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You're a retailer with 0.5% profit margin, how do you rebuild your whole business model and technology philosophy without going bankrupt first due to the costs?

You're a retailer with 0.5% profit margin, how do you rebuild your whole business model and technology philosophy without going bankrupt first due to the costs? Remember that your competitors are using their money to kill you short term throughout the whole time. Of course they refused to invest, they didn't have the money to invest with and the risk was too high to any individual retailer. edit: Also, e-commerce was only 16% of retail sales pre-covid. And that took 30 years to achieve. So traditional retailers saw it more of a long term problem than something to worry about right now.

oh_sigh 6y ago
Why would brick and mortar retailers need to find through profit margins, but amazon didn't? If amazon could convince people to give them money and forego immediate profitability, I don't see why the same wouldn't be possible for e.g. hudson.com, (which is not as mighty as the amazon, but has more commerce flowing through it than the Amazon)
- marcinzm 6y ago
  Why would an investor pay money for hudson's e-commerce bet (keeping in mind that their investment will grow proportionally to hudson's overall growth not the growth of their e-commerce division) versus just investing in a pure e-commerce company?
asdfaoeu 6y ago
Just to add as well the point of a company isn't to survive forever but rather make a return on the investment. For a lot of these retailers it's somewhat inevitable e-commerce will take a large portion of their marketshare. The best move might just be to extract profit while they remain above water.
freeopinion 6y ago
0.5% of $5B is $25M. Add that to your existing IT budget and make a start of it. It's do or die. For somebody like Walmart, 0.5% of $500B is $2.5B. That's more than a little outside of SF.
- marcinzm 6y ago
  >It's do or die. In 20+ years. An investor in a retail company would prefer stable guaranteed returns for the next 10 years rather than lower returns for the next 10 years with a chance of higher return afterwards. Companies are not people, they do not act like people and their rational goals are not the same as those of people. edit: And, btw, Walmart HAS invested untold billions into e-commerce. They spent $3.3 BILLION on Jet.com alone.
nradov 6y ago
Same as any other business: you raise capital for technology improvements through secondary stock offerings or bond sales. There's a surplus of investment capital out there available to any company that can sell a good story to investors.
jeltz 6y ago
Swedish companies did this just fine for a much smaller market than the American and the margins here are no higher and the competition was also fierce. No, I think it has to do with the American retailers bring too big to be able to quickly adapt.
rmah 6y ago
Typical retailers have around 20% to 40% gross margins and about 6% net margins (on average). Even grocery stores (the sector with the thinnest margins) do better than 0.5% at around 2% net margins on average. Large retailers can easily afford to to build good technology. The problem for them is not one of financing, it's culture. Most retailers, even "luxury retailers", have a deeply engrained culture of being extremely frugal. I once worked servicing that sector and recall visiting a higher end jewelry retailer. The store area that customers can see was very posh and slick. But step into the back office and everything was dingy and run down. This sort of thing is a conscious decision on their part. Most of these firms will NOT pay top dollar to hire the best talent even if they could afford it. Most do not understand software development even a little bit. Most do not understand the role of technology for anything other than record keeping (at best). But (usually) they're not run by idiots either. So when they recognize these issues and try to isolate the "online" retail from the rest of the firm (e.g. Walmart), it creates a substantial amount of friction and rivalry. I've seen it first hand and, sadly, there is no simple solution.

oh_sigh 6y ago

Why would brick and mortar retailers need to find through profit margins, but amazon didn't? If amazon could convince people to give them money and forego immediate profitability, I don't see why the same wouldn't be possible for e.g. hudson.com, (which is not as mighty as the amazon, but has more commerce flowing through it than the Amazon)

marcinzm 6y ago
Why would an investor pay money for hudson's e-commerce bet (keeping in mind that their investment will grow proportionally to hudson's overall growth not the growth of their e-commerce division) versus just investing in a pure e-commerce company?

asdfaoeu 6y ago

Just to add as well the point of a company isn't to survive forever but rather make a return on the investment. For a lot of these retailers it's somewhat inevitable e-commerce will take a large portion of their marketshare. The best move might just be to extract profit while they remain above water.

freeopinion 6y ago

0.5% of $5B is $25M. Add that to your existing IT budget and make a start of it. It's do or die. For somebody like Walmart, 0.5% of $500B is $2.5B. That's more than a little outside of SF.

marcinzm 6y ago
>It's do or die. In 20+ years. An investor in a retail company would prefer stable guaranteed returns for the next 10 years rather than lower returns for the next 10 years with a chance of higher return afterwards. Companies are not people, they do not act like people and their rational goals are not the same as those of people. edit: And, btw, Walmart HAS invested untold billions into e-commerce. They spent $3.3 BILLION on Jet.com alone.

nradov 6y ago

Same as any other business: you raise capital for technology improvements through secondary stock offerings or bond sales. There's a surplus of investment capital out there available to any company that can sell a good story to investors.

jeltz 6y ago

Swedish companies did this just fine for a much smaller market than the American and the margins here are no higher and the competition was also fierce. No, I think it has to do with the American retailers bring too big to be able to quickly adapt.

rmah 6y ago

Typical retailers have around 20% to 40% gross margins and about 6% net margins (on average). Even grocery stores (the sector with the thinnest margins) do better than 0.5% at around 2% net margins on average. Large retailers can easily afford to to build good technology. The problem for them is not one of financing, it's culture. Most retailers, even "luxury retailers", have a deeply engrained culture of being extremely frugal. I once worked servicing that sector and recall visiting a higher end jewelry retailer. The store area that customers can see was very posh and slick. But step into the back office and everything was dingy and run down. This sort of thing is a conscious decision on their part. Most of these firms will NOT pay top dollar to hire the best talent even if they could afford it. Most do not understand software development even a little bit. Most do not understand the role of technology for anything other than record keeping (at best). But (usually) they're not run by idiots either. So when they recognize these issues and try to isolate the "online" retail from the rest of the firm (e.g. Walmart), it creates a substantial amount of friction and rivalry. I've seen it first hand and, sadly, there is no simple solution.