The State of Online Retail Sucharita Mulpuru January 13, 2014

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1 The State of Online Retail 2014 Sucharita Mulpuru January 13, 2014

2 2013 was a great year for ecommerce 29% 32% Annual web growth by type of retailer % 26% 28% 29% 28% 25% 37% 28% 25% Average <$25MM $25-100MM $100MM Store-based retailer Pureplay Manufacturer Catalog and other multichannel <4 years old 4-10 years old >10 years Source: The State of Retailing Online 2014: Key Metrics 2013 Forrester Research, Inc. Reproduction Prohibited 2

3 2014 promises to be even better US$B Web research Web sales Source: Forrester Research Forecasts through Forrester Research, Inc. Reproduction Prohibited 3

4 One sign of economic recovery S&P 500 Index 2013 Forrester Research, Inc. Reproduction Prohibited 4

5 2013 Forrester Research, Inc. Reproduction Prohibited 5

6 Agenda Holiday 2013 recap What happens now 2013 Forrester Research, Inc. Reproduction Prohibited 6

7 Early November was strong November 2013 December 2013 Source: Custora Holiday Pulse Index 2013 Forrester Research, Inc. Reproduction Prohibited 7

8 The myth of holiday shopping is that it s about gifts Who were you shopping for today? Pre-Thanksgiving Thanksgiving CyberMonday CyberWeek Myself 56% 53% 49% 44% Gifts for others 42% 52% 57% 56% Non-gifts for others 8% 7% 6% 7% Business 4% 3% 4% 4% Base: online consumers who purchased online during the given timeframe Source: Bizrate Insights/Forrester Holiday Flash Survey, Forrester Research, Inc. Reproduction Prohibited 8

9 This could explain the soft early December Which of the following best characterizes your feelings about online deals, promotions, and specials around the holidays? Pre-Thanksgiving Thanksgiving CyberMonday CyberWeek I love deals! The more, the merrier 17% 24% 23% 22% I will only buy if I have a sale, deal or promotion 13% 20% 22% 17% Base: online consumers who purchased online during the given timeframe Source: Bizrate Insights/Forrester Holiday Flash Survey, Forrester Research, Inc. Reproduction Prohibited 9

10 Deals were often the same on key dates CyberMonday 2012 CyberMonday Forrester Research, Inc. Reproduction Prohibited 10

11 in some cases there were higher hurdles 2013 Forrester Research, Inc. Reproduction Prohibited 11

12 However retailers pushed hard at the last minute 2013 Forrester Research, Inc. Reproduction Prohibited 12

13 Web shoppers continue to abandon stores during key time periods % agreeing with statement Pre-Thanksgiving Thanksgiving CyberMonday CyberWeek I shopped in stores less because I shopped online instead 69% 79% 75% 65% I prefer to shop online rather than go to crowded stores during Thanksgiving weekend 83% 87% 82% 81% Base: online consumers who purchased online during the given timeframe Source: Bizrate Insights/Forrester Holiday Flash Survey, Forrester Research, Inc. Reproduction Prohibited 13

14 still matters I visited the retail site directly Via from the retailer Through search engines Someone told me about it Deals or shopping website Retailer's social presence How did you learn about these special deals [from today s purchase]? Other Pre-Thanksgiving Thanksgiving Weekend Cyber Monday I visited the retail 43% site I visited the retail 43% site 43% directly 43% directly 44% 41% Via 33% from the Via from 40% the 43% retailer 37% retailer 39% 44% 11% Through search 9% Through search 10% 8% 11% engines engines 9% 10% Someone told me 10% Someone told me 11% 11% 10% about it about it 11% 8% 9% Other 5% Deals or shopping 6% website 2% 4% Retailer's social presence 9% 8% Other 6% Deals or shopping 6% website 4% 3% Retailer's social presence 9% 8% 5% 6% 4% 4% 8% 7% 4% 3% Cyber Week 12% 13% 12% 9% 10% 9% 45% 45% 35% 34% Source: Bizrate Insights/Forrester Holiday Flash Survey, 2012 and Forrester Research, Inc. Reproduction Prohibited 14

15 Agenda Holiday 2013 recap What happens now 2013 Forrester Research, Inc. Reproduction Prohibited 15

16 1. The last mile wars are just beginning Which types of deals did you take advantage of for today s purchase? Timeframe Offer Pre-Thanksgiving Thanksgiving Weekend Cyber Monday Cyber Week Free shipping no threshold 20% 20% 32% Free shipping with threshold 25% 23% 18% Free shipping no threshold 26% 24% 40% Free shipping with threshold 29% 27% 21% Free shipping no threshold 33% 29% 32% Free shipping with threshold 26% 27% 28% Free shipping no threshold 23% 23% 25% Free shipping with threshold 25% 25% 25% Base: recent online buyers Source: Bizrate Insights/Forrester Holiday Flash studies 2013 Forrester Research, Inc. Reproduction Prohibited 16

17 But the postal service is in dire straits Net Income/Loss for USPS in US$B $ (F)* 2016 (F) $(15.10) * Includes retirement benefits pre-funding requirement Source: USPS $(21.30) 2013 Forrester Research, Inc. Reproduction Prohibited 17

