DEATH OF PUREPLAY RETAIL

INTELLIGENCE REPORT DEATH OF PUREPLAY RETAIL CONCLUSIONS

E-Commerce Consolidation: Winner Takes All E-commerce revenue has become increasingly consolidated among industry leaders. In 2016, Amazon is expected to take 51 cents of every dollar of e-commerce growth—leaving other players to fight for the remaining 49 cents. 1 Excluding Amazon, pureplay e-tailers accounted for just 8 percent of 2014 e-commerce revenues when looking at the top-50 players—a landscape dominated by omnichannel retailers. Size of prize is limited for pureplay upstarts.

Two for One: Online Traffic + Offline Profits

Evolved pureplay retailers have been rewarded for their offline investments twofold. Increased brand awareness translates into online traffic lift, while four-wall profitability can theoretically self-fund the marketing expense.

1. “Amazon will account for more than half of 2015 e-commerce growth, says Macquarie,” MarketWatch, December 22, 2015.

Siren Song of Pureplay Retail Low overhead costs and media doomsday predictions surrounding brick-and-mortar have attracted companies to the pureplay retail model. Yet the same challenges that plagued dot-com era Internet companies persist: unsustainable customer acquisition and shipping costs, and a discount-driven environment that erodes razor-thin margins and curtails growth.

The Myth of Organic Reach Online Organic reach is obsolete online, for all but the largest of players. Deep-pocketed goliaths dominate search visibility across categories, forcing retailers to find alternative ways to drive awareness—and traffic. Stores are a proven strategy for building this equity.

VC Subsidies: When Does the Music End?

Buzzy e-commerce startups have been awarded massive valuations by the VC community—only to be quickly eroded after the model proves unsustainable in the absence of funding. Winners have adopted a new strategy: leveraging the Internet as a way to establish proof of concept cheaply, before raising capital to make an outlay in stores.

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January 12, 2016