Retailers shift their ad spending from TV, radio and print ads to digital ads.
Whitney Automotive made the shift from cataloger to web merchant, while staying in the black.
Originally a cataloger, Whitney Automotive now generates 80% of its business online, Geoff Robertson, general manager and vice president of e-commerce, told attendees this week at the Internet Retailer Conference & Exhibition 2010. The transition took nine years and through that time Whitney met a management mandate to remain profitable—no small feat given what the auto accessories and parts retailer had to invest to make the switch.
Robertson cited a recent Goldman Sachs report that shows retailers overall spending an average of 2%-2.5% of sales on technology and web-only merchants spending an average of 7%. The report said Amazon spends about 19% of its gross profits on technology, Robertson noted in a conference session entitled “The future is now: A cataloger’s drive to the Internet.”
“If you are trying to compete at that 2%, you are going to be at a loss,” he said. “You have to try to find ways to break through those constraints.”
Robertson detailed the successes and the missteps of Whitney’s nine-year transition from cataloger to primarily selling online, starting with the company’s initial substantial investment in Internet technology in 2003. By 2006, the company had enough confidence about driving business through the web that it reduced its catalog operation and accelerated its shift to the web.
Robertson did not disclose the investment, but said that the company changed its marketing mix and invested more heavily in customer data management and other technology as it made the switch. It also changed how it made investment decisions. For example, there used to be separate budgets for catalog and online marketing, which led to conflicts over which department got credit for sales. That ended when Whitney established centralized marketing spending and started making channel-agnostic decisions.
Also, Whitney had been treating technology and data as only a cost center, instead of a marketing resource that could be used to drive results. Now, the company plugs in its anticipated return on investment from the marketing programs that new technology will enable as it makes its spending decisions.
Robertson said companies investing in technology should take full advantage of it by planning to boost marketing spending as well. Many catalogers investing in technology to shift business to the web, as Whitney did, wish they could make money without making that added marketing investment, according to Robertson. “I think that’s a fallacy given the rate of change on the Internet,” he said.
In fact, Robertson believes in retrospect that Whitney should have increased its web marketing spend earlier. “When we made that catalog drop in 2006, I wish we had made that marketing spend then,” he said. “We could have experienced even greater growth and profitability.”