Anise Madh is the CEO of LeanSwift, a global leader in eCommerce and mobile solutions for Infor M3.
To me, the global pandemic was much akin to a large earthquake; its effects rippled across our personal and professional lives, much like seismic activity can wreak havoc on both land and sea alike. One area where these waves were felt most keenly was the changes in our shopping habits.
E-commerce was already well-established pre-pandemic, however, Covid-19 accelerated the transition from shopping in physical channels to online. Some of the greatest impacts, underscored by research from McKinsey & Co., include:
• E-commerce penetration in the U.S. grew from roughly 16% to 33% in the span of about a year.
• An unprecedented 75% of consumers tried different stores, websites or brands.
• Winners in the marketplace emerged among those that embraced agility and new technologies, especially in places like China.
What’s the point? More people are looking for online options than ever before to fulfill their needs for products and services.
But which companies are taking advantage and benefitting from this shift in purchasing methods? Of course, the Amazons and Alibabas of the world immediately come to mind — and for good reason. Amazon customer spend was up by 60% in summer 2020 compared to the same time the previous year, and Alibaba said its first-quarter revenues in 2020 more than doubled compared to 2019.
That’s great for the giants in this space, but where do the small and mid-sized companies find their cut of the pie? To better answer that, let’s analyze the e-commerce giants’ capabilities.
The Strengths And Weaknesses Of Major E-Commerce Companies
We’ll start with their strengths:
• Diverse offerings: Their product portfolios are a mile wide, and they’re many people’s go-to for everyday needs.
• E-commerce engine: Companies like Amazon and Alibaba have supply chain and shipping logistics capabilities that are unparalleled and operate like a well-oiled machine (most of the time).
• Value-added services: An Amazon Prime membership, for example, not only gives you shipping perks but also exclusive access to a huge library of media content.
• Retail dominance: With Amazon accounting for about 51% of e-commerce sales in 2020, up three points from 2019, it’s obvious its customer base is growing and existing customers keep coming back for more.
Now, let’s examine what I consider their potential weaknesses or challenges:
• Margins: Based on my observations, to be profitable, huge retailers often have to sell a high number of products to break even, and some also rely on other segments to drive profitability. For example, Amazon Web Services accounted for nearly 60% of the company’s profit in 2020 even though the division only represented 12% of overall revenue.
• ‘Just-in-time’ works — until it doesn’t: Shipping logistics and timing are one of big retailers’ prime advantages. However, as we saw during the pandemic, companies that rely on just-in-time inventory management can be at a disadvantage if and when supply chain lines are disrupted.
• Customer service: Have you ever waited on hold to speak to a customer service representative after making an online purchase? Of course, this might not be the case for every major brand, but if there are seemingly endless hoops customers must jump through to reach a live person, the experience can be frustrating.
• No specific area of expertise: With some large retailers selling millions of different products, from my perspective, it’s unlikely a company could have detailed knowledge of every single item listed on its website. In many cases, these giants act as the vehicle by which other retailers sell their own products. Because of the high number of items online retailers sell, I’ve also found it can sometimes be challenging to find more niche items — such as repair parts for your smartphone or specialized plumbing materials for a unique home renovation — and receive expert advice on how to use them.
How Smaller Brands Can Compete
At this point, you might’ve already guessed where this is going: Small and mid-sized e-commerce players must differentiate themselves by doing what the big brands can’t. Rather than focusing on trying to beat price points, shipping speed or product offerings, focus on the following:
• Find your niche. Determine what your business excels at, and focus on that. If your business offers a large variety of products or services, consider a self-audit to evaluate if they’re all value-added for you and your consumers. Once you’ve determined what your niche is, make sure your associates become experts on it.
• Make customer service king. Companies such as IBM, Adobe and FedEx invest wisely in this space. With short wait times and real, knowledgeable people to interface with every time you call, this level of care really elevates the customer experience.
• Run lean operations. Don’t forget the usual suspects — such as strong inventory management, demand forecasting, and robust enterprise resource planning and e-commerce platforms — are necessary to run your operation efficiently. Does your ERP need an overhaul or automation capabilities? It’s important to consider factors like these to help get your business back in shape quickly and with minimal disruption.
If you’re not already an Amazon, Walmart or Alibaba, it’s unlikely you’ll get to their level — at least not very quickly. I believe it’s better to pivot your strategy by focusing on a specific product/service offering that you have expert knowledge of and pair that with excellent customer support. Do this and you could develop a reputation as being the go-to company for your segment.