I wrote earlier about product solutions and customer focus in my post about physical stores. Bricks & Mortar stores have the advantage of having the person physically present and able to try on merchandise, see how it might look in the home, gain ideas about additional items they may want. The perfect physical store. however has a built in barrier , too narrow a customer focus, there isn’t enough sales, too wide a focus and there is too much selection and there aren’t any profits.
E-commerce holds some hope for meeting our dream shopping experience. The e-commerce company has the same advantages as physical retail when it comes to buying and some distinct advantages in assorting product. Because they ship from a central location, they can have significantly greater selection stored efficiently in a warehouse. Web-sites can track preferences and construct a set of options that better match potential needs. However, they have there own challenges. Here are three I see.
Problem 1 Freight and Time
The downside for e-commerce is the cost of freight as they are selling (and shipping) in each’s and the wait for delivery. Cost and delay remain big reasons why e-commerce won’t end up with a 100% market share.
As much as UPS/FEDEX and the post office work at it, driving to the store and loading the trunk is still the cheapest and fastest way of home delivery. Shipping costs are very high for the last mile, but are pretty reasonable for the first 1,000 miles. You can have a container into the US for under $2,000 and it can hold 20+ tons of goods.
Amazon Prime offers free freight, not Fedex and UPS. UPS posts operating margins of 3-4x Amazon’s merchandise division. Amazon, I am sure has negotiated a great deal on freight, but freight is still 10-15% of the product price. If you’ve received a package from Amazon, you know they don’t ship efficiently either – as most boxes are less than half full.
I was with an e-commerce furniture business (I was younger and much more comfortable slamming my head against a wall) and the freight issues were daunting. The product was hard to ship, had unusual shapes and had to be carried into the home. Every dent, nick, mark or spot had to be fixed, no matter how minor, either at delivery or in a second visit. Getting the goods from the factory to a store was inconsistent, and getting from factory to home was far worse. There is a reason why Ikea flat packs their furniture, it ships cheaper and any scratches you put in it are your own custom additions.
Amazon has taken steps with their lockers to reduce the cost and speed delivery, and other e-commerce sites have gotten better at packing items in bags which weigh less than boxes and ship cheaper. Drone’s won’t deliver packages cheaply, you’ve got to fight gravity, which until we invent flubber or mine unobtanium, is a loser game. Maybe driverless delivery vehicles will be an option, but realistically that is still a long way off.
The solution here is to better use the resources we have. Amazon has a same day delivery service, which is priced for prime customers at $5.99 for up to $35 and free over $35. So an order for $25 comes with a 24% shipping charge. Without prime the delivery charge is $8.99 + $0.99 an item. If the average order is $50 and three items, then the freight is also about 24%. An option, but not a cheap one.
Amazon recognizes we are still going to visit a grocery store and the Amazon lockers are nearby. The US Postal Service visits each house 6x a week, so lighter packages can use this cost-effective option. Amazon is considering a bricks and mortar store where after ordering on-line, they pick and pack your goods and you drive by and they load your trunk. This eliminates the delivery issue.
The freight and delay problem is physics, time, weight and distance. For bulky or heavier goods, or perishables this problem won’t ever go away.
Problem 2 Seeing vs Seeing & Touching & Tasting & Smelling and Hearing
If you know what you want, e-commerce is great. One copy of a book is the same as another copy. If what you want has smell, can be touched, sampled or tried on, it is a barrier to an online sale.
My wife is a knitter and my favorite socks are hand knitted. These socks are made with self striping yarn (the yarn is colored in lengths such that you naturally get stripes). Although there are a lot of on-line yarn shops, most yarn is sold in person, because knitters will 
be spending a lot of time holding the yarn and the feel is important.
Knitters buy a lot of yarn, but given the collection my wife has, each purchase decision is unique. Some online knitting stores offer sample skeins, lavish descriptions, or a lot of detail to help you make up your mind. All of these steps work to lower the barrier to a sale.
