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E-commerce is not the new Eldorado

6/20/13

What will e-commerce be like in the coming years? What traps should be avoided and what advice should be followed? In his work entitled E-commerce: good practices for success, Damien Jacob, a visiting professor at the University of Liege, reviews the current status of on-line sales and expected developments in the sector while explaining from the outset, that, in spite of the double-digit growth usually observed, the expected Eldorado needs to be put into perspective…

COVER e-commerce“Selling shoes online will never catch on”! Advice is cheap. Damien Jacob who has been a visiting professor since 2002 at the HEC – School of Management of the University of Liege and the Haute Ecole de la Province de Liège (College of Higher Education of the Province of Liege), learned this to his cost when he declared to his first students that consumers would never agree to buy bootees, sandals or other purchases on the web because they would not be able to try them on beforehand. “One of my biggest blunders”, he writes today, in the introduction to his new work, E-commerce: good practices for success (1).

Eleven years later, strengthened by the knowledge that shoes were indeed one of the products which made it possible to popularize online stores, Damien Jacob regretfully reiterates that he does not possess a crystal ball which would enable him to predict the future of this fast-moving sector. But in his book, he ventures to predict the main developments which are likely to occur during the coming years. 

“I had the idea to write this book in the context of my profession, explains the man who, in addition to his duties as a Professor, is an expert in information technology and communication at the AWT (Walloon Telecommunications Agency). I had noticed that many companies that we were helping to launch their activity on the internet were doing the wrong thing”.  Damien Jacob therefore intends to speak to new entrepreneurs who are in the process of setting up their business on the net, but also to already-established companies that wish to optimize their chances of success.

Failure and success factors

His work, E-commerce: good practices for success, is in two parts. The first part conducts an inventory of the sector and deals with possible developments within it, while the second (and more voluminous) part, focusses on “how to sell on-line (also)”. The work is a practical guide which deals with all the stages involved in transforming an idea into reality, from the moment the strategy is defined, to its daily management, and concludes by recounting the stories of people involved in e-commerce who share their good and bad experiences. 

To complete this work, Damien Jacob carried out a survey among some seventy specialized participants in order to identify failure and success factors. At the same time he prudently points out that making reliable predictions about the future is a dangerous exercise, even for period as short-term as three or five years. “It would not be surprising, indeed it might well be true to say that, within a few years, the advice given in this book will have become irrelevant or even obsolete”, he affirms.

Pionneers, opportunists and consolidators

E-commerce is a rapidly changing phenomenon. Although still relatively new, (it emerged in the second part of the 1990s, in the wake of the development of internet for business purposes), e-commerce already has a history of different stages and changes of direction. At the time of its appearance, in North America essentially, which the author describes as the era of pioneers during which there was a surplus in supply, some people saw e-commerce as a new Eldorado of the business world, only for it to fall flat on its face. “I remember an American company that arrived in Liege with the intention of establishing a foot-hold in Europe for its concept of selling toys on the net, they were looking for warehouses and negotiations had begun, Then, shortly afterwards, the project was abandoned.  Their share price had gone from 100 to 1”! He explains.

Like so many others before it, the company was a victim of the internet bubble that struck the technological world at the end of the 1990s and the beginning of the year 2000. Galvanized by the increasing interest of investors and easy access to risk capital, these startups proliferated like mushrooms, inexorably attracted by the potentially rich financial benefits inherent in this “new economy”. Many of them were listed on the stock market and saw their share price quickly reach mind-boggling heights. There was a lot of media coverage of the phenomenon even though several of these budding enterprises had not yet developed a concrete concept.

This overvaluation did not survive the stock market crash of 2000. Damien Jacob identifies three causes which contributed to this debacle and the ensuing spate of bankruptcies: too few people had access to internet at the time and changing mindsets is a long-term task; these sites were not up to scratch on a technical, operational and commercial level; many of them dreamed of becoming global but had not realized that in order to succeed in this endeavor it was not enough to copy and paste the American model. That marked the end of the era of pioneers.

The era of pioneers was quickly followed by that of opportunists. Investors lost no time in reducing operating costs and quickly descended upon the still smoking remains of their “ancestors”, causing the sector to take off again. However, this was not sufficient to allow the market to mature sufficiently. Rather, it was the work of the architects of the third wave, the consolidators, “who, while not introducing any new innovation, benefitted from the groundwork and evangelization carried out by their predecessors by marketing well-tested solutions at the right time and on a sufficiently large scale.” The Americans were quicker to act in terms of developing this renaissance than the Europeans, whose distrust lasted longer, before progressively fading during the second part of the 2000s. 

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Were Belgian entrepreneurs cautious?

And where does Belgium stand in all this? “We are probably somewhere between the second and third phase”, answers the specialist. Our country has a reputation for being behind its Dutch, French and German neighbors. This is the fault of clients who showed themselves to be too prudent/reticent/ distrustful with regard to virtual transactions (fear of paying online, being the victim of a scam, not receiving the merchandise…). In reality, consumers gradually succeeded in conquering their shyness. In 2012, Ogone (the leader of online payments which holds a market share of 80%) counted 16.6 million Euros in transactions representing an increase of 25.8% in relation to the previous year.

