What We Often Get Wrong About E-Commerce-And Why It Matters

Steve Dennis
5 min readApr 8, 2022

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When it comes to the vast and complex world of retail, nothing in the past three decades has been more disruptive than the advent and wide-spread adoption of online shopping. Yet, the e-commerce of today is often vastly different from what began to re-define the industry in the late 1990's.

Tired narratives of a “retail apocalypse” and the notion that e-commerce’s gain automatically comes at the expense of brick & mortar are not only factually incorrect, they can imply actions that make little sense in today’s environment. It’s time to take a closer look at how what we call “e-commerce” has evolved and understand what it all means going forward.

A Brief History of E-commerce

The first wave of online shopping was, in many ways, merely a new and improved version of mail-order catalogs. Demand generation began to shift from direct mail to digital (e-mail, banner ads, etc.) and product ordering moved from 1–800 numbers, snail mail and faxes to direct customer entry. Importantly order fulfillment remained essentially the same.

For the most part, whether you were an established multi-channel retailer (Lands’ End, Williams-Sonoma , et al) or part of the new breed (Amazon, Pets. com, et al) orders were picked and packed in a dedicated direct-to-customer (DTC) fulfillment center and sent to customers through the mail. The pre-dominant products offered were those that could be easily understood sight unseen, while offering strong unit economics for a well understood fulfillment model.

The second wave-which began to gain significant traction over a decade ago-saw both product expansion and the rise of “omni-channel” retail. Amazon moved far beyond its original books and CD-centric model. Established retailers of all kinds got more serious about their own .com operations, and a new breed of “digitally-native vertical brands” (DNVB’s) were birthed across a spectrum of product categories.

Yet, by and large, most fulfillment was still done through a dedicated DTC supply chain from regional distribution centers. Most legacy retailers remained silo-ed in their digital and physical operations. The ability to order fresh, prepared, frozen or refrigerated products online remained very limited. In the vast majority of cases, ordered online still meant that orders were fulfilled via the mail.

The third wave centers on online product ubiquity and escalating home delivery wars. Within the last few years virtually every kind of retail product can now be ordered online. But the addition of fresh, prepared, frozen and refrigerated products can rarely leverage the tried and true DTC fulfillment model. It either takes too long and/or is too expensive. Moreover, as Amazon vastly expanded its supply chain to allow for same or next-day delivery in most major markets, new customer expectations began to emerge.

In a matter of a few years retailers scrambled to leverage third-party delivery services or stand-up their own local fulfillment options to respond to both shifting consumer demand and greater e-commerce product diversity. In most cases, the costs of doing local home delivery are dramatically higher than shipping products through the mail.

Now we find ourselves in the hybrid wave, where e-commerce and physical retail are much more intrinsically linked (I call this “harmonized retail”). While we were always headed to a more blended world, the pandemic accelerated the journey.

From a marketing perspective, it’s long been true that digital drives physical and vice versa. But now the role of the store in driving e-commerce success is not only far more pronounced, it’s often becoming essential to meeting consumer demand and achieving the profitability that has often proved elusive.

While some may have expected that the “great acceleration” of e-commerce would make brick-and-mortar stores less relevant, almost the exact opposite happened. For many retailers, stores are now critical to being successful in what we commonly refer to as “e-commerce.”

Buy online, pick-up in store (BOPIS), curbside pick-up, and ship from store stock-either via the mail or a local home delivery service- is becoming the predominant way to fulfill online orders for many retailers. We may call it “e-commerce” but more and more it’s just commerce.

Target is a great case in point. Roughly 20% of its business is ordered online, but over 95% is fulfilled by stores, not a dedicated DTC fulfillment center. Target not only continues to open new stores, it is investing billions of dollars in its current fleet.

So What, Who Cares?

Starting with legendary venture capitalist Marc Andreessen’s ridiculous prediction that all retail stores would die, followed by the persistent retail apocalypse narrative, and the idea that large, profitable retail brands could easily be built without stores ( whoops!), investors and pundits alike have vastly under-estimated the value of brick-and-mortar retail in both generating demand and satisfying that demand.

As what we label “e-commerce” has evolved, there is a growing and really important distinction between how a product is ordered and how it is fulfilled. This isn’t trivial.

I have read hundreds of stories and seen dozens of presentations where much is made about how e-commerce growth is assumed to come completely at the expense of physical retail. Many retail analysts have even tried to calculate how many malls and/or stores need to close based on this assumption. To say they’ve been wrong is an understatement.

While losing share to Amazon, Wayfair, eBay or one of the shrinking number of online-only players does imply a de-leveraging of store economics, for the vast majority of omni-channel retailers the growth of online orderingactually requires a doubling down on physical retail to respond to this shift-as Target and many others have successfully done.

In some cases it actually means opening more stores, not closing them-as we now see dozens of once online-only players (including Amazon and Wayfair, but also Warby Parker and many other DNVB’s) doing quite aggressively.

Like many things, it’s generally important to follow the money. Which is why how something is ordered is interesting, but understanding how demand is generated and ultimately fulfilled is essential.

It turns out that stores are often better at acquiring customers and stimulating repeat purchases than having to pay Facebook, Google and the other “performance marketing” toll-booth operators for the same activation. It turns out that it is way cheaper for customers to come pick-up products at your store than for retailers to have to pay someone to deliver it. It turns out that trying to build out an entirely new fulfillment infra-structure to compete with Amazon on same or next-day delivery is a race to the bottom where you are doomed to finish no better than second.

Unless one’s goal is to light fire to a big pile of cash, failure to have a more nuanced view of what the growth of e-commerce actually means for retail strategy means paying a lot more attention to the demand generation and fulfillment side.

Here the role of physical stores is definitely changing. But the idea that they are dead or dying due to the growth of e-commerce could not be further from the truth.

Originally published at https://www.forbes.com.

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Steve Dennis
Steve Dennis

Written by Steve Dennis

Keynote speaker & strategic advisor on retail innovation. Top 10 retail influencer. Senior Forbes contributor. Best selling author of “Remarkable Retail.”

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