The catalog industry dealt with this issue for years, and J. Peterman probably does the best job of romanticizing a mundane product like a t-shirt (this one $29).
On the banks of the Seine, lots of students and tourists hoping to be mistaken for natives, lots of blue-and-white striped shirts… but that deckhand over there, throwing a hawser out to a tour boat, he’s wearing this shirt.
E-commerce has an advantage, you can show multiple pictures, multiple colors add pages of information that you couldn’t fit in a catalog. However lots of products still lack key information. This t-shirt at Walmart.com is under $6 and although the prose lacks the background story of the J. Peterman version, it is still a lot of copy. The missing piece is the fabric blend which apparently uses X-Temp technology. By the way J. Peterman doesn’t share that information either.
E-commerce companies can focus on goods that either don’t appeal to the other senses (i.e. books) or they can sell goods that you already know and enjoy and are rebuying. When they get into goods that have other sense parameters, they need creative strategies to help close the sale.
Problem 3 Personalizing and Privacy
The promise of e-commerce was to make stores more personal. They are better but are still failing.
To be the perfect store, the shop keeper needs to know you like a personal shopper does. Currently, too many sites still don’t get the reality of being human. No matter how much I like a pair of shoes, if they aren’t in size 12 (or 12.5), I can’t buy them. Humans have height, width, shapes, and we exist in a physical
space. A lot of sites have improved, but it is still maddening to pick out something and find out that the only size available is XS. The implication of not being directed to search by size is that the store has all sizes in stock. When they don’t they’ve broken a promise.
Amazon comes the closest to my fantasy perfect store. They generally suggest similar goods to what I have bought before. The algorithms are still weak and often what they push seems more important than what I want. Recently on my home page fr
om Amazon I was shown an introduction to innovative products that included a very nice set of women’s shoes. I don’t buy women’s shoes. My wife buys shoes, but not on my Amazon account and not these.
They also featured a Tim McGraw & Faith Hill album. I don’t like Tim McGraw or Faith Hill, so wrong again.
My landing page always includes a pitch for a Kindle Fire, although I own one already (and two kindles, and yes, it is a disease). At Christmas I often buy my wife the knitting books she has placed in her wish list. Then for the next four months I am inundated with offers for more knitting books without the option to remove them from my recommendations.
Amazon’s dash button is helpful, again because so much of buying is rebuying. Once we pick a solution (for toothpaste, soap, batteries or footwear) we tend to reorder that product until we grow dissatisfied or hear of something better. So far, I’ve yet to use a dash button.
Privacy remains a big issue. Amazon’s approach is more than a little creepy as they use your searches to change the home page. However, many sites, even after logging in, offer no personalization, which is uncaring but obviously way less creepy. I don’t mind that the waitress at my local breakfast place knows my breakfast preference. I don’t mind that my favorite cashier knows my name. However, neither of them will start asking about what I am shopping for on other sites or keep a detailed record of my browsing history.
Ideally, we’d own our preferences, and share what we wanted when we arrived at the site. Our avatar would include what we normally buy, size and color preferences. And when we leave, our avatar would leave with us. That is the way it works in the real world (until they start this from Minority Report or this from real life). Until we come up with some portable way to manage our preferences and control who sees them, then we will suffer with e-commerce retailers knowing a bit too much about us for comfort.
I think all three barriers can be dealt with in time. The equilibrium between physical and virtual retail will be based on the problems, relative costs and benefits. The US Department of Commerce has e-commerce at about 12% of retail sales, which based on my experience will end up closer to 20%.
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Dr. John Zott is the Principal consultant at Bates Creek Consulting. John is the chair of the Careers Committee at FEI Silicon Valley, a senior adjunct professor at Golden Gate University and comments regularly on issues that affect consumer businesses. If you are looking for a CFO for your e-commerce/retail/consumer company, or are a former student, colleague or would just like to connect – reach out.