The Commerce Metric That Matters

E-commerce as a sales channel for the retail industry continues to grow. Currently, e-commerce accounts for about 6% of overall retail sales, and about 11% of the top 30 product categories, according to Forrester.  The growth rate of e-commerce sales is currently estimated around 15% annually, much higher than that of traditional in store sales.

But, with that said, many look at that one metric, e-commerce sales and can be mislead because it is relatively small at 6%.  So even with good growth, it will remain a very small, niche “channel” in the minds of many retailers.

I believe however, using e-commerce percentage of sales as the metric on whether or not to invest, or how seriously to take digital efforts, could be dangerously misleading to the retail industry.

First, as the previously referenced HBR blog post noted, it can be very difficult for stores to actually identify what an e-commerce sale is. It’s quite likely that many e-commerce sales are reported as in store sales because of the method of fulfillment, and/or the internal systems used by the retailer. When a consumer uses Instacart to buy their groceries for the week, is that an e-commerce sale? Likely not to the grocer, because the goods were purchased in store.

The second reason we should think about the importance of e-commerce sales as a metric is the very process of commerce itself. The purchase method itself is but one of the steps a consumer makes in his or her journey to buy something. And largely the steps taken before it often influence the purchase method.

social media imag from kenBefore the Rise of the Smartphone, brick and mortar retail stores controlled the entire customer process. They influenced the consumers “discover” and “decide” activities through mainstream media advertising, and in-store promotions. This was important for retailers. The act of discovering a product and determining which product to buy are perhaps the most important step for the consumer in buying something. In today’s world, these steps are performed more and more in the digital world. The days of an uninformed consumer walking into a store, finding the product, and choosing between brands, is all but over. When was the last time you walked in to an electronics store, and knew less about the product you were going to buy than the sales associate?

In addition to having the information available on demand to aid their “discover” and “decide” activities, consumers are also growing accustomed to smart apps that know their preferences, and can make recommendations based on them. Consumers are constantly presented with personalized offers for products, discounts, and geo-aware offers. Apps like Pinterest, and pure play e-commerce companies like Wish are beginning to gain solid footing with consumers in the “Discover/Decide” phase of commerce. As they do, they will influence more and more where, when, and how, consumers go about the “purchase” phase.

So if you are a retailer, and you’re same-store sales metrics is either holding steady, or growing at some low single digit percentage on a YOY basis, don’t be fooled into thinking that “e-commerce” doesn’t matter. There’s a really good chance that a lot of those sales were influenced by interactions the consumer had in the digital world. And in the future, there is even increasingly high chance that the consumer used Instacart or Uber to fulfill the transaction for them.

With information constantly at the consumer fingertips via their smartphones and social networks, the consumer is now in control of the discovery aspect of commerce. The danger for brick & mortar retailers in thinking e-commerce is the only metric that matters, is that your store locations end up being not much more than fulfillment centers.

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About Ken Sickles

VP of Global Product & Strategy - "Crafting a better world with technology."

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