DEATH OF PUREPLAY RETAIL

INTELLIGENCE REPORT DEATH OF PUREPLAY RETAIL RETURN ON INVESTMENT

Reaching Scale E-commerce is ultimately a winner-take-all game, dominated by a handful of stalwarts with huge operating and marketing budgets. Four companies—Amazon, Apple, Walmart, and Staples—accounted for over 40 percent of U.S. e-commerce sales in 2014, and just 50 companies accounted for almost three quarters of these sales. 25 The industry is trending towards further consolidation; sales for the top-10 largest e-commerce retailers grew 16.7 percent in 2014, versus 15.4 percent growth among the top-500. Notably, excluding Amazon, pureplay e-commerce retail and software companies made up just a fraction of sales, with the lion’s share captured by omnichannel retailers. Scale continues to be the primary hurdle to e-commerce profitability, even for the most-scaled players. Amazon continues to dip in-and-out of profitability, despite high-margin revenue from the Web Services business comprising over

half of operating income. Jet.com, positioned as an Amazon challenger, publicly stated that the company would need 15 million paying customers and $20 billion in sales to turn its first profit, a milestone expected to be reached in 2020. 26 The e-tailer is currently spending $5 million per week on advertising, 27 translating to $100 for each new customer acquisition. 28 In November 2015, Jet.com—already sitting on $225 million in funding—raised another $550 million to avoid running out of money before the end of 2015. 29 The vast amount of capital required to scale a customer base in the commoditized e-tailing landscape has proven to be unsustainable for even the most well-funded players. 26. “ Behind the numbers of Jet.com’s audacious plan to attack Amazon ,” Wall Street Journal, July 20, 2015. 27. “ Why Jet.com spends 10 percent of its ad money on mobile ,” Digiday, September 29, 2015. 28. “ Behind the numbers of Jet.com’s audacious plan to attack Amazon ,” Wall Street Journal, July 20, 2015. 29. “ Facing Cash Crunch, Retailer Jet.com Racing to Complete Funding Round ,” Wall Street Journal, November 4, 2015.

25. Internet Retailer.

Death of Pureplay Retail: U.S. E-Commerce Sales, Billions 2013—2014, n=Top 50 E-Commerce Retailers ■ Omnichannel Retailers ■ Amazon ■ Pureplay Software Companies ■ Pureplay Retailers

Death of Pureplay Retail: Jet.com Capital Funding Millions of Dollars Raised July 2014—November 2015

$800

2013

2014

6.9% Apple 3.9% Staples 3.8% Walmart 1.6% Sears

6.8% Apple 3.7% Staples 4.0% Walmart 1.9% Sears

$600

Site Launches

Funding (in Millions)

$400

$264.28

$304.91

Announces $550 million funding round to prevent Jet.com from running out of money by 2016

$200

25.7% Amazon

26.1% Amazon

$0

Jul. 2014

Sep.

Nov. 2014

Jan. 2015

Mar. 2015

May 2015

Jul. 215

Sep. 2015

Nov. 2015

2014

Source: Internet Retailer, U.S. Commerce Dept. * Includes Netflix, Systematec and Google Play.

Source: “ Facing Cash Crunch, Retailer Jet.com Racing to Complete Funding Round ,” Wall Street Journal, November 4, 2015.

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January 12, 2016

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