Tech savvy digital natives won’t argue that ecommerce is the way of the future. In fact, if you fit that description you probably think a large portion of retail sales are being conducted via ecommerce today.
You would be wrong.
The vast majority of retail sales are still conducted traditionally. While the trend is moving in the direction of ecommerce, we’re still in the infancy of what will become the largest wave of global spending change in the modern age.
You may have missed Bitcoin. But if you’re smart, you can be on the winning side of the next big trend. This is the first article in a series that explores creating value in a growth environment through the development of products and technologies for sale.
To kick the series off the right way, I want to explore the details of what’s changing our minds about how we buy, and put some solid numbers behind that change to size the opportunity. I’ve broken this massive consumer spending shift down into eight observable trends. Together they are conspiring to tip the scales in favor of the digital buying and selling of goods, services, and everything in between.
1. Americans Are Earning More Than Ever Before
Politics aside, the economic reality is that Americans are taking home more money than ever before. That money is more likely to be spent than saved. As the number one consumer market in the world, the US is as good a place to start as any.
Maybe you’ve felt your pay go up, and maybe you haven’t. The above chart shows that if you’re in tech, the last few years have been good to you. While that makes intuitive sense if you subscribe to the trope of a booming tech industry, the exact same thing can be said for teachers, firefighters, and machinists. Everybody is making more money, and conversely looking for ways to spend it.
2. The Boomer Generation is About to Roll Over Trillions in Wealth
Accenture reports that over the next 30 to 40 years, $30 trillion in assets will pass from boomers to their heirs in the United States alone. That’s a lot of money passed to a generation that traditionally hasn’t saved much.
The recession hurt Millennials doubly: First in the job market, and second by missing out on the greatest bull market in history. That incredible run up of stocks has benefitted Boomers who were impacted when the US housing market collapsed. Indeed, those same Boomers are now far better off if they saved and invested regularly during the last decade.
Millennials? Not so much. And that’s likely bad news for generational wealth building. New money is often not moneyed for long. But ecommerce retailers will benefit enormously from frivolous spending, and the coming great wealth transfer may further stoke a hot online retail market by dumping disposable inheritance onto people who have never had significant savings and are used to making purchases online.
3. Amazon’s Dominance is Herald to a Larger Trend
Yes, Amazon is one of the biggest benefactors of the ecommerce boom. Globally, it’s a massive player that’s changing how we buy products and consume media at a breakneck. Recent trends like voice search and connected speakers are arguably the work of Amazon alone, and the company isn’t showing signs of tapering it’s pace of innovation.
In a 2017 letter to shareholders, Amazon CEO Jeff Bezos acknowledged the number of Prime subscribers for the first time in company history.
100 million Prime members seems like a massive share of the retail market. In the comfortable first world bubble of the United States, it’s more common for households to have a Prime subscription than not. But that statistic can be deceptive when viewed without context. In 2017, the vast majority of US retail sales were still conducted traditionally. Amazon’s big numbers are a drop in the bucket compared to the way most Americans actually buy goods.
So what gives? While traditional retail is stagnating or dying, ecommerce is in hyper growth mode. But that growth is in it’s infancy, and even doubling in size year over year it is proportionally small compared to traditional consumer retail. And while many predict ecommerce sales will progress in a more linear fashion (see chart below), I believe that’s a conservative bet at best, and a dramatic undersell at worst.
Wall Street seems to agree with my assessment, and is making big bets on ecommerce plays of all shapes and sizes. When smart money moves, it’s worth taking a closer look. Ecommerce platform Shopify (SHOP) is one of the most interesting growth stories in the space, and exemplifies how prediction of future value (speculation) is whipping investors into a frenzy.
Just a couple of years ago the Canadian company’s public offering was received with lukewarm interest in an unsteady US pre-election environment. But not long after, the curve went parabolic, tripling in value over just a year. The reason? More profitable stores opening than ever before, and a slew of new service offering to help support ecommerce markets.
It’s an unexpected development from a non-Amazon platform, suggesting a shifting trend toward preference and purchase in the digital space. It begs the question: Can you get people to buy from you when you aren’t selling through a major online retailer?
Evidently, the answer is yes. This thesis is an important concept that underpins much of what I’l share in coming articles, and best of all it’s completely provable through intelligent use of data.
Shopify is also innovating, and is now offering financial services products to successful stores, enabling loans secured and repaid by taking a percentage of sales. This model is extremely attractive to store owners in need of quick capital to finance expansion, and is an directional indicator of a core value proposition in support of ecommerce stores. More on that later.
4. Traditional Retailers Are Moving to Adopt Ecommerce Models at Light Speed
Walmart and Target are two of the largest retailers in the United States. They’ve both made big bets on ecommerce as the next evolution of their big box business model. Each is approaching the challenge differently, but both are relying on a hybrid in store, pickup, and same day delivery model to win the hearts and wallets of consumers.
