The battle between online-only (pure-play) retailers and their multichannel (online and high-street) competitors is very much on. There seems to be a general consensus that having both an online and high-street presence is the most effective way to market to the consumer, but with online retail expected to grow at 13 per cent per year from 2010 to 2015, it’s time for the pure-play brands to step forward.
My experience would suggest there are a number of distinct advantages to be had from selling online-only, ranging from reduced operating costs, a more streamlined company structure, and the ability to react very quickly to the market. Companies like Amazon and ASOS are demonstrating just how powerful the online selling model can be, and it’s one which looks set to become increasingly popular in the future.
The high street is a notoriously difficult place in which to compete, and the costs stack up very quickly. Property rental, insurance, and staff salaries ensure a brand will have to plough a great deal of money into the venture before a single sale is made. For entrepreneurs and start-ups in particular therefore, there is a clear advantage in choosing to bypass this, and sell only via a website.
Online-only retailers do not have to bow to the costs of setting up a store, and in doing so, immediately minimise the risks associated with their business. The potential problems which accompany operating a store are numerous: elevated insurance costs, increased public liability, the threat of theft, and the worry of property depreciation must all be taken into account, and these are all aspects which potential investors will be unlikely to look upon positively.
Company structure can benefit hugely from the online-only model. By choosing not to bloat our business model with stores, we’ve managed to streamline our operations, and ultimately create a tight-knit management team which is much closer to their end-market consumer. We’ve found that this increases our awareness of the market hugely, and this of course lends itself well to making astute business decisions. Particularly for the larger retailers, investment in stores and employees introduces new levels of complexity and bureaucracy to the business, which can undermine business performance.
We live in an age where consumers know what they want, and they want it quickly. This makes the speed with which retailers get items to market critical, and this is the beauty of the online model. Working via the internet means that you can swiftly sense demand for certain items, and introduce a relevant product, or variations to a product line, very quickly to the market. Getting a feel for customer buying patterns is also a much faster affair for online retailers than their department-store competitors, and this gives pure-plays a real edge when it comes to making strategic business decisions.
A retailer’s website is pivotal, and as pure-play brands rely solely on internet presence to drive revenue, their websites will typically offer not only a wider range of products for that sector, but also more detail on each product than a generalist site could.
Larger multi-channel retailers often struggle to get an adequate level of product-related information on their websites, and their ranges will tend to be more limited. A website should be as intuitive as possible when it comes to navigation, and this is undoubtedly easier to achieve when the products fall within one sector.
At Duvet & Pillow Warehouse, we focus specifically on bedroom and bathroom items, and it’s an area we’ve worked hard to understand in real depth. If we were to try and broaden our range away from this, we’d be in a much weaker position to advise customers, and we’d lose our status as a specialist. We have a much larger range in the bedroom/bathroom sector than you’d find in a generalist store, and our website is geared towards guiding the customer towards the product which is right for them.
Any retailer will be keen to build and retain a customer base that is loyal, and will provide repeat business. Much of this comes down to customer service, and rapport with customers is undoubtedly easier to build face-to-face, within a store setting. For an online retailer, there is the risk that this relationship with customers is never built, with the transactional process lacking any intimacy. This can be overcome however by providing a friendly service both over the phone and online.
One thing which can be hugely frustrating to a consumer buying online is not being able to talk to a company representative personally on the phone. We’ve ensured DAPW offer this option, so customers can talk through products with an expert before buying. Offering a consistently high level service to customers is undoubtedly easier via the internet due to the fewer variables, and as you only get once chance to initially impress potential buyers, it’s essential to ensure it’s the right one.
Due to the specialist nature of pure-play companies, they often find themselves looked upon more favourably than multi-channel businesses by potential investors or indeed acquirers. When they focus on a particular product sector, it allows for a wider range of strategic partnerships than would not be feasible with a multichannel retailer and being online-only allows for investors to diversify their portfolio according to their own needs.
The low set up costs and fast growth associated with pure-play businesses makes for an excellent exit-strategy for entrepreneurs and investors alike, a definite consideration upon starting a company.
The prevalence of the ‘one-click-buy’ culture means that online shopping has a great deal of potential over the next few years, far more so than the high street. There is no doubt that for a retailer to compete, they need a strong online presence, but is it really so crucial for a brand to have a physical store presence as well? Perhaps not.
It is becoming increasingly difficult to justify the costs of running a chain of stores, particularly given the internet will likely drive a key proportion of sales over the coming years. My experience has led me to believe that the pure-play model is one which companies will increasingly adopt in the future.
Charles Hunt is the Owner and founder of Duvet and Pillow Warehouse