The lack of enthusiasm was mostly on the part of entrepreneurs. In 2012, we counted 6,000 thousand virtual stores with a growth of 5 new sites per day. This is insufficient. “The delay witnessed in Belgium is not down to purchases but rather to the number of businessmen. According to the statistics of the AWT, 9% of SMEs sell on the net. This is a figure which includes the orders made by email, notably in a B to B (business to business context, Ed). If we count only sites that allow for purchases completely online, we drop to 3%. We can clearly see that there is a shortage of supply”, confirms Damien Jacob.

This entrepreneurial caution can be partly explained by commercial density in Belgium: it is difficult to walk down a street without coming across a shop, and at the same time, it is difficult to introduce a diversification or answer a need which has not already been met by competitors who are present in “hard copy” as opposed to being virtual. Also, Belgian sites have a tendency to remain focused on the national field of play. “Given the size of the country, it becomes very complicated to start up if we are satisfied with the Belgian French-speaking market. In order to reach a critical size it is necessary to turn to France or other French-speaking countries or even beyond. Yet, Walloon shop-keepers who export (some to the tune of more than 80%) are doing very well. It is quite paradoxical: the Belgian economy is habitually very focused on exportation, but in matters of e-commerce we import more than we export.”

While Belgium cultivates its inferiority complex, the international giants progressively seize their slice of the cake and make life difficult for the emergence of smaller players. The German company Zalando was the last giant to try to impose itself in the clothing sector by means of advertising spots combined with excellent customer service.

Where is the profitability to be found?

Getting a slice of the pie has to be financially interesting. Behind the tempting two-digit growth of the sector and an ever-increasing number of buyers, profitability is not always (or yet?) systematically guaranteed. And this reality does not only apply to small companies. Not all big names rush into this kind of activity either. Ikea in Belgium, for example, does not sell directly on its site (even though it does so in other countries). The furniture giant is probably waiting for more aggressive competition from competitors in the field. The author underlines the fact that, Amazon, for example, only owes its positive results to the division of its “services” (which makes its transactional platform available to third parties) and not to its history of selling cultural property. In France, out of a number of 117,000 virtual trade names estimated in 2012, two-thirds recorded less than three transactions per day and only 6,000 could boast more than 30 sales per day! This is much fewer than in a traditional shop.

“E-commerce is not the new El dorado”, repeats Damien Jacob who expects to see many closures in the months or years to come due to increased or even unfair competition. As it is relatively cheap to start an online activity in comparison with a “traditional” activity (no need to invest in premises, fewer personnel, a greater choice of shop models suitable for renting from a distance, etc.), many individuals launched their companies without being robust enough or without having perfected a business model that could stand the test of time. Also, with regard to sales activities on the web, fashions change rapidly more than anywhere else and the star performers of today will probably be forced out of business by those of tomorrow like others before them…

Illu ecommerce carteHowever, in spite of the negatives, the time is now as ripe as it has ever been, to launch an online business to avoid missing the boat. “E-commerce should not be considered an obligatory activity”, points out Damian Jacob, just as we should not predict that virtual sales will wipe out traditional shops in the way that supermarkets decimated minimarkets in their day. Rather than witnessing a struggle between types, we should expect to see the emergence of a mixture of types. Already visible in many trade names: some “pure players” decide to open a showroom while certain “hard-copy” shops complete their supply on the web. This type of arrangement is dictated by the requirements of the clientele who appreciate the flexibility of the Internet media but also like to reserve the possibility of going to a sales outlet to verify the availability of the product, its quality or its appearance etc. “A few years from now, we might not be using the term e-commerce but quite simply commerce.”

On-line purchases should not destroy employment but should definitely change it. The usual functions of salespeople could be transformed into handling tasks, for example. The European Commission estimated that online services could represent more than 20% of growth and net job creation in certain states within the EU, such as France, Germany or England. “FEVAD (Federation of e-commerce and distance selling) has gone so far as to say that this will create a lot more employment than it will create. On this point, I remain cautious. But this sector recruits individuals with few qualifications and in the case of Wallonia, which targets logistics a lot; this could be a way to reduce unemployment.”

The rules of commerce are still valid

But what are the secrets of those involved in online sales who succeed in perpetuating their activity in spite of everything? Damien Jacob identifies three of the main ones. The first: being a good shopkeeper. It is not enough to have perfected an amazing website to attract customers and gain their loyalty. On the net just as behind a counter, the same qualities are required. Reassuring the client, understanding their expectations, negotiating well with suppliers and ensuring that there is a good follow-on. Differentiation is the second secret. Offering a product without added value when the competitor is only a few clicks away would be a miscalculation. It would be better to find a niche and/or a really amazing concept. Finally, the need to construct a certain notoriety should not be forgotten (by using referencing, for example) and taking care to preserve this notoriety by treating clients well enough so that the power of word of mouth works its magic. 

The author also mentions a series of errors to be avoided. Starting up without a solid and well-thought out idea, not choosing good partners, believing that success will quickly be achieved, failing to create a climate of confidence, not reaching the critical size to enable consolidation… “I sometimes meet people who think they will be able to make their business work from a haven in the sun, and who only devote an hour to monitoring the business, having a business on the web generally takes up as much time as a traditional activity!” He adds, smiling.

Above all, the future of e-commerce should involve a multi-channel approach by combining Internet sites and physical drop points but also social networks, smart televisions, tablets etc. The sector will not have finished its third stage of development before a fourth stage begins.

(1) JACOB Damien, E-commerce : les bonne spratiques pour réussir, Liège, Edipro, 2013.


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