Analysis: the risks of a transparent market

Analysis: the risks of a transparent market

Digitization and transparency are forcing retailers and suppliers to distinguish themselves as only unique products and services offer a way out of the swamp of ever-lower prices and smaller margins. Not only physical, but also online retailers have to adhere to this logic, as analysts are afraid "a lot of web shops are ticking time bombs".

Amazon: turnover growth, but profit drop

According to Laurens Sloot, academic director at Holland's EFMI Business School, even the all-powerful Amazon is vulnerable in a transparent market mechanism, as customers ruthlessly compare those who offer similar products. Information about price and other aspects are within an app's quick and efficient reach.

 

"Amazon's turnover is quickly growing, but how is the internet giant's operational profit developing?" he said. "Amazon's 2010 EBIT reached an acceptable 3 %, but that percentage is considerably lower nowadays as a result of price transparency. Even Amazon has to follow suit in a world where price-cutting is ever-present. The result is that in the end, no one makes any money."

 

From premium to specialty

Even in the food branch, prices are transparent for both consumer and competitor alike. "The MySupermaket app is well-known in the United Kingdom, while we also have several price comparison apps in the Netherlands", Sloot stated. "Everyone in the Dutch food retail business is moving toward the center out of fear of losing both customers and turnover."

 

Sloot believes that is a "pointless road that you can only leave by specializing and distinguishing yourself. You don't need a premium proposition anymore, but you have to offer special items customers cannot find elsewhere. Time is scarce, so retailers have to offer something extraordinary to convince people to spend their precious time at their store", Sloot concludes. He points to German entrepreneur Hieber, known for the Hedeka chain, as a prime example.

 

"Online is not in its DNA"

"Alongside its central purchasing process through Edeka, Hieber also buys a lot more regional products itself. What non-food is concerned, Dutch Bijenkorf is an excellent example as these are stores that are entirely focused on the retail experience. Something wonderful happens each and every day", according to Sloot.

 

Not every supermarket can be a Hieber, but a lot of traditional, functionally-designed stores with similar products can continue to exist because there is no profitable online alternative. Buying food online is not yet imprinted into the customer's DNA according to former online entrepreneur Christian van Someren. "Bol.com manages to convince customers why it is an excellent idea to buy things online, if it's about non-food items. Food retailers have yet to convince customers."

 

"Unpredictability turns web shops into time bombs"

Van Someren has experienced first-hand what it means when web shops go overboard when his own project, Truus.nl, went bankrupt in 2012. He believes a lot of online shops still make the same mistake he made back then. "A lot of web shops are ticking time bombs, as they spend a lot of resources trying to attract new customers, while they lack any plan to get more out of existing customers."

 

The time bomb will go off once a lot of orders come through, while the web shop's exploitation base is completely wrong, which will raise the costs alongside the turnover. That is why web shops must do whatever they can to create predictability, according to Amstel's Walther Ploos, who is a logistics expert at the Vrije Universiteit in Amsterdam. "Unpredictability can kill margins", he said.

 

Pick-up points for online orders, which are designed to eliminate high costs in the final stretch before the package gets to the customer, are also prone to unpredictability. "These pick-up points cost a lot and are not that efficient. The customer no longer pays for the delivery, but the pick-up points are only called into action, when the customer is at its door step, which is not efficient. These pick-up points need to know when the customer is on its way, so that they can prepare a smooth delivery. It is time for a "I'm on my way" app!"

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