Retailers are only hurting themselves by squeezing e-commerce ...

Retailers are in danger of developing online retail business models based on unsustainable relationships with suppliers of e-commerce services. Many of these service providers are either not making a profit or making very little. How long can this continue? And where will retailers who utilise these services stand?

Online retail business models and forecasts should be mindful that outsourced e-commerce services could be being subsidised somewhat by service providers who put winning business (short term) ahead of profit (long term). Make no mistake, things will change as e-commerce service providers move their focus away from market share to profitability.

There is one well known e-commerce platform which is notorious for offering terrible client services support. Their development fees are infamous for being excessive. This same company has made huge losses for years with the development fees most probably an opportunity to claw back what the initial services should have cost in the first place.

One of the major delivery networks makes a loss of around ?20m each year, and at one point reportedly burned ?1m per week. The company is said to lose around ?3000 per employee. It is nothing short of astonishing how little this worries the online retail industry given delivery is a key part of the piece. These carriers won?t go on forever subsidising the industry and shoppers. The rise of click and collect is no doubt partially driven by a lack of faith in delivery networks.

Retailers who think suppliers are in a position to eternally provide services at uneconomic rates are in for a shock. A retailer?s online business model is on shaky ground if providers of its various outsourced e-commerce services are not profiting from working with them.

Providers of e-commerce services to major UK retailers. Some of these businesses are profitable whilst others make huge losses to win market share in the hope of generating profits from future revenue streams.

It is not the business of retailers to care if their service providers make a profit as a whole business. But they should ensure their service provider partners profit from their relationship. That way the retailer can be sure it has built sustainability into its own business model, as the true cost of services is accounted for within their business plan.

Any retailer that celebrates reducing their suppliers to a virtually unprofitable situation is only hurting themselves in the long run. Retailers should negotiate as necessary but might want to be careful of building a model for an e-commerce function which only works on the basis that there will always be service providers willing to subsidise it.

Even when an e-commerce service provider is making a profit it needs to be at a level which encourages continued investment in innovation and superb client services.

Retailers need to be aware when a service provider is making a loss on their account. Such providers are doing so with the misguided view that they will one day be able to a) increase their prices, b) achieve profitability from a retailer?s (supposed) growth plan or c) sell additional highly profitable services. There is only so long that these e-commerce providers and their investors will wait for this ?one day?.

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Source: http://www.leonbaileygreen.com/retail-features/01/21/ecommerceprovider/

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