story by Kim Souza
ksouza@thecitywire.com
Running an effective e-commerce operation like Amazon at a time when consumers expect more for less is a daunting task.
Just ask e-commerce behemoth Alibaba who came into the U.S. market last year with the largest public offering to date – $25 billion – as it launched 11 Main.com, its American business unit. The Chinese conglomerate recently announced plans to sell its U.S. business.
Retail expert Walter Loeb, a Forbes contributor, reviewed 11Main.com shortly after its launch in 2014.
“Unless the site becomes more compelling in its merchandising, it will be just another shopping site offering off-beat merchandise. Just like American retailers need to put themselves in the shoes of Chinese consumers if they want to be successful in China, Chinese retailers must understand the U.S. consumer mindset to be successful in America,” Loeb noted in his blog.
FATAL MISTAKE
Christopher Tang, UCLA professor recently researched Alibaba's U.S. online retail effort and wrote a paper on his observations. First, Tang surmised that 11Main.com is an online retail site for goods made by U.S. businesses. That said, it’s just a marketplace portal not owning any inventory listed for sale on the site. The marketplace model is how Alibaba operates its gigantic commerce in China.
Tang said Alibaba’s U.S. venture misjudged the market completely and was unable to gain any traction.
“They didn't understand American consumers' expectations and that the market is highly competitive. And they didn't understand how logistics support is crucial,” Tang noted.
He said American consumers are experienced at online shopping and they expect competitive prices, two-day delivery and know they can trust the order and return the products typically without hassles. A major snafu on 11Main.com occurred when the company used third-party merchant suppliers for logistics and shipping like it does in China. This was often unreliable and more costly to the consumers, and is not the model used by Amazon or Walmart.com.
MARKETPLACE CHALLENGES
The marketplace model used first in the U.S. by Ebay and then Amazon and now many retailers including Walmart.com is not without its own unique set of challenges, according to Annibal Sodero, supply chain professor at the University of Arkansas. He said retailers like Walmart.com operating in part as a third-party marketplace have to do several things right if they are going to pass consumer expectations.
First he said they must meet supply with demand which is tricky when offering millions of products all the time, compared to around 120,000 items in a Wal-Mart supercenter.
Next, Sodero said e-tailers must provide inventory liquidity. They have to ensure their intermediary suppliers can make the products available just in time. If they cannot, then the e-tailer has to be able to source it somewhere else.
Perhaps the most important step for e-tailers is the customer service piece of the equation. He said customers expect free delivery in a timely fashion to their front door or perhaps a lockbox or pickup center. They do not want to stand in line to pick up something they ordered online, even if the shipping is free.
Lastly, Sodero said e-tailers have to set the right price on every item they sell knowing that price today is completely transparent across all online competitors. He said price is important, but perhaps no more so than the customer service piece.
SUCCESSFUL AGENDA
Sodero said Amazon has built a successful e-commerce platform with a goal to sell everything possible. He said Amazon works with its market participants to provide guarantees to consumers. He said this is critical because it’s part of the trust component that allows Amazon to offer nearly everything and most of the time get it delivered to the buyer’s front door in two days. Soon that will be one day and in some metro areas it’s already same day.
Looking at Walmart.com, Sodero said he does see some positive moves, especially with the aligned vision from CEO Doug McMillon. He said merchants for Walmart.com and the brick and mortar stores also have to be aligned.
Though it may be difficult for Wal-Mart to release some control and certify the third party marketplaces it also has to be done. He said Wal-Mart must work with third party marketplace sellers if it’s going to mount any challenge to Amazon in terms of product offering.
He applauds Wal-Mart for recent efforts to certify third party marketers, a model Amazon does as well. Sodero said consumers shopping on Walmart.com or Amazon.com do not care or rarely notice that items are provided by third party marketers. They know they are paying the retailer and they expect the retailer to deliver the product as promised for the price quoted on the site. Anything less will result in a disappointed customer.