18 It is hard to match the postal service Major carriers Regional upstarts 2013 Forrester Research, Inc. Reproduction Prohibited 18

19 What happens next is well-documented 2013 Forrester Research, Inc. Reproduction Prohibited 19

20 Cost reduction is already in motion?? Early retirement packages Retail shared with other stores Clustered delivery boxes Fewer delivery days 2013 Forrester Research, Inc. Reproduction Prohibited 20

21 Cost increases for parcels are one of the only levers Revenue source This means Elastic? Profitable? First class Envelopes Not so much Very Business delivery Catalogs, magazines Very Not so much Parcels ecommerce shipments Not so much Very 2013 Forrester Research, Inc. Reproduction Prohibited 21

22 Add to that, holiday crunches 2013 Forrester Research, Inc. Reproduction Prohibited 22

23 The store actually becomes its own savior 2013 Forrester Research, Inc. Reproduction Prohibited 23

24 2. Mobile madness maddens % of web revenue transacted on each device 79% 81% 79% 79% 77% 77% 77% 89% 72% 81% 79% 13% 14% 12% 13% 14% 13% 15% 8% 5% 9% 8% 9% 10% 8% 8% 3% Average <$25MM $25-100MM $100MM Store-based retailer Pureplay Manufacturer Catalog and other multichannel Smartphone Tablet Other Web (e.g. PC) 15% 12% 13% 13% 7% 8% <4 years old 4-10 years old >10 years 2013 Forrester Research, Inc. Reproduction Prohibited 24

25 Top ecommerce priority in 2014: mobile Mobile Site overhaul Marketing Omnichannel efforts Replatform Checkout overhaul International expansion Merchandising improvements Fulfillment Social Customer service 53% 46% 36% 26% 19% 19% 14% 14% 4% 3% 3% Examples/Definitions Responsive design, mobile site optimization, tablet redesign Redesign (not specific to responsive design), personalization, site usability, content management system integration, taxonomy improvements Brand marketing, search optimization, customer acquisition, loyalty and CRM In-store pickup, order management system overhaul New platform integration, site performance Alternative payments, checkout optimization Growth to key markets like BRIC Videos, on-site selection improvement, enhancing marketplace and drop ship capabilities Speed to ship packages, order visibility Integration with Instagram and Pinterest Integration of live chat 2013 Forrester Research, Inc. Reproduction Prohibited 25

26 Mobile investments are often still modest 2013 Forrester Research, Inc. Reproduction Prohibited 26

27 This is a classic first mover dilemma Faster Mobile today Pace of market evolution Loser box Rough waters Faster Calm waters 1 st mover wins Pace of technology evolution Source: The Half-Truth of First Mover Advantage, HBR Forrester Research, Inc. Reproduction Prohibited 27

28 2013 Forrester Research, Inc. Reproduction Prohibited 28

29 Here are some of the early winners 2013 Forrester Research, Inc. Reproduction Prohibited 29

30 And as our expenses are likely to get higher 2013 Forrester Research, Inc. Reproduction Prohibited 30

31 3. EDLP dies because the web always has a lower price 35% use phones to research prices IN STORES 32% of showroomers find it easy vs 11% who find it difficult 35% of showroomers use search to compare prices 37% of showroomers plan to reesarch prices more on their mobile devices in the future Source: Forrester Life Cycle Survey, Q1 2013: Forrester-Aprimo Research 2013 Forrester Research, Inc. Reproduction Prohibited 31

32 The store premium isn t large How much more would you consider paying to purchase a product in a physical store rather than buying it online so that you could have the product immediately rather than wait for it to be shipped to you? 1-5% higher in store 52% 6-10% higher in store 18% 11-15% higher in store 16-20% higher in store 21-25% higher in store More than 25% higher in store 6% 4% 4% 3% Source: Forrester Life Cycle Survey, Q Forrester Research, Inc. Reproduction Prohibited 32

33 For commodities, this type of price difference gets tougher Source: 360pi 2013 Forrester Research, Inc. Reproduction Prohibited 33

34 Strong brands will strike out on their own 2013 Forrester Research, Inc. Reproduction Prohibited 34

35 But other brands will rely on trade funds Allocation of marketing spend for manufacturers Consumer promos (e.g. FSIs), 17% Other (e.g., 17% Traditional (e.g. TV, print), 33% Trade funds (e.g. TPRs, comarketing), 32% Source: The State of Shopper Marketing, Deloitte/GMA 2013 Forrester Research, Inc. Reproduction Prohibited 35

36 Mobile allows dynamic pricing to be a reward for loyalty 2013 Forrester Research, Inc. Reproduction Prohibited 36

37 2013 Forrester Research, Inc. Reproduction Prohibited 37

38 In conclusion There probably won t be a reprieve in shipping expenses, but omnichannel investments can insulate retailers from unwelcome suprises We are just beginning to see mobile unique solutions; if you can create one, you will amplify your mobile success Dynamic pricing is here to stay and will become standard for the most commoditized categories; ultimately, merchandising strategies change a lot 2013 Forrester Research, Inc. Reproduction Prohibited 38

39 Thank you Sucharita Mulpuru

40 Now for more discussion 2013 Forrester Research, Inc. Reproduction Prohibited 40