‘E-commerce is expensive’: How invisible technology and infrastructure overhauls will save retail

Aside from DTC brands, there has been a slower adaptation of e-commerce from retailers and shoppers alike. That is until the pandemic hit, forcing the vast majority of stores to close and leaving online shopping as one of the few retail options.

With that came a scramble from retailers trying to figure out how to keep customers spending with them when their e-commerce operations had been second fiddle for so long. Meanwhile, platform giants in the space, like Shopify, grew even more, seeing an opportunity to step in as the technological partners that in-person retailers never had to think much about.

In the latest episode of The New Normal, editor-in-chief Cale Weissman of Digiday’s site Modern Retail and Digiday Media president and editor-in-chief Brian Morrissey discuss the dramatic changes that have roiled the retail industry as a result of the pandemic and who the winners and losers are in the upheaval. 

‘The hottest company is Shopify’

As Shopify was on the rise, it clamped onto the DTC and digitally native brands that were also building their businesses and served as the e-commerce platform that many of them used, Weismann said. This is because Shopify acted as a cheap, turnkey solution that brands could add their own personalizations to and share in an open market, making it a great solution for marketers new to online sales. 

“Now we get to March and all of these other companies are realizing, ‘I need to have a marketplace on my website,’” said Weismann, who added Shopify has been garnering more business from retailers who either didn’t have an e-commerce operation or were not prioritizing that business line. 

Next for Shopify, Weismann said, is figuring out how to better serve brands that have grown to be multi-million dollar businesses on the platform. As they’ve grown, these brands are now looking for better, white label tools that give them more control over the sales process and help save money during each transaction. Shopify created its Shopify+ platform for this purpose, which Weismann said remains a work in progress.

Competing for the online marketshare

Coming as a surprise to no one, with in-person stores closed, online shopping has been booming and Amazon and Walmart are two online marketplaces that are reaping the rewards.

Weismann said that despite Amazon running into some supply chain issues early on, the company had a very healthy second quarter, growing sales by 40% year over year. But with that success, come opportunistic competitors — and Walmart pounced.

Walmart has spent a lot of time over the past few years building out infrastructure for different kinds of online shopping, pioneering the By Online, Pick-Up In Store (BOPIS) model. But during the pandemic, the company found particular success in its online grocery business.

“E-commerce is expensive,” said Weismann, “and if your bread and butter is cheap things, it’s really expensive to facilitate that.” That’s why online grocery businesses are going to be unprofitable for a really long time. Walmart, however, is leagues ahead of everybody else because they’ve put in the investment to make the margins on groceries better, he said. 

DTC is on the rise, at least for a little while

As the recession took hold and the advertising market pulled back spending, online inventory became cheap, making it really easy and inexpensive for a slew of new DTC brands to get in front of consumers at scale.

But this ad space bonanza is going to subside at some point, Weismann said, and when that happens, there will be a reckoning.

With little money out in the world for investments, DTC brands are “focused on their economics achieving profitability and there is no way that all of them will [continue to] exist” once traditional advertisers return and the ad prices start creeping back up again, he said.

An identity crisis in retail

Weismann also said he expects that retail will return and people will shop in-store again, but for brands that have a “boring store experience,” they will need to rethink that decision.

Brand and destination identity are no longer going to get people through the door as people worry about health and safety. Therefore, customers are not going to think about that brand in the same way anymore.

For the DTC brands who built stores, however, their retail locations often serve more in a marketing capacity where customers could interact with the brand in-person, he said, adding he expects this is the direction that retail will have to go in in general, versus a warehouse with racks after racks of items.

“A lot of the thinking right now is about, ‘How do we redesign [stores] so it’s a place to show off our brand versus a place to sell things and make that profit,” Weismann said. “A lot of places with hundreds or thousands of locations will have to cut down.”

Acceleration of invisible tech

“There are all of these hyped things like AR and VR that were supposed to be big,” but the reality is that “there are a lot of invisible technologies that are seeing a huge acceleration,” said Weismann.

Robotics in fulfillment centers is one prime examples of this, according to Weismann, and they are making a large impact on e-commerce margins.

The reason that e-commerce is so expensive, he said, is because of the warehouse costs and the costs of human labor, which also has a lot of inefficiencies. So the automation of these processes is where the mad dash is regarding the development of technology. 

“It’s the invisible ones that are more interesting,” said Weismann