It’s not a bad plan, and is showing early signs of adoption. This month, Walmart posted its best quarterly comparable sales in more than 10 years. Visits to Walmart’s brick-and-mortar locations rose 2.2%, and average customer spending per transaction also climbed. The surge is attributed to what is being called an omnichannel approach to retail, in which ecommerce is combined with in-store purchasing, pickup, and marketing.
At the same time, Target has reported a 41% increase in ecommerce sales during the second quarter of 2018. In all, total revenue increased 7%. At this time, online sales represent less than 5.6% of Target’s $18 billion in second quarter sales. Following Amazon’s lead, Target has also created it’s own July sales event that now makes up the second largest retail spending time outside of the holiday period traditionally beginning with Black Friday.
Walmart and Target are important to this article primarily because they show the willingness of the American consumer to adopt new ways of shopping as well as the absolute open playing field to growth. Clearly ecommerce is far from a zero sum game if all major retailers can report tremendous growth at the same time. Adoption by more traditional names also speaks to validity of the model. The more major chains push ecommerce, the more inescapable — and normal — it becomes for the everyday consumer.
5. Crypto is Entering the Game as a Valid Form of Payment
If you missed the rapid ascent of cryptocurrency, or bought into the trend near the top of valuations, you aren’t alone. But ecommerce may represent a second chance at cashing in on digital assets, but not through speculation on future values.
Running an online store that accepts cryptocurrency is becoming increasingly popular. Ecommerce platform Shopify, for example, now offers native integration with cryptocurrency payment processor Request Network among others. The cryptocurrency craze goes unanswered by major retailers, and that may represent an opportunity for small store owners.
By accepting cryptocurrency as a valid form of payment, store owners can tap into an underserved market. Cryptocurrency suffers from grey market regulation, taxation issues, and many other maladies that prevent holders from unlocking stored value.
Representing over 150 billion in unspent digital currency, the top 10 cryptocurrencies by market cap are nothing to sneer at. Unlocking coins’ value through ecommerce may help smaller players sidestep competition with Amazon and other digital retail behemoths.
6. Consumer Credit is Loosening As Interest Rates Rise
As interest rates approach and continue to exceed all time highs since the Great Recession, consumers will finally see unlocking of loans — both credit cards and mortgages — that give them immediate purchasing power.
The natural incentive for banks to loan out cash reserves and put money to work will result in consumer products with fewer restrictions.
At the same time, the dollar may grow in value comparative to other currencies, meaning Americans’ global purchasing power may be substantially greater in the near future.
More readily available loans combined with cheaper foreign goods is a recipe for a spending spree. And absent any credit bubbles a la the mortgage crisis, that spending may go on for quite some time.
7. Connected Devices Are Jacking Us in to the Shopping Matrix
Purchase intent is a complex psychology. Getting consumers to buy something means suggesting what they need (advertising) and then making it incredibly easy to complete a transaction. The more impulsive the buying behavior, the more slick that sales funnel needs to be. Any sign of friction may send consumers running as they have second thoughts or begin to price compare.
The advent of connected devices like Amazon’s Alexa home speaker are pointing the way for future spending habits.
Five years ago nobody had a clue what smart speakers were or how they could fit into the home. Now one in five US households owns a smart speaker. Connecting the online shopping experience to voice is perhaps the most effortless way to purchase yet, and in the moment when even milliseconds of thought count, this type of device may be only the start.
Amazon’s Dash Buttons are added examples of the trend to effortless buying. With one press of the wireless button, an order is placed and delivered to the home with no additional steps required. The Internet of Things has promised many more connected devices, but it may be that IoT has already been realized by home shoppers rather than tech-savvy 20-somethings.
8. Real Machine Learning is Getting Really Good, Really Quickly
Artificial intelligence and machine learning are two of the most misused buzz terms of 2018. Indeed, a simple spreadsheet can qualify — albeit technically — as an algorithm, allowing anybody to effectively say they are providing a tailored “smart” experience that adapts to consumer use.
In reality, AI and machine learning as the average consumer thinks of it is far from active. But there are a few exceptions.
Google’s move to a machine learning algorithm for delivery of organic search results highlights one major shift in the right direction. In theory, as the algorithm learns how and why humans search, it can provide a better experience. Since Google is supported by advertisers, the primary directive will over time evolve to best accommodate transactional value for retailers. Google will in effect turn into a giant ecommerce portal in which you are able to find things you didn’t even know you needed, before you know you need them.
Another, more commercially-connected move is Facebook’s shift from human selected ad targeting to machine learning. Rather than select from a set of demographics such as household income, city, or education level, advertisers can send campaigns through what Facebook calls a “learning phase”. During the learning phase, users that click ads are tracked through every step of the online purchase experience.
Facebook gradually learns what type of user purchases, and then begins to deliver ads to other people who look and act similarly. Demographics aren’t used, only actions. When done correctly, advertisers are reporting a virtual money machine in which every ad dollar spent generates five to ten times it’s value.
Identifying the Opportunity
A rising tide lifts all ships. The eight ecommerce trends I outline in this article are the foundation for entering a bigger world in which individuals are able to directly tap into trillions of consumer spending. I’ll share more about how this can be accomplished and the steps to get started in future additions.