GUEST POST: Jean-Claude Abouchar operates digital agency Capture and is co-founder of The Grand Social, an online marketplace for emerging and independent Australian and New Zealand designers. In the past 6 months, they’ve grown sales 46%, relaunched their website and streamlined their supply chain. Not averse to taking risks, Jean-Claude shares with us his wisdom about the challenges online retailers face, and the ways they’re tackling them.
With a proliferation of new entrants in the past 18 months and continued growth in mobile, this is a fascinating time in the digital fashion space. There’s a bigger focus on service and personalisation, harking back to some of the fundamentals of what makes a successful physical retail business. Companies like Stitchfix and Bonobos are leading the way, investing significantly in service infrastructure, which is where I see the biggest opportunities and challenges for pure play retailers. As technology costs decrease and the sophistication and range of tools available increases, service becomes just as important as price.
Our biggest challenges
In Australia, one of our biggest challenges has been infrastructure. We’ve invested heavily in this since launching The Grand Social (GS) in March 2008 – especially in supply chain. As we operate a 100% consignment model the original fulfilment process for GS was a mixture of warehoused stock and just-in-time stock with about 60% of stock delivered twice weekly into our warehouse at the time. Product was then dispatched as a single customer order from our central distribution centre.
On launch, third party logistics companies couldn’t do what we needed, so we designed our own pick and pack solution. After about 18 months we moved to a new warehouse and introduced barcoding and a wireless pick and pack solution. We then adapted again to support a mixture of warehouse and drop shipped orders to ensure maximum flexibility for our suppliers. With about 120 brands (many of them small independent labels) stock is their entire business so we needed to have an agile and flexible model that could work for all, allowing shipment from multiple locations.
Another challenge in Australia is the lack of competitive delivery options outside metropolitan areas. Average postage costs here cannot compete with offshore retailers – it’s more expensive to airfreight an overnight parcel from Sydney to Perth than to have the same parcel shipped from the US to Sydney. It’s tough to compete as a local retailer but as we are 100% Australian product, it’s not as big a challenge for us as others.
On a positive note, we are seeing increased choice for delivery now with 24/7 lockers from challengers like Adam (chaired by ex-Wizard Home Loans founder Mark Bouris) as well as startups like Parcelpoint (and Coles) rolling out the ‘click and collect’ model of John Lewis via service stations and newsagents. This makes it easier for e-tailers to get their products to customers, reduce fulfilment costs and move away from Australia Post, who’ve had a monopoly on the market and continued to increase pricing (30% in the last year alone).
The global competition
Whilst the challenges faced by online retailers are shaped by their size and model, I see consistent issues across the board. Customer acquisition costs continue to rise with conversion rates falling and media expense increasing. The abundance of choice, heavy discounting and inconsistent regulatory environment between the major markets (EU/UK/US/AU) has online and offline retailers fighting harder than ever for a share of revenue and voice.
Inventory models are also in a constant state of flux – most retailers hedge their bets with a mix of owned stock, house brands and concessions to build out their category depth. In the supply chain the competitive environment means many designers are having to accept tough trading terms just to get in front of potential customers. However, the cost of entry has reduced for smaller brands with an abundance of accessible e-commerce platforms and powerful tools that give them the sort of insight that previously you could only get from an enterprise platform requiring a team of specialists to operate.
Customer at the core
The abundance of choice for retailers means the platform decision is critical and here lie some of the biggest risks for larger players. There’s still a very siloed approach to the way online channels are set up and operated – many are still considered an ‘IT’ responsibility. IT certainly has a critical role but marketing needs to be on an equal footing when defining the criteria for the platform so the end customer is really driving the requirements. If marketing isn’t driving a project internally there’s a real risk that the final solution won’t be able to deliver on the brand proposition. Over time, engagement and loyalty are going to be what makes or breaks a business.
Broadly speaking, e-commerce platforms are very similar so the focus needs to be on the front end to ensure customer experience is the best it can be to drive conversions, generate insights and build retention. The real battleground online is no different to in store: the fight for the best customer experience possible. This is truer than ever online with the consumer’s ability to ‘showroom’.
Integral role of marketing
The other battleground is marketing; it’s becoming increasingly difficult to get in front of potential customers with the myriad of channels. There are some fairly narrow funnels online but the real action is in the long tail where future shoppers are spending much of their time. The democratisation of fashion has seen a shift from traditional channels like magazines to social channels and emerging content platforms like Instagram, Polyvore, Pinterest and Fancy. Younger shoppers are finding inspiration here and whilst they are still consuming mainstream fashion titles there is less value placed on them in terms of their brand power.
The abundance of these digital channels and their ability to reach emerging customers transitioning from tweens to teens is a major challenge for retailers. Those who’ve invested heavily in Facebook in recent years will struggle when they find that the next generation actively avoid it because it’s where their parents hang out. Retailers will need to plan more sophisticated ways to reach and sell to these younger customers in the coming years.
I’ve been in the digital space for nearly 17 years across many different categories and can say fashion has easily been one of the most disrupted categories I’ve worked in. Every week there’s another start-up focussing on a specific niche in the market. It’s great to see so much energy for the space at a time when so many other categories are struggling online. We’ve spent a good amount of time and money innovating since launch so for us now it’s all about focus: focus on the customer, focus on the product and focus on the service.