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This kind of thinking is why grocery chains have struggled despite having the deck stacked totally in their favour. Online retail, much like offline retail, is

This kind of thinking is why grocery chains have struggled despite having the deck stacked totally in their favour. Online retail, much like offline retail, is about physical infrastructure. You still need warehouses with all the product, you still need fulfilment, all online changes is the balance of those factors. The core assets don't change. I can see how they are losing on branding but losing to Instacart tells you that management lost touch with customers and sat on their laurels. That being said, I have no doubt that they will vanquish Instacart. And they will likely pressure aspects of Amazon's business too. It isn't actually possible to compete with WMT because they such a dense network already (outside the US, AMZN is going to struggle even more, they weren't aggressive enough in building fulfilment centres and they tried to build fewer, larger centres, Amazon will begin exiting some of these markets in the next five years and sell out to local operators with exiting fulfilment networks, an alternative would be they cede control over fulfilment to local operators and just operate the front-end website...either way, their position outside the US is likely unsustainable).

542354234235 5y ago
> Online retail, much like offline retail, is about physical infrastructure. You still need warehouses with all the product, you still need fulfilment, all online changes is the balance of those factors. The core assets don't change. Which is why it is so weird when offline entities adding online lose out over and over to online only. They already have most of the infrastructure and their infrastructure is being paid for by two separate revenue streams (existing in store customers and new online customers). It just shows how often and how prevalent it is for these companies to rest on their laurels and siphon off every available penny of revenue for shareholder and executive profit, rather actually investing real time, effort, and talent into the online space. Which is why online companies can start from such a disadvantaged position and still surpass.
- hogFeast 5y ago
  Ikea is the example I often cite. I am in the UK. Many of their locations are adjacent to motorways, they literally have a warehouse in the store, and all they need to add is a fulfilment network (which, btw, they already have just not large enough to meet demand). Admittedly, the stuff they carry is pretty heavy/expensive...but they are 99% of the way there. Instead, you go on their website, a lot of the stuff on there doesn't work properly, and delivery times are a month plus. It is deliberate. Wayfair is dropshipping stuff from China, and managing to compete with them...how? It makes no sense. Ikea have a position that no competitor could actually replicate without losing billions of pounds, and they are getting beaten by a company which doesn't manufacture goods, owns one or two warehouses, and doesn't fulfil orders...how? Literally, Wayfair just have a bunch of websites (now consolidated) with good SEO...and Ikea are just handing them market share. And yes, "executive profit" is the key point. Executive comp is set by comp committees who have no clue, and benchmark off whatever they the company is already doing/last year's numbers. Why do execs care if the company blows up in five years through malinvestment? They will have cashed out their options by then and will be lighting their cigars with fifty pound notes. Imo, executive comp structure is 95% to do with why this has happened (in my experience, exec comp in physical retail is structured very poorly across the board, it incentivizes poor ROIC growth).
  - orhmeh09 5y ago
    I suspect you could be right about executive profits, but do you have any specific indication that this is what ails IKEA?
    - hogFeast 5y ago
      Nope, the comment about Ikea is unrelated. Ikea is privately-owned, and my guess is that they just don't want to do online...some privately-owned companies are like that. The point about exec comp is what I have seen at other publicly-listed physical retailers (i.e. dead format, competitors eating their lunch but they keep opening stores because the comp committee wants EPS growth).
- ineedasername 5y ago
  I worked at a Barne's & Noble book store in college right as Amazon took off. I think BN's model for doing online was pretty common, which was that they set it up as a separate business that they made compete with their retail outlets. If you went into a store that didn't have the book you were looking for, the last thing the store wanted you to do was to go home and order it online from the BN website. They pushed you to get it shipped to the store, the. Wait for a phone call to tell you it arrived so you could come back and buy it. Then the store got the revenue towards it's sales goals. One of many problems was that most people never actually came back to get the book when it arrived, and salespeople either didn't mention or actively discouraged buying on the web site, so the sale was lost completely. On the other side, their online wasn't integrated into their brick & mortar locations until way too late to claw back from Amazon. I'm not sure when they finally added the ability to see if a local store had a copy of the book you wanted, but it took too long because of the internal competition, and you still pretty much needed to call the store and make sure they had a copy because you could easily waste a trip if the inventory wasn't up to date or no one could find the book. Doing a bad job of adding online to their business ended up making the entire experience worse. Many retail chains seem to have done the same thing in the early days if trying to have an online presence. Heck, you still can't reserve or pre-buy a game at a physical using their web site, which says it's in stock. And you'll often still waste a trip if you trust the website and don't call ahead.
  - reaperducer 5y ago
    they set it up as a separate business that they made compete with their retail outlets. Sadly, this is very common in retail, and one of the things that is destroying brick-and-mortar. My wife works in this space and tells me that a lot of retailers, from department stores to fancy boutiques, do this. The worst part is that since the online store is generally located in the warehouse, it gets first dibs on stock, while the stores have to do without. Some of the retail stores she works with will lose out on $20k/day because they can't get stock, but online always has it. The managers are training the customers to check online first, cannibalizing their own employees and stores. Then they send the daily reports to the stores with notes like, "I see that online did 44% better than your store in your zone today." Well, no shit. Online has stock and the boutiques don't. Sometimes the boutiques do a little fighting back, and sort of "pool" their stock. Meaning that if a store doesn't have something a customer wants, the employees of that store will call another store they reciprocate with and try to have the item shipped to the customer from that store for free. The just-above-minimum-wage shopgirl ends up eating the shipping just so she can make her unrealistic sales goal and stay employed for another month.

