is published by Harvard Business School Press. He is co-founder of Innovation Excellence. He may be contacted at [email protected]

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