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#RIC16
The Death Of Pureplay Retail: Investigating the Top Trends and Tactics
Driving Industry Change
Maureen Mullen, Co-‐Founder, Chief Strategy Officer, L2, Inc.
6
November 2015, N=1,006By DemographicChannel Where U.S. Internet Users Planned to Shop on Black Friday
ONLINE SHOPPING SURGES
Source: “Holiday Shopping Survey 2015,” conducted by Ipsos, November 6, 2015
YOUNGAges 18 - 34
AFFLUENTHHI = $50K+
Online Only30%
Online & In-Store26%
In-Store Only22%
Don't Plan to Shop21%
Online Only24%
Online & In-Store17%In-Store
Only18%
Don't Plan to Shop41%
7
2013 – 2015, Retail vs. E-Commerce vs. AmazonU.S. Share of Total Retail Sales Growth
WHERE’S THE GROWTH?
14% 15% 24%
28% 27%23%
59% 58% 53%
2013 2014 2015E
Amazon Sales Growth E-Commerce Growth Excluding Amazon Retail Sales Growth
Source: Company Data, U.S. Department of Commerce, Macquarie Research, December 2015
8
2015Share of Online Sales: Top-50 U.S. E-Commerce Retailers
NOT THE FULL STORY
Source: Internet Retailer, L2 Analysis
Other E-Commerce Pureplays8%
Other Retailers
41%
Amazon36%10%
Walmart5%
10
Q4 2014Based on Retail Square Feet Under ConstructionTop Markets for Retail Development
…ARE ALSO RETAIL GROWTH HUBS
Boston
New York
Washington, DC
Miami-Dade CountyHoustonDallasLos Angeles
Chicago
Source: “Doubling Down on the Rebirth of the American Shopping Mall,” CNBC, June 7, 2015
Cities in Which Last Mile Services Have Deployed
11
December 2015Manhattan: New or Future Mall Locations
HIGH-END RETAIL IS THRIVING
March 2015Brookfield Place
Expected 2016WTC Mall
Expected 2019Hudson Yards
Sales are up $45 per square foot year-on-year at high-end (A++) malls.**Source: Fortune, March 2015
12
U.S., 2015 n E-Commerce Pureplay RetailerFastest Growing E-Commerce Players Among Top-500
PUREPLAY GROWING FAST, BUT…
Brand 2015 E-CommerceSales 2015 E-Commerce Sales Growth
1 Leesa Sleep LLC $28,500,000 20257.1%
2 Harry’s Grooming $30,000,000 400.0%
3 Petco Animal Supplies Inc. $319,000,000 283.7%
4 Touch of Modern Inc. $100,000,000 233.3%
5 Saatva Inc. $81,000,000 200.0%
6 Casper Sleep $85,000,000 183.3%
7 FitBit Inc. $75,000,000 150.0%
8 rue21 Inc. $35,000,000 150.0%
9 Shoes.com $222,992,939 149.9%
10 Pharmapacks LLC $69,000,000 119.0%
Source: Internet Retailer
13
PROFITABILITY IS LIMITED
“At this time, the e-retailer is running about break even.”
-Internet Retailer, October 2015
“It is not clear if the company is profitable.”
-Re/code, May 2015
“…Dollar Shave Club is not yet profitable.”
-The Wall Street Journal, June 2015
“Honest has dipped in and out of profitability;; it is not yet consistently profitable.”
-Re/code, March 2015
Source: Internet Retailer
14
2014P&G: Grooming Category Performance
CHANNEL VS. CATEGORY EFFECTS
Global Blades & RazorsMarket Share
Premium GroomingMarket Share
70% 88%
P&G Razor Division Operating Margins = 32%Sources: The Motley Fool, Forbes
15
The 4XFusion ProGlide
RIPE FOR DISRUPTION
Number of Cartridges 4 4
Blades per Cartridge 5 4
Price $18.47 $6 + Free Shipping
16
Q1 2015 – Q3 2015 Millions of Dollars, 2015Amazon YoYSales Growth Amazon Operating Income
AMAZON: POWERED BY AWS
Source: SEC Filings;; “Amazon’s $160 billion business you’ve never heard of,” CNN Money, November 4, 2015
49%
81% 78%
13% 17% 20%
Q1 2015 Q2 2015 Q3 2015
Amazon Web Services Amazon Retail
38%
62%
Q1 2015
Amazon Web Services Amazon Retail
36%
64%
Q2 2015
52%
48%
Q3 2015
$706M
$1,705M$993M
17
49%
16%
73%
22%
Prime Non-Prime
Spent $200+ Over the Last 90 Days Shop on Amazon 2+ Times per Monthn=647 Prime Members, 970 Non-Prime MembersSelf-Reported Spend and Usage of Amazon.com
PRIME DRIVES LOYALTY…
Sources: RBC Capital Markets Proprietary Survey, Macquarie Research
18
Q1 2014 – Q3 2015Millions of DollarsAmazon Shipping Expenses
BUT SHIPPING IS UNSUSTAINABLE
$849 $889 $1,048$1,701 $1,299 $1,399 $1,494
-$1,829 -$1,812 -$2,020-$3,049
-$2,039 -$2,340 -$2,720
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015
Shipping Fee Revenues Shipping Costs
-$980 -$923 -$972 -$1,348 -$740 -$941 -$1,226
Source: SEC Filings
19
Q1 2013 – Q2 2015Millions of DollarsAmazon Quarterly Net Income
VISION TRUMPS PROFITS
$482
$79$92
-$57
$214
-$437
-$126
$108
$239
-$41-$7
$82
Q4 2015Q3 2015Q2 2015Q1 2015Q4 2014Q3 2014Q2 2014Q1 2014Q4 2013Q3 2013Q2 2013Q1 2013
Source: SEC Filings
Amazon did not turn its first profit until Q4 2001 — seven years after its founding — and has ducked in and out of profitability ever since.