542354234235 5y ago

> Online retail, much like offline retail, is about physical infrastructure. You still need warehouses with all the product, you still need fulfilment, all online changes is the balance of those factors. The core assets don't change. Which is why it is so weird when offline entities adding online lose out over and over to online only. They already have most of the infrastructure and their infrastructure is being paid for by two separate revenue streams (existing in store customers and new online customers). It just shows how often and how prevalent it is for these companies to rest on their laurels and siphon off every available penny of revenue for shareholder and executive profit, rather actually investing real time, effort, and talent into the online space. Which is why online companies can start from such a disadvantaged position and still surpass.

hogFeast 5y ago
Ikea is the example I often cite. I am in the UK. Many of their locations are adjacent to motorways, they literally have a warehouse in the store, and all they need to add is a fulfilment network (which, btw, they already have just not large enough to meet demand). Admittedly, the stuff they carry is pretty heavy/expensive...but they are 99% of the way there. Instead, you go on their website, a lot of the stuff on there doesn't work properly, and delivery times are a month plus. It is deliberate. Wayfair is dropshipping stuff from China, and managing to compete with them...how? It makes no sense. Ikea have a position that no competitor could actually replicate without losing billions of pounds, and they are getting beaten by a company which doesn't manufacture goods, owns one or two warehouses, and doesn't fulfil orders...how? Literally, Wayfair just have a bunch of websites (now consolidated) with good SEO...and Ikea are just handing them market share. And yes, "executive profit" is the key point. Executive comp is set by comp committees who have no clue, and benchmark off whatever they the company is already doing/last year's numbers. Why do execs care if the company blows up in five years through malinvestment? They will have cashed out their options by then and will be lighting their cigars with fifty pound notes. Imo, executive comp structure is 95% to do with why this has happened (in my experience, exec comp in physical retail is structured very poorly across the board, it incentivizes poor ROIC growth).
- orhmeh09 5y ago
  I suspect you could be right about executive profits, but do you have any specific indication that this is what ails IKEA?
  - hogFeast 5y ago
    Nope, the comment about Ikea is unrelated. Ikea is privately-owned, and my guess is that they just don't want to do online...some privately-owned companies are like that. The point about exec comp is what I have seen at other publicly-listed physical retailers (i.e. dead format, competitors eating their lunch but they keep opening stores because the comp committee wants EPS growth).
ineedasername 5y ago
I worked at a Barne's & Noble book store in college right as Amazon took off. I think BN's model for doing online was pretty common, which was that they set it up as a separate business that they made compete with their retail outlets. If you went into a store that didn't have the book you were looking for, the last thing the store wanted you to do was to go home and order it online from the BN website. They pushed you to get it shipped to the store, the. Wait for a phone call to tell you it arrived so you could come back and buy it. Then the store got the revenue towards it's sales goals. One of many problems was that most people never actually came back to get the book when it arrived, and salespeople either didn't mention or actively discouraged buying on the web site, so the sale was lost completely. On the other side, their online wasn't integrated into their brick & mortar locations until way too late to claw back from Amazon. I'm not sure when they finally added the ability to see if a local store had a copy of the book you wanted, but it took too long because of the internal competition, and you still pretty much needed to call the store and make sure they had a copy because you could easily waste a trip if the inventory wasn't up to date or no one could find the book. Doing a bad job of adding online to their business ended up making the entire experience worse. Many retail chains seem to have done the same thing in the early days if trying to have an online presence. Heck, you still can't reserve or pre-buy a game at a physical using their web site, which says it's in stock. And you'll often still waste a trip if you trust the website and don't call ahead.
- reaperducer 5y ago
  they set it up as a separate business that they made compete with their retail outlets. Sadly, this is very common in retail, and one of the things that is destroying brick-and-mortar. My wife works in this space and tells me that a lot of retailers, from department stores to fancy boutiques, do this. The worst part is that since the online store is generally located in the warehouse, it gets first dibs on stock, while the stores have to do without. Some of the retail stores she works with will lose out on $20k/day because they can't get stock, but online always has it. The managers are training the customers to check online first, cannibalizing their own employees and stores. Then they send the daily reports to the stores with notes like, "I see that online did 44% better than your store in your zone today." Well, no shit. Online has stock and the boutiques don't. Sometimes the boutiques do a little fighting back, and sort of "pool" their stock. Meaning that if a store doesn't have something a customer wants, the employees of that store will call another store they reciprocate with and try to have the item shipped to the customer from that store for free. The just-above-minimum-wage shopgirl ends up eating the shipping just so she can make her unrealistic sales goal and stay employed for another month.