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Compelling online trading with complications
27.10.2011 7492

Compelling online trading with complications

Why should shoe suppliers and retailers view the internet as a risk rather than an opportunity? And is there an opportunity to “spread straws” so as not to end up at closed shops? Alexander Greb, head of advertising and PR at Ralf Ringer, makes his forecasts about the future of online sales.

What is the most commonly written about online shoe retailing? “An online store is fast, convenient and profitable”, “you don’t have to pay for renting premises”, “you get access to buyers from all over Russia and the whole world”, “it is an opportunity to put an unlimited number of models on the virtual counter”.

At first glance, these mega-optimistic statements are confirmed by numbers. The audience of Internet users is growing - Russia now ranks second in Europe in terms of the number of active Internet users (their number has already reached 42 million people). The audience of customers in Runet online stores is growing: in 2010, the number of Internet users purchasing goods and services online increased by 35%. The audience of shoes interested in the Internet is also growing: this year the audience of the RALF RINGER website (www.ralf.ru) has doubled (compared to the 2009 year), and compared to the 2008 year, the growth is almost fourfold. In 2010, shoe sales at Wildberries increased by 2009% compared to 630.

Everything seems to be fine. When you look at these numbers, your hands itch to make an online store.

But I know for sure that in the current state of the shoe market in Russia, online trading will do tremendous damage. Much more significant than the warm winter of 2007, the change in the renminbi in 2008 or the size of customs duties in 2010. And this will happen before our eyes in the coming 3 years. And in this article I want to show the dangers of the online shoe trade that I discovered. I am sure that this list is wider.

PUNCH ONE. Change vintage preferences

On the shoe market of Russia there is a certain map of brands. In each segment there are 2-3 "main" brands of shoes and about 10-20 other players. There are leaders and outsiders in niches (orthopedic shoes, shoes for outdoor activities, etc.). There are regional sales leaders. In this established coordinate system, shoe suppliers, retailers, and end customers live.

What happens with the development of online commerce? The number of brands is increasing many times - not by tens, but by hundreds of times! And this is not even tomorrow, but today. The range of Wildberries online store has more than 100 brands. In the Zappos.com store, only men's shoes are represented by almost 300 trademarks !!! The total number of articles in Zappos.com is 13 000 !!! In the Russian Sapato.ru so far there are about 4,5 of thousands of models, but in the near future Sapato plans to expand the showcase to 10 000 items.

How will this affect retail? First of all, the shares of today's market players will decrease (the natural consequence will be an increase in their prices - in order to cover fixed costs with falling sales).

The rotation of brands in the minds of consumers will begin. A change in the position of the brand in the minds of the buyer (formerly the undisputed leader, now one of many) will inevitably lead to the question “why should I pay such a price?” And we get a situation where we need to sell more expensive (due to lower sales), and the buyer expects a reduction in prices.

Another very unpleasant consequence of this process: ordinary shoe stores will not be able to keep up with the growing customization of consumer preferences. Not a single shoe supermarket, not to mention ordinary multi-brand stores, is able to put 13 000 items on the shelf. Not able to adequately present the assortment not only of 300 brands, but even 50.

The future of offline retail sales, by contrast, is in narrowing the range. In the development of the “multi-brand shop-in-shop store” direction, in which a limited number of brands are represented. But e-commerce will create opposite expectations for the retail buyer: that the choice should be as wide as possible.

It is clear that at some point this process is stabilizing. And again a certain matrix with the leading brands in each segment will be formed. But during the time that the described process will go, many of today's players may cease to exist.

SHOCK OF THE SECOND. False perspectives

The growing hysteria about the prospects of online sales is pushing retail companies to create online stores. At the same time, the retailer expects, having invested a minimum of funds, to optimize costs and increase sales. This is utopia. A minimum can not do. Investments will be required not so much in creating a site as in generating traffic. And bringing a customer to an online store is much more complicated than offline. In the latter case, it is enough to choose the right place, and you will provide yourself with a certain flow of visitors. And on the Internet there are no streets and avenues. You will either have to pay regularly for website promotion in search engines, or advertise (including in the real world, and not just on the network), or bow to online shopping centers (example: Ozon.ru, Amazon.com, Ebay.com, Molotok.ru) and pay them a rent.

It will be possible to reduce costs either with an extremely small volume of sales (it will be provided by already existing employees of your company) or with an extremely large volume (it will cover expenses for a picking warehouse, organization of delivery, and an increase in staff). With an average level of additional sales, the income from them will be eaten by delivery, new employees, an additional warehouse, etc. Plus, you will find an unpleasant surprise: the first who wants to buy shoes from you online will be your loyal customers. Any store that sells offline and opens a trading platform on the Internet receives a “bonus” in the form of redistribution of customer flows.