20
1997–2015, in USD Billions nAmazon ◼ Walmart Annual Net Income: Amazon vs. Walmart
IN A CORNER
Source: Quartz.com;; Data from FactSet
21
October 14, 2015Walmart Stock Price Following Annual Investor Day Earnings Call
…NOT AFFORDED TO ALL RETAILERS
Source: Quartz.com;; Data from FactSet
Walmart lost $20 billion in market value in 20 minutes – the entire market value of Macy’s – after it forecasted depressed earnings per share until 2019 due to increases in
employee wages and investments in e-commerce.
23
L2 Intelligence Report: Death of Pureplay Retail 2016
STUDY OVERVIEW
Contrasts digital and retail KPIs for pureplay, evolved pureplay and omnichannel retailers to illustrate how companies can benefit from operating and investing across channels.
RETURN ON INVESTMENTCONSUMER EXPERIENCE
CUSTOMER ACQUISITION THE LAST MILE
24
BRAND LIST
Online-only retailers that may have experimented with a popup shop, but have not opened a permanent retail location
Companies that began as online-only but have opened a permanent retail location in the last five years
Retailers that have effectively linked their in-store and online businesses to leverage their status as omnichannel retailers
25
August 2015, N=24 Pureplay Retailers, 19 Evolved Pureplay Retailers, 20 Omnichannel LeadersBy Operating ModelDesktop Paid Search Traffic as a Percentage of Overall Search
TRAFFIC MUST BE BOUGHT
Source: Similar Web, August 2015
26
Evolved Pureplay Retailers Pureplay RetailersOctober 2015, N=24 Pureplay Retailers, 19 Evolved Pureplay RetailersMonthly Desktop Paid Search Metrics, By Business Model
PUREPLAYS SPEND MORE
Source: SEMrush 2015;; L2 Intelligence Report: Death of Pureplay Retail, January 2016.
27
October 2015, N=23 Pureplay Retailers*Number of Paid Keywords vs. Cost Per Site Visitor via Paid Search
AND CAST A WIDER NET
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 100,000 200,000 300,000 400,000
Cost Per Website Visitor via Paid Search
Monthly Keywords Purchased
Source: SEMrush 2015;; L2 Intelligence Report: Death of Pureplay Retail, January 2016. *Note: Excluding The Clymb (no paid keywords)
Top Traffic-Driving Key Words“Lingerie”
“Red Dresses”“Dr Martens”
“Wedding Dresses”
“iPhone 6 Cases”“Dog Collars”
“Jewelry”
“Bar Stools”“Shopping”
“Maternity Clothes”
“Lingerie”“Umbrella”
28
October 2015, N=23 Pureplay Retailers, 19 Evolved Pureplay RetailersNumber of Paid Keywords vs. Cost Per Site Visitor via Paid Search
FURTHER DOWN THE FUNNEL
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 100,000 200,000 300,000 400,000
Cost Per Website Visitor via Paid Search
Monthly Keywords Purchased
PureplayRetailer Evolved PureplayRetailer
Source: SEMrush 2015;; L2 Intelligence Report: Death of Pureplay Retail, January 2016.Top Traffic-Driving Key
Words
“Custom Dress Shirts”“Sea Island Cotton”“Thomas Mason”
“Mattresses”“Mattress”
“Bed in a Box”
“Dollar Shave Club”“Razor”“Blades”
“Ipsy”“Oribe”
“Monthly Subscription Box”
29
October 2015, N=23 Pureplay Retailers, 19 Evolved Pureplay Retailers, 20 Omnichannel LeadersNumber of Paid Keywords vs. Cost Per Site Visitor via Paid Search
ULTIMATELY, SCALE WINS
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 1,000,000 2,000,000 3,000,000
Cost Per Website Visitor via Paid Search
Monthly Keywords Purchased
PureplayRetailer Evolved PureplayRetailer Omnichannel Leader
Source: SEMrush 2015;; L2 Intelligence Report: Death of Pureplay Retail, January 2016.
