Furniture Everyday

Bill McLoughlin

Traditional rules of retail no longer apply

November 9, 2017

I’m always a little surprised when people discuss e-tailers like Wayfair and Amazon and want to measure their success by their month-to-month profitability. It usually goes something like this, “Sure Wayfair had $1.2 billion in sales last quarter and was up 41.9% year over year, but look at the loss it had. When is it ever going to turn a profit?”

It’s a direct echo of conversations I heard all throughout the ’90s about Amazon. Each quarter the revenue would go up, it would capture more customers, and sceptics would question its profitability and speculate about how long it would be before investors pulled the plug and Amazon would inevitably crash and burn.

Last I checked, no one’s questioning its viability anymore.

In fact, last week the Wall Street Journal reported that Amazon will be offering discounts on products from third-party sellers, making up the difference themselves in a move to drive more traffic through Amazon and its affiliated sellers. This is certainly not a play aimed at improving short-term profit dollars, but instead part of a longer term market share strategy.

And Wayfair understands this as well. In announcing Wayfair’s third quarter results, CEO Niraj Shah commented, “We are already quickly outpacing the shift of dollars online in our category and taking a high proportion of market share as customers embrace our exceptional shopping experience.”

Using the traditional metrics of retail to measure the impact of these Internet powerhouses is as irrelevant as using a roadmap to track a spaceship. This is not about who’s making the most money today or even tomorrow, but about who will control access to the consumer for generations to come.

Imagine a superhighway where each retailer is represented by a toll booth. What e-tailers like Amazon and Wayfair are doing is building off ramps designed to speed consumers to their destination. It’s not about charging to use the ramp, but about changing the direction of traffic. And once that new flow is set and the superhighway is all but empty, what will all those tollbooth operators pay to get some of that traffic back?

Certainly that’s not a perfect analogy, but hopefully you get the idea.

The Internet has so fundamentally disrupted historic models for the distribution of goods and services that traditional measurement metrics no longer apply. And this does not even scratch the surface of the data advantage that e-commerce giants are amassing as they track each click, scroll, share and like of their consumers’ daily activities on the Internet. And all of this is not just about selling today, but about having the knowledge to anticipate what consumers will buy tomorrow and the day after, and the day after that.

Hockey great Wayne Gretzky once said, “I skate to where the puck is going, not where it’s been.”

When it comes to retail, there are those who are building for where the business is going and those who are focused on where it’s been.

Which one will you be?

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