Our previous texts described the future goods distribution model that will come to substitute retail.
In this concluding text of the series we shall describe the roadmap for seamless transformation of a current online retailer
into the dominant format of the future.
For simplicity we’ll name this future format ‘unimart’.
Unimart = [Black Box logistical and IT model] (1) + [positioning an outsourced logistical and trading platform WITHOUT own sales] (2)
Note:
The (2) component is no less important than the first one.
Amazon (and others) can easily be termed a BB, but that is not enough enough for its mere survival.
The main problem for any broad-range retailer is how to inform customers of its assortment. If we take that same Ulmart or the Ukrainian Rozetka business, they will be lucky if out of ten customers knows it all. This is a liberal estimate; our IMHO is a fraction of a percentage point.
Statements about ‘100 000 SKUs’ (they might declare a hundred million) add no actual sales.
Offline retailers (hypermarkets) struggle with this this problem by optimizing goods layout and the customers’ paths in their merchandise space.
Online trade folk are trying to address it by optimizing the structure of their online catalogue and its presentation on the
website – with a desperately modest degree of success, as is clear from the foregoing.
This is a worldwide problem, too fundamental to be even realized by everybody. Especially in post-Soviet and similar necks of the woods (as also evidenced by a widespread and insane chaos in the Russian market leaders’ online catalogues).
The problem’s cost is of the order of half the sales (or a potential +100%) even in the highest margin categories.
Lost net profit runs into orders, accordingly.
Advanced online buyers no longer roam in the erratically structured catalogues, for this is no good; they use search first.
But search is no panacea, either: the goods item may be differently named, and the visitor must already be aware that the online store sells the goods in question at all.
In the given conditions, the problem of effectively presenting a broad-range online retailer’s assortment is intractable
in principle.
In our opinion, the solution lies outside: in renouncing the trade floor’s single website and switching to a cloud of
independent assortment-focused sites.
What has it to do with the retailer’s transformation into a unimart? Be patient: ’all the roads lead to Rome’.
Suppose for simplicity that we have a broad-range online retailer, branded Retailer (oddly enough).
One that sells from its retailer.com website.
Stage I
The independent top-level assortment groups are separated into specific websites(retailer-cosmetics.com,
retailer-electronics.com, retailer-travel.com, etc).
With the resultant, dramatically higher visibility of the assortment comes the free bonus of a flexible promotion strategy for
each site – from online ads to the natural and free rise in the search results.
Stage II
The self-contained websites become full-fledged business units – divisions (like GM brands under Sloan), and all commerce is concentrated there.
This is a star-like configuration with all the infrastructure and cash flows managed by the headquarters.
The sales, assortment and pricing matters, etc. are all handed down to the divisions run by independent business managers.
Stage III
External Comrades are included in the scheme.
For example, an online store of that same cosmetic stuff.
It gets access to the API to interact with the Retailer’s IEM system(inventory, orders, etc.).
The external trader’s website interacts with the Retailer exactly in the same manner as the sales sites of the Retailer’s own divisions.
At this stage, external stores sell the Retailer’s goods from its own warehouse, competing in a sense with its own divisions
focused on the same assortment.
Goods ordered through external online stores are picked up at the Retailer’s own collection points (a normal practice) or delivered by its delivery service (it can be given a neutral name for elegance, but this is not essential). For big external stores the goods may even be packed into their branded bags.
The external sellers’ benefits are obvious: they are spared all the headache and risks while remaining absolutely free to apply their commercial and marketing abilities.
And for newly established small businesses it’s simply fantastic.
Mail.ru search, which is actually Google’s, is something similar. The mail.ru team actually monetizes the audience without taking the trouble of developing non-core search competences.
And they are absolutely right.
The remaining restrictions on external sellers at the third stage are as follows:
(a) they can only sell what the Retailer sells; and
(b) (in many cases) the actual availability of the Retailer’s goods is unsatisfactory.
The (b) is more typical of backward markets with low competition.
In such markets, 30 to 50% of potential sales are usually lost: even the goods that buyers (a) know about and (b) want to buy cannot be bought as there are physically none in stock.
The effect on profit is – obviously (but not to all) – catastrophic.
However, we have already discussed a system solution to assortment gaps.
Stage IV
We enable our external traders to bring their own goods to the warehouse and to manage the pricing and goods distributionpolicies on their own.
The Retailer as such sells nothing any longer: the sales are conducted by sales sites that include both captive divisions and
external entities. The Black Box, the first component in the unimart formula, is ready.
Stage V
We add the second component of a unimart.
The Retailer’s own commercial divisions are either sold (with the rights to use the trademark in their respective assortment groups) or annihilated. Voilà.
Now a special note about naming.
There is no doubt that the trade name of the resultant unimart (tentatively branded Unimart here) should have nothing in common with the Retailer brand.
The question is at which specific stage Unimart will appear: the third, fourth, or last, and which marketing strategy is optimal for promoting the new brand.
But these are details of a level that permits adjustments to the specific problem’s setting.
And now some prizes for the daring and hard-working –to top it off:
P. S. We must emphasize that the above scheme requires no big investment and entails no significant risks (unless you are stupid enough to break something of glass).
On the contrary, your profit will obviously grow at each new stage.