30
Changes to Organic Search Traffic as Evolved PureplaysOpen Stores
STORES CAN DRIVE ORGANIC TRAFFIC
Source: SEMrush 2015
Date of First Popup Date of First Store Opening
31
N=19 Evolved Pureplay Retailers, September 2015Number of Stores v. Average Monthly Searches for Brand Name
AND INCREASED BRAND AWARENESS
Source: Google Keyword Planner;; L2 Intelligence Report: Death of Pureplay Retail, January 2016
32Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016
October 2015, N=19 Evolved Pureplay RetailersYears Before First Store v. Stores Opened Per Year
NEW PLAYERS HAVE CAUGHT ON
33
$4,568
$3,000$2,953
$1,192$1,061
November 2014Annual Store Sales Per Square Foot
HIGHLY PRODUCTIVE
Source: “Warby Parker Adds Storefronts to Its Sales Strategy,” Wall Street Journal, November 17, 2014
$981
“We quickly realized that while we were seeing all the benefits we expected from branding and marketing – the ‘halo’ effect of having a store open – stores could be a meaningful driver of
sales and profitability, which was really unexpected” –Dave Gilbao, Warby Parker Co-Founder
34
Bonobos: Impact of Opening Guideshops
REDUCED MARKETING COSTS
Source: “After 8 years and $128 million raised, the clock is ticking for men’s retailer Bonobos,” Business Insider, October 6, 2015
Bonobos GuideshopKPIs• 80% conversion rate
• AOV of $300 (vs. $180 online)
• Higher proportion of new customer acquisition
Since opening guideshops, Bonobos has cut online marketing spend from over 25% to under 4% of net sales, while reportedly leading their category in organic site traffic
35
$0
$10
$20
$30
$40
$50
$60
$70
$0$20$40$60$80$100$120$140$160
1/1/02 1/1/04 1/1/06 1/1/08 1/1/10 1/1/12 1/1/14
ModCloth Funding Birchbox Funding ModCloth Sales Birchbox SalesMillions of DollarsAnnual Sales and Venture Capital Funding
HOW TO HIT 100 MILLIONCapital FundingA
nnual Sales
Birchbox achieved $100 million in annual sales much more quickly with much less funding than pureplay ModCloth
Source: Crunchbase;; Internet Retailer;; “Exclusive: Birchbox banks $60 million,” Fortune, April 21, 2014
10 Years until $100M Revenue$63.74M in VC Funding
4 Years until $100M Revenue$11.9M in VC Funding
36
$0$10$20$30$40$50$60$70$80
$0$20$40$60$80$100$120$140$160
1/1/02 1/1/04 1/1/06 1/1/08 1/1/10 1/1/12 1/1/14
ModCloth Funding Birchbox Funding ModCloth Sales Birchbox SalesMillions of DollarsAnnual Sales and Venture Capital Funding
WHAT WAS THE DIFFERENCE?Capital FundingA
nnual Sales
From August 2013 to July 2014, Birchbox opened a popup shop, announced funding for a new store, and opened a flagship
Opens popup
Announces $60M funding for permanent store
Opens Flagship
Source: Crunchbase;; Internet Retailer;; “Exclusive: Birchbox banks $60 million,” Fortune, April 21, 2014
37
ModCloth: Brick-and-Mortar Initiatives
MODCLOTH TURNS TO BRICKS
Hires former Chief Strategy Officer at Urban Outfitters
Opens its first pop-up shop in two years in LA
Launches a “Fit Shop” in San Francisco
“…as we look to 2016, we can start to think about when and where to launch our first permanent fit shop.”
— Matthew Kaness, CEO & Board Director
January 2015 April 2015 June 2015
38
October 2015, N=6 Pureplay Retailers, 7 Evolved Pureplay RetailersAverage Threshold for Free Shipping
PRESSURE
*Excluding retailers without free shipping threshold.Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016.
39
October 2015, N=23 Pureplay Retailers, 19 Evolved Pureplay RetailersPercent of RetailersExpedited Delivery Options Offered, By Business Model
PUREPLAYS PRIORITIZE SPEED
87% of pureplay retailers offer expedited shipping options,compared with just two thirds of evolved pureplays.
Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016.
PureplayRetailer Evolved PureplayRetailer
40
Shipping Subscription Programs
REASONABLE EXPECTATIONS?
