The acquisition will add more than 300 products to L’Oreal’s lineup.
Amazon's growth masks some serious issues that pure-play e-retailers need to address.
At first blush, there's never been a better time to be a pure-play e-retailer. Online commerce continues to grow, with eMarketer projecting that e-commerce spending in the United States will increase about 15.1% year-over-year in November and December, growing to $61.8 billion from $53.7 billion in 2012. At the same time, Amazon's stock price topped $300 a share this summer, and is now marching relentlessly towards $400. Amazon also beat out Wal-Mart Stores as the No. 1 retail brand on Millward Brown's BrandZ index—with a brand value of $45.7 billion.
At the same time, "second-gen" or "e-commerce 2.0" startups such as Fab and Warby Parker are making waves with e-commerce sites that focus on new business models, branding, design, and product exclusivity. One Kings Lane is on track to surpass $300 million in revenue for its flavor of online retail, and other “second-gen” e-retailers are seeing similarly explosive momentum. Flash-sale site Zulily just raised $253 million in an IPO, and industry watchers anticipate that Gilt Groupe will file shortly.
While these success stories dominate the headlines, many industry experts sense that trouble is brewing for pure-play e-retailers who operate in the vast middle between Amazon and Fab. These “first-gen” e-retailers came on the scene in the late 1990s and early 2000s and have historically competed on mainly on rock bottom cost and vast product selection. These "first-gen" companies are often lumped with Amazon in customer experience studies. However, once you remove Amazon from the equation, it is very clear that Amazon's phenomenal brand and customer experience performance mask serious issues in this sector - and that the "first-gen" e-retailers are vulnerable to increased threats from both omnichannel and "second-gen" e-retailers.
OpinionLab's latest Customer Feedback Index report analyzes major "first-gen" e-retailers (excluding Amazon) and shows that "first-gen" e-retailers are clearly failing to deliver Amazon-type results and customer experience outcomes. We studied 10 major "first-gen" e-retailers alongside 20 well-known omnichannel retailers that operate both brick-and-mortar stores and e-commerce sites. Customer experience performance was measured using OpinionLab's proprietary Customer Feedback Index, which is compiled from real-time online feedback and encompasses factors such as customer satisfaction, customer loyalty, customer effort, task completion, and other customer experience indicators. Here are some of the key findings:
- "First-gen" e-retailers took a huge customer experience hit in the second part of 2013, with an 18% dip in their CFI score relative to their mid-year high; omnichannel e-retailers posted steady gains over the same period.
- "First-gen" e-retailers posted an average CFI score of 391 versus omnichannel retailers' average CFI score of 445.
- "First-gen" e-retailers underperformed their omnichannel competitors in five of seven key website performance areas, including product search and product information. Most surprisingly, over the past 45 days, the mobile performance score for omnichannel retailers was 5% higher than the score for "first gen" e-retailers.
- Both e-retailers and omnichannel retailers are better at providing detailed product information than search functionality, indicating an ongoing challenge for shoppers who want to find what they are looking for.
In contrast to the customer experience stagnation of "first-gen" e-retailers, OpinionLab's data shows that omnichannel retailers are climbing back into relevance, with brands like Walmart, Apple, Lululemon, and J. Crew proving to be quite innovative. This innovation stems from a commitment to omnichannel strategy and is expressed as significantly improved e-commerce experiences.
Omnichannel retailers are starting to leverage their stores to fight back against the much-hyped "showrooming" threat. Experiments with next-gen fulfillment tactics like same-day in-store pickup, shipping directly from stores, and same-day delivery concepts like Google Shopping Express have put stores back on the bleeding edge of retail innovation. At the same time, futuristic retail concepts are turning shopping into an experience, instead of just a transaction.
All of these foreshadow a future that could be dangerous for “first-gen” e-retailers – and even leaders such as Amazon. According to leading retail analyst Anne Zybowski at Kantar Retail, “The biggest disruption to Amazon and e-commerce is some of the multichannel players getting it right.” All signs point to the need for “first-gen” e-retailers to get serious about the customer experience if they are going to survive, let alone thrive.
OpinionLab specializes in collecting and analyzing customer feedback for retailers and brands.