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E-Commerce Round-Up: February 2016

E-Commerce Round-Up covers major recent events and news from the past month in the e-commerce world, and provides a brief analysis of what they mean. This month’s Round-Up covers Snapchat’s content and commerce plans and the potential for social commerce; how Nordstrom’s recent financial results highlight the cost of going multichannel; and Stripe’s new product offer for entrepreneurs starting online businesses in emerging markets.

Snapchat to (possibly) add commerce to its content

A board member of Snapchat, the mobile video and photo messaging app, recently announced that the company was looking to turn its Sweet channel into a trading platform.  Sweet, a collaboration with Hearst’s digital group, was launched in late 2015. The channel is like a digital magazine,IMG_0364 where the user swipes screens to go between different articles and videos. Some articles include product recommendations with information on price and where to buy the item.

The Sweet experience is a bit like flicking through a media-enabled issue of Cosmopolitan magazine, which is no surprise given parent company Hearst’s involvement. Presumably, turning it into a trading platform will mean that product recommendations like the one above would lead directly to a shopping cart and check-out, rather than the user having to log into a separate e-commerce site and search all over again for the product before actually buying it.

Implications:

There’s been lots of hype about the potential for social commerce, but so far evidence that it actually works and makes money is scant. Social platforms Twitter and Pinterest both launched “Buy” buttons during 2015 to great fanfare, yet since those launches there has been zero information announced publicly about how those initiatives have been performing. Since the Buy button introduction happened during the biggest quarter for shopping of the year hints that results may have been disappointing, or possibly that the buttons didn’t work at all.

This highlights a finding that Digital Clarity Group has identified in recent research: that bridging the gap between content and commerce is an organizational and cultural challenge as much – or possibly even more so – than a technical one. The fact that the Sweet app was built and launched first and only now is commerce being considered as an add-on, rather than having part of the product conception from the very beginning, is yet another example of the front-end based marketing world not reaching across to the back-end infrastructure and commerce world at the right time. Hopefully this will not be yet another example of a social commerce announcement that has nothing to show for it in a few months.

Nordstrom’s e-commerce growth comes at a high price

The pressure on brick-and-mortar retailers to grow their e-commerce sales is intense in the age of Amazon: the online giant is now estimated to earn about 20% of all online sales in the United States. In its most recent financial release, Nordstrom was able to report some e-commerce success, as that portion of the business is now 20% of its total $14 billion in sales. However, the investment in that growth caused an increase in operating costs in marketing, technology, and product fulfillment and delivery, causing a decrease in profit margins.

In order to reverse the trend of expenses growing faster than sales, Nordstrom plans to reduce its capital expenditures by $300 million over the next five years, Notably in 2016, capital investment in technology and fulfillment will be flat, indicating that the retailer is now looking at how to get a better return on these investments, which grew about 35% in the previous few years.

Implications: 

Nordstrom is often referred to in technology and retail circles as a traditional bricks-and-mortar retailer that is successfully making the transition to multichannel commerce. And by the measure of percent of sales that are online, Nordstrom is indeed outperforming many of its peers. However, as a publicly-traded company, Nordstrom is ultimately bound to maximizing its returns to shareholders, and in that regard Nordstrom lately has been falling short.

This is one of the challenges in customer experience management: in going all out to be a leader in providing great customer experiences, Nordstrom has found it necessary to spend billions of dollars, and is not yet seeing a return on that investment. For other retailers looking to move to multichannel, and for investors in that industry, Nordstrom’s example provides some useful lessons. First, going multichannel will affect all areas of the business, from marketing to sales to service and fulfillment, so making sure those divisions have the resources to adapt to the changes will be crucial. Simply hiring a VP of e-commerce and having them build a website with a shopping cart will not work. Second, becoming multichannel may not have an immediate payoff, where an investment in one quarter or year will lead to an uplift in sales, let alone profit, the following year. As Nordstrom moves into 2016, it will be a good example to watch of how a retailer’s multichannel strategy needs to evolve and respond to changing conditions.

Stripe launches online product aimed at online traders in emerging markets

A new product from payment provider Stripe wants to make it easier for prospective retailers in emerging markets to set up successful global online businesses. Atlas, Stripe’s new product, provides entrepreneurs with a set of tools and services, including:

  • Help incorporating a company in the U.S
  • Help opening a U.S. bank account (at Silicon Valley Bank) and getting a tax ID number.
  • A Stripe account to accept payments from around the world.
  • Guidance about U.S. law and taxes from Orrick and PwC.
  • Tools and resources from Amazon Web Services.

Stripe currently opens only C-corporations in Delaware, but plans to add more corporation types and incorporation hubs in other regions of the world in the future. The U.S. bank account can charge customers around the world in 135 currencies. Stripe is careful to note that the law and tax information is limited to tax and legal guides from PWC and Orrick respectively, plus a free consultation call with PWC, and that Stripe will not be providing compliance or tax preparation help. The company is rolling out the beta version of the product on an invite-only basis, charging $500 – which includes the $400 Delaware incorporation fee – but waiving that charge for the first 100 signups.

Implications:

This is a novel approach to expanding the market for e-commerce – and by doing so, the universe of potential new Stripe customers, not to mention new customers for Stripe’s partners in various professional services firms. Stripe is, in effect, looking to find a way around the fact that access to technology alone will not make it any easier for entrepreneurs in many countries to become successful online retailers: legal and financial systems have a key part to play as well. However, the legal and tax part of the Atlas offer is pretty light and just limited to information, which in the world of Google can be found easily online from anywhere anyway. It’s likely that the most valuable pieces of this product will be the more practical and tactical ones, but time will tell.

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