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Trends in Internet Retailing

June 21st, 2010 by Nitin Bidi

The period 2008/2009 has been characterized as “The Great Recession”, referring to the global economic crisis that began in December 2007 increased throughout 2008. Though there remain serious economic challenges in Europe (Greece, Ireland, Italy, Spain, Portugal, Hungary) there are hopeful signs of improvement in the retail sector in the United States. Online merchants, in particular, seem to be well on their way to recovery here in mid-2010.

Tully & Holland is a United States investment bank that advises on mergers and acquisitions (M & A) and private placements. The firm specializes in consumer product manufacturers and distributors, multi-channel marketers, and retailers. The managing director of Tully & Holland, Stuart Rose, recently released a comprehensive report updating the Internet Retail industry overall and reporting on trends in the M&A internet retail market.

Despite the very difficult challenges of 2009, especially and including losses and restructuring for small and medium-sized businesses, the fourth quarter of 2009 showed strong signs of growth in the fastest growing sectors of the retail industry. Conversely, the M&A sector continued to struggle, although Tully & Holland predict slow but steady growth in this area over the next five years.

Tully and Holland studied the retail marketplace for the years of 2001 through 2008 before summarizing 2009 and making forecasts for 2010 and beyond. One benchmark used in the 2009 summary document was Compound Annual Growth Rate or CAGR. Although the CAGR of Internet sales grew 18.6% from $34.5B to $150B between 2001 and 2009, the actual annual growth rate declined to a near-negative rate in 2008. Other findings for total retail sales and e-commerce include

  • E-commerce grew as a percentage of total retail sales from 1.1% in 2001 to 3.7% in 2009.
  • Online retailers enjoyed a very strong Q4 in 2009 over Q408 with YOY (Year-Over-Year) sales increasing 14.6%. That increase represented 4.3% of total retail sales.
  • Publicly-traded internet retail companies experienced large increases in their stock prices, increasing 130% from February of 2009; contrasting with the S&P 500 Retailing Index which increased about 70% in the same time period.

Merger and acquisitions for Internet retail did not fare as well in 2009, reporting an overall decline of 37% in deals from a total of 57 deals in 2008 to only 36 deals in 2009. The decreased availability of credit brought on by the financial sector crisis, as well as a weak overall U.S. economy are thought to be the major causes for the drop in M&A activity. There were five major transactions which comprised the majority of deals: Retail Convergence, Zappos, NextRx, Circuit City, and Ticketmaster.

The message from Tully & Holland for SMB Internet retailers is that along with growth will come increased competition and reduced prices and margins. To avoid becoming a target for acquisition, SMBs should concentrate on increasing their brand recognition, strengthening their supply chains, and upgrading their financial performance.

SMB’s Still Need to Get Up-Close-and-Personal with the Web

April 29th, 2010 by Bill Martin

An amazing number of small and mid-size enterprises continue to avoid taking advantage of all the potential offered by establishing a robust Web presence. For businesses of all sizes, but particularly those that have seen their ability to grow constrained by the economic events of the past two years, harnessing the power of the Web and expanding their digital footprint is critical.

The question has to be asked: Why the reticence and/or complacency?

There are several schools of thought as to the core reason(s).

Establishing an e-commerce site is too expensive

Many companies will readily admit that they need to be on the Internet but fear the aggregated cost of getting there. Visions of $20,000 or $30,000 spent on a flashy Web site and e-commerce capability may create paralysis in even those business owners who perceive themselves as tech-savvy.

The truth is that those days of time consuming and expensive Web development projects are a thing of the past. The tools are better, the development platforms much more friendly and the service providers have matured their processes to the point that $1500 – $2000 can buy a state-of-the-art e-commerce solution.

It’s a generational thing

The SMB population has many 40, 50 and 60 year olds leading companies that didn’t grow up with the Internet and whose frame of reference when it comes to building the business is grounded in the traditional business models of their generation and marketplace. The digital channel, and even more so the social media channel, are foreign and uncomfortable enough that engagement and utilization is not nearly to the levels they should be.

While there may be more than a grain of truth here, fifteen years of experience, socialization, institutionalization and growth of the Internet as a cornerstone engine of commerce should have overwhelmed any negative sentiment harbored by the vast majority of that population of business leaders that are less than digital-centric.

No time and no bandwidth

Small and mid-size businesses tend to operate as lean as possible and allocating the human and time resources to build and constantly maintain a web presence that can remain beneficial to the enterprise over the long term remains, in too many cases, a non-starter.

Outsourcing non-core activities has become fundamental for senior management to provide successful stewardship of the business they are chartered to lead. Few small and mid-size businesses would or should consider web/e-commerce development as part of their core competencies. That is why there are so many companies that specialize in designing, developing and implementing the state-of-the-art in online presence for so many large enterprises as well as those in the SMB sector. You don’t have to do it yourself to harvest all the benefits of expanding the utility of your business online.

At this stage in the lifecycle of the digital business model, there is no good excuse for companies to sacrifice the growing opportunity offered by the online channel. No matter what industry they operate in and what constituencies they market to, the SMB enterprise risks either total or partial obsolescence if they fail to offer their customer base the multi-channel option that leverages online access.

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