Ecommerce: Who’s got the bigger piece of the pie?

By Michael Hsieh , written on February 21, 2013

From The News Desk

In the startup and VC world, the hope-vs-hype debate on ecommerce 2.0 has been  focused primarily on pure-play ecommerce companies such as Fab, Zulily, Birchbox, Shoedazzle, Beachmint, just to name a few.

If you look at mixed performance of these companies, it is difficult to determine which will ultimately succeed. However, it is indisputable that the e-commerce sales of traditional brands and retailer, such as WalMart, Macy’s, Gap and Lululemon, are growing by leaps and bounds. In fact these players actually capture the biggest slice of the ecommerce pie today, and in an omni-channel world they will gain in strategic advantages and continue to dominate the market.

Pie ChartTo illustrate our point, about two-thirds of the Internet Retailer Top 100 list are established brands and retailers, and ecommerce-only retailers such as Amazon, Overstock and Blue Nile only account for one-third of the pie.

If we use average visitor growth as a proxy for revenue growth (since getting revenue data of all ecommerce companies would be a huge challenge), the ecommerce growth for established brands and retailers is more than double that of ecommerce 1.0* and 2.0** companies.

Bar Graph

* Ecommerce 1.0 companies refer to those established in late 1990’s and early 2000’s, such as Amazon, eBay, Overstock, Blue Nile, Zappos,,,, etc.  

**Ecommerce 2.0 companies refer to those launched in the past 5 years with new elements such as social, curation, content, flash sale and subscription.  Representative companies include, BeachMint, Gilt, JustFab, ShoeDazzle, etc.

Why is the e-commerce business for brands and retailers growing at such a significant rate? There are many reasons behind this phenomenon.

First, they are not necessarily acquiring new customers but shifting existing customers from the offline world to the online world. Wholesale brands like Calvin Klein, Ralph Lauren, and Estee Lauder have plenty of incentives to push internet sales because they make double the gross margin than a third-party retail store sale. Moreover, the customer acquisition cost for the traditional brand and retail companies is nearly non-existent since most of their traffic is organic, generated by their brand power and omni-channel strategy. In comparison, ecommerce 2.0 players such as Fab and Beachmint have to build brand awareness and acquire new customers from scratch, leading to much lower ROI.

According to International Data Corp. and Kobie Marketing, retailers like Walmart and Macy’s have come to realize that omni-channel customers purchase 30-60 percent more than a single channel customer. Consequently Macy’s is planning to install WiFi in all of their retail locations to facilitate online purchases while in-store. They are embracing the concept of “endless aisles” where consumers can find products beyond what is available on the shelf.

This calls for much closer collaboration with their vendors to share online revenues generated by in-store traffic, creating a powerful alliance that competes against 1.0 companies like Amazon and eBay, and turns the screws on 2.0 companies like Bonobos and Beachmint that have no relationship with the stores.

Big Data is also giving omni-channel retailers another powerful weapon against 1.0 and 2.0 e-commerce companies. Combining online behaviors with historical purchase information gleamed from store loyalty and credit cards, CRM and POS systems, traditional retailers and brands are able to segment customers, target and recommend products with more accuracy and greater relevance.

In addition, omni-channel allows brands and retailers to engage the consumer in multiple touch points to optimize the shopping experience, ultimately influencing the consumer behavior fluently across channels. A study by ForeSee Results on the Internet Retailer Top 100 sites found that people who were satisfied with the online experience of a retailer were 44 percent more likely to purchase offline. Ecommerce-only players would never be able to capture this additional stream of revenue.

Therefore a comprehensive debate on the ultimate success of e-commerce companies cannot ignore the largest players in the field -- namely the traditional brands and retailers.  Although e-commerce comprises only 5-10 percent of their total revenues, their growth rate far exceeds those of 1.0 and 2.0 e-commerce pure-plays.

Furthermore, the onset of omni-channel retailing will accelerate their growth and give them competitive advantages that may ultimately obliterate many of the existing e-commerce players.

[Image courtesy Malik"JJ"Degri]