There is no question that e-commerce has transformed the way virtually everyone shops today. And to say that digital marketing and online shopping has been disruptive would be an understatement.
Much of retail’s market value created over the past decade has been driven by Amazon and other pure-play brands. Dozens of once powerful retail names have been hammered or completely felled by the advent of e-commerce. Many are now closing stores and desperately seeking to re-invent themselves to stay relevant or merely survive.
The digital darlings have a huge advantage over traditional retailers. As they seek to scale their claimed game changing model and to build a brand, profitability is not only a secondary consideration it is often eschewed entirely. For most, there is a land grab mentality, a semi-blind quest to acquire customers at almost any cost for fear that a more measured approach will allow new entrants to emerge or established competitors to respond more effectively–or, more cynically, will cause investors to wise up to the limitations of the underlying business model.
The number of times investors have been seduced into a growth at any cost scenario that stalls are beginning to mount. Many piled into flash-sale deals when the shake-out in that sector was totally foreseeable. Fab.com’s recent collapse won’t be only major e-tail meltdown. A shake-out is starting to happen as it’s becoming more and more clear that too many customers are being acquired at costs well above their potential life-time value. And while many are lauding the move of Warby Parker, Bonobos and others into physical stores, this evolution is borne less of brilliant insight and more of the realization that their land grab marketing efforts were rapidly losing altitude and new customer acquisition strategies were needed to maintain expected growth.
This is not to say that some of the highly valued and increasingly respected e-commerce brands don’t deserve our accolades and won’t turn out to be fantastic investments. But three things need to kept in mind as we move forward:
- Virtually no e-commerce only retail brands of any size have consistently made any money, including Amazon
- Most digital retailers will need a physical store presence to optimize their brand potential
- It’s comparatively easy to cost effectively acquire and retain early adopters in a digital-only model. It’s the marginal cost vs. the lifetime value of the next tranche of customers that provides real insight into the ultimate validity of the concept.
Adopting a land grab mentality is not inherently bad. In some situations it clearly is warranted. The problem comes when we don’t have a clear view of how far to push it and what we’re left with when it ends.