Retailer
Revenues $89 billion $486 billion $440million
Shipping Program $99 / year $50 / year $50 / year
41
October 2015, N=19 Evolved Pureplay Retailers, 20 Omnichannel Leaders % of RetailersBuy Online, Return In-Store, By Business Model
INVENTORY CAPABILITIES STILL LAG
Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016.
43
Macy’s Ship from Store Locations vs. Amazon’s U.S. FC’s
SHIP-FROM-STORE IS WINNING
§ n 2012 n 2013 n 2014 n 2015 Macy’s SFS Locations nAmazon Distribution Centers
292 SFS Locations
500 SFS Locations
775 SFS Locations
886 SFS Locations
68 FC’s
Source: “Macy’s battle for the ‘last mile’ leads to Amazon,” NYPost.com, July 2015;; “Amazon Global Fulfillment Center Network,” MWPVL, October 2015
44
June 2013 – December 2013Amazon.com and BestBuy.com Average Parcel Delivery SpeedsStore Warehousing vs. Centralized Fulfillment Centers
THE IMPACT OF SHIP-FROM-STORE
BestBuy.com Amazon.com
Source: StellaService
45
◼ American Eagle Outfitters ◼Abercrombie&FitchDecember 10, 2010–December 9, 20155-Year Stock Returns
THE OMNICHANNEL LONG GAME
Source: Google Finance, American Eagle Filings
No longer separates E-commerce reporting
Hires CDO;;Opens Tech Center in SF
Introduces Ship from Storein 255 locations
Opens State of Art FC
Reduces promotions
46
◼ American Eagle Outfitters ◼Abercrombie&FitchDecember 10, 2010–December 9, 20155-Year Stock Returns
THE OMNICHANNEL LONG GAME
Source: Google Finance, American Eagle Filings
Announces E-commerce Growth (including online orders in store) grew just 2% year on year
47
CONNECTIVE TISSUE
Reserve Items In-Store Only via App
Personalized “My AEO” Offers Inbox
AERewards Card Links to Passbook
Push Notifications for Timely Offers
Halfway through 2015, American Eagle returned to positive sales growth (+11%)
Source: L2 Inc.
48
October 2015, N=19 Evolved Pureplay Retailers, 20 Omnichannel Leaders% of RetailersIn-Store Event & Appointment Promotion, By Business Model
NEXT-GEN SERVICE
Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016.
Omnichannel Leaders Evolved PureplayRetailers
49
Indochino: Online Appointment Booking for Bespoke Suits
BESPOKE APPOINTMENT SERVICES
“Anytime we open a store in a city, we see awareness and sales in that city grow four times compared to what it was previously, as online-only.”
— Drew GreenIndochino CEO
50
Rent the Runway: In-Store Fit Consultations
INCREASED CONSUMER CONFIDENCE
“A lot of the in-store customers are members on our site whohaven’t transacted yet. They’re intrigued but they haven’t gotten over the hump of being concerned over fit or getting the item on time.”
— Jennifer HymanRTR Co-Founder & CEO
Source: “Bonobos, Rent the runway Navigate Clicks-to-Bricks Evolution,” Apparel, November 1, 2014
51
Trunk Club: New Retail Concept
UNIQUE SELLING ENVIRONMENTS
Trunk Club “Clubhouses”• Bars and coffee areas• On-site tailoring, personal stylists, and courier
delivery• Chicago clubhouse includes 5,000 square-foot
roof deck• Trunk Club Custom exclusively available in-
store
52
Casper: Novel Mattress Showrooms
DIFFERENTIATION VIA RETAIL
Casper Showrooms• Apartment-style showrooms where customers can nap
• DC “Snooze Bar” features waffles & coffee by day and cocktails at night
• Casper Nap Tours visited seven cities in 2015
NYC Showroom
Los Angeles Showroom
DC Popup Snooze Bar
Casper Nap Tour in NYC
53
Percentage of Non-Entry Level Team Hired from Select Retail OrganizationTop Companies Represented in Evolved Retailer Management Teams
DRAFTING RETAIL DREAM TEAMS
Douglas SimpsonVP of RetailPreviously VP of Operations,Juicy Couture
Andrew Lande-ShannonDesign Director, Offline RetailPreviously VP of Stores, Joe Fresh
Philippe PinatelPresident and COOPreviously SVP and GM,Sephora Canada
Benjamin FayVP of Retail Development and Customer ExperiencePreviously EVP of Store Design, JCPenney
Birchbox Senior Retail Hires
55
CONCLUSIONS
E-COMMERCE CONSOLIDATION: WINNER TAKES ALL
SIREN SONG OF PUREPLAY RETAIL
THE MYTH OF ORGANIC REACH ONLINE
VC SUBSIDIES: WHEN DOES THE MUSIC END?
TWO FOR ONE: ONLINE TRAFFIC + OFFLINE PROFITS