What is especially unpleasant: the most controversial prospects are local online stores belonging to regional retail chains. Because sooner or later a large online store will open next to you, which you will not be able to compete with. For example, the Russian site Sapato.ru invested $ 5 million in the project only in the last round of investments. And if in the real world a situation is possible when all the places are occupied in a popular shopping center, then there is no such restriction in the network.

HIT THREE. The destruction of the ligament "manufacturer - retailer"

An extremely important factor for the development of the market is the partnership between retail and suppliers / manufacturers. Without it, it is impossible to make long-term development plans. Without it, the risks of any investment, both in production and in retail, increase many times over: you retooled the factory, and your retail partners left for another supplier or went bankrupt ...

Internet commerce can drive a serious wedge between the manufacturer and the seller.

Suppliers may have the illusion that they are now less dependent / less interested in retail. What is an alternative - direct sales from the manufacturer through its own online stores. I know on the Russian shoe market suppliers who believe that their wholesale business is extremely complex, high-risk and low-profit. But retailers, according to these suppliers, are fattening at a high retail margin without much effort. I think these companies will be happy to join the online game "open an Internet store and get rid of the seller you don't need." But they will be disappointed. Even if they somehow manage to organize their online sales in such a way that they completely replace offline sales, this does not mean that a bright future will come for them. They will face all the difficulties described above, only they will solve them alone.

The error of many retailers is no less erroneous: there will not be this supplier, I will find another. Around - thousands of others. This has been the case until now, but with the development of e-commerce, the rules are changing.

Footwear giants such as Bata, Clarks, Collective Brands, Brown Shoe, which are actively entering the Russian market, will rapidly increase their market share with the growth of online sales. Today, their development is hindered by the high rental price, problems with the recruitment (and quality of work) of store staff. In the situation of the development of online commerce, these restrictions are removed. Plus, it is not difficult for such companies to open in Russia the necessary number of regional centers for picking and sending orders. The process is already underway. In autumn, rumors spread around the market that such a center would be created in Russia by a large German shoe holding. The largest Russian trading platform Ozon.ru announced the opening in 2010 year of the order of 50 regional offices!

As soon as the issues of organizing online sales of shoes are resolved in Russia (and these are, first of all, safe online payments and fast and inexpensive delivery to any locality in the Russian Federation), buyers will go in friendly rows from our stores (equally from retail outlets) in the "European" and from online stores) to the sites of the world's leading manufacturers / sellers of shoes. That is, the budget for the purchase of shoes will flow into the pockets of Zappos.com, Amazon.com, Shoe-shop.com and other "coms". It is obvious. The only thing that so far protects retail sales in Russia in a variety of product categories, problems with buying in foreign Internet stores and difficulties with delivery. But the buyer really wants to shop there. Already if only because in the medium term we will have a decrease in purchasing power.

An example from life. For 2 of the year, I (the father of two children) do not buy toys in Russian stores. I bring them from overseas travel or buy on ebay.com. The difference between the price of ebay and children's stores in Moscow (we spoke about the assortment above), even taking into account air travel from the USA, is about 80-100%. The only problem is Russian Post. My son ordered the Spider-Man’s phone in November for New Year’s, the parcel hasn’t arrived yet.

With shoes the same story. Today, on the Converse website, the regular price for Converse mega-sneakers starts at 28 $ (900 rubles), the sale starts at 15 $ (450 rubles). HUGO BOSS classic shoes start at 145 $ (4500 rubles), and this is a regular rather than a selling price. Imagine who will come to our stores for noname classics for 3000 rubles, or for branded classics for 5-15 thousand rubles, when you can get first-class HUGO BOSS shoes sewn in Italy for 5-6 thousand rubles?

Fortunately, while in Russia there is a mess with delivery and electronic payments, and many international online sites do not accept orders from Russians. For example, the mentioned “converses” on Amazon.com are not sold to Russians. Till. But I remind you that the government said that already in 2011, we will join the WTO.

In conclusion, I want to express my opinion on the possibility of confronting the consequences I have described of the development of online retail in Russia. Thousands of small and medium shoe companies that we have on the market today are not able to withstand global threats on their own. In my opinion, there is only one way - the consolidation of the efforts of retailers and suppliers, the consolidation of the market as a whole. This will free up funds and channel them into development. Including the development of online sales, which we all will be forced to develop in the very near future.

Why should shoe suppliers and retailers view the internet as a risk rather than an opportunity? And is there an opportunity to "spread straws" so as not to be at the closed ...
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