September 16, 2019
“Which online-only business is really profitable?” Basically none of them. It’s that dirty secret.
So said Everlane CEO Michael Preysman last week for CNBC Jim Cramer to explain why Everlane is opening stores.
The statement is a complete reversal for Mr. Preysman, who said The New York Times in 2012 that he preferred to “close the business” before opening a store.
Mr. Preysman said CNBC“Everybody likes to say you don’t spend money online, but the way things work now with Facebook, Instagram and how much it costs to acquire a customer, then you have to ship it all.”
The clothing retailer has just opened its fourth store, in Brooklyn, joining others in Manhattan, Los Angeles and San Francisco.
In another about-face, Andy Dunn, the co-founder of Bonobos and now Senior Vice President of Consumer Digital Brands at Walmart, told attendees earlier this month at the Future of Home conference in New York: “I don’t really like vertical, digital-native brands. What excites me are brands that are really strong and go direct to consumers, but also have ubiquity.
According to Business Intern, he described e-commerce as an “extremely difficult, often unprofitable business” and insisted that consumers want to interact with “brands, products and people” face-to-face. The bonobo “guide shops” inside Nordstrom are his most profitable business.
Although early digital start-ups such as Casper, Glossier and Rent the Runway hit $1 billion this year, studies consistently reveal that online retail continues to be price-driven. Major shopping incentives include free shipping, free returns, and coupons.
A recent drapers An article exploring the “true cost” of selling online found that avoiding rent and associate compensation is often offset by major investments in customer acquisition, fulfillment and the cost of returns. . According to drapersa UK department store has told suppliers that any online order under £30 ($38) is unprofitable.
A less talked about challenge is rising customer acquisition costs and poor retention rates online. Matt Alexander, CEO of Neighborhood Goods, the start-up that specializes in bringing digital native brands to physical locations, recently said News from CrunchBase“Customers acquired offline have five times more lifetime value than those acquired digitally.”
DISCUSSION QUESTIONS: Does online retail still face short-term profitability issues or is it inherently unprofitable in its current configuration? What are the main obstacles to profitability for online retailers?
“We can dissect physical stores all day, but shopping is and always will be a social activity.”