As the co-founder of discount shopping site nomorerack.com, I’m often asked: “How can we possibly expect to compete with such retailing giants as Amazon.com and Walmart?” I usually reply that this question involves a type of syllogism, or a false kind of deductive reasoning.
Simply put, the notion that online e-commerce is a winner-take-all market has repeatedly been shown to be wrong. Just as in the offline world, the online retail market is vast enough to support a number of winners. Multiple sourcing strategies and compelling vertical offerings will win out, despite the looming presence of some immense global behemoths with enormous buying power.
In my experience, a compelling value proposition remains the most important factor to achieve retail success. Ultimately, what matters most to an online consumer is the underlying value. How you create that value will define your reputation in the marketplace and thus determine your rate of success — or your rate of failure, as the case may be.
When I say “know your value proposition,” what I really mean is know what your company represents to your customers and always stay true to that perception through your website, your advertisements and other public messages. For instance, at nomorerack we constantly strive to be known for having the lowest possible prices on a broad assortment of quality consumer items. This means regularly offering household goods, apparel and electronics up to 60-80 percent off the list price every day.
Different e-tailing models jostle for attention
The soaring popularity of online shopping has disrupted the already fierce competition among retailers. In recent years, many new Internet startups have begun to challenge the status quo of more established chain stores and big-box retailers. After initially offering short-term sales deals, these so-called “flash sales” bargain sites have matured into a flourishing and diverse e-tailing sector.
For example, Zulily — an e-tailing site aimed mostly at moms and families — went public in a stock IPO late last year. Zulily’s share price peaked at $73.50 in March, but it has since fallen back to around $37 per share in recent months. Wayfair, a specialist in branded home furnishings, filed for its own IPO on August 15, with a target to raise $350 million. Competitor Gilt.com also signaled plans to go public later this year, but so far Gilt has not made a formal IPO announcement.
Some media outlets have reported that Gilt has an interest in acquiring Rue La La, which received early funding from eBay. Another rival named Ideeli was acquired by Groupon Goods for $43 million in January.
Several former “flash sales” sites haven’t fared so well. One Kings Lane, which specializes in home décor items, cut 15 percent of its staff in June. Those cuts came after major layoffs in May at Fab.com, which is known for its focus on design products.
As a result of these ongoing market struggles, several distinct e-tailing business models are jostling for the attention of shoppers and investors.
Prime e-tailing models: inventory heavy vs. inventory lite vs. drop ship
Here is a brief description of the primary e-commerce business models and their market implications:
- Inventory-heavy model.For Amazon, the inventory-heavy model is a consumer strength but a supplier challenge. Shoppers go to Amazon knowing they can always find whatever they are shopping for. Yet because Amazon works with hundreds of thousands of sellers, the company can never give truly hands-on personalized attention to its sellers.
- Inventory “lite” model. Taking inventory presents a scaling challenge, requiring a large merchandising team, including all the associated overhead costs. By comparison, nomorerack’s ultra-lean drop-ship model only requires 65 total employees.
- Drop-ship model.For nomorerack, the drop-ship model is a consumer benefit and a supplier strength. By shipping orders directly from the manufacturer to the consumer without middlemen, nomorerack’s infrastructure is much leaner because it does not include any warehouse system. At the same time, this approach allows nomorerack to work much more closely with its fewer selected vendors, curating each offering for consumers and ensuring the lowest possible prices. In the case of nomorerack, customers will always find the deepest value in whatever is available, making the value proposition significantly different — both from the perspective of sellers and buyers on its platform.
Again, the e-commerce market is undergoing a massive shakeup that will leave the less innovative traditional retailers struggling to keep up in the future. New digital promotions over mobile devices are reshaping the face of retail, along with interactive ads over social media. Of course Amazon and Walmart won’t go away anytime soon. But at the same time, many innovative new e-commerce firms have clearly arrived and are now here to stay.
Such fierce competition does not mean that any one model will eventually prevail over all the others. Rather, I am confident that several approaches will catch on and thrive, while others will fall by the wayside.
Deepak Agarwal is founder and CEO of NoMoreRack, an online shopping destination for quality, trendy, branded and unbranded, in-demand goods at prices from 50-80 percent off retail. Founded in 2011, the company received $40 million in Series B Round funding in October 2013 and $12 million in Series A funding in November 2012.