Moving Beyond Start-Ups: Challenges & Opportunities For Ecommerce Businesses

by Rakuten Super Logistics | eCommerce, eCommerce Strategy

As America’s eCommerce industry continues its rapid growth, and online merchants continue to replace traditional retailers as the destination of choice for consumers, that growing popularity brings with it an array of new opportunities and challenges facing eCommerce merchants.

As any successful entrepreneur knows all too well, the business world is not static, and the environment in which online companies must compete has evolved and changed dramatically in recent years.

In both the B2B (business to business) and B2C (business to consumer) sectors, the landscape for ecommerce competition circa 2018 bares little similarity to that found as recently as a few years ago; in addition, many successful ecommerce companies have found themselves moving beyond the status of a ‘start-up business.’

Explosive Growth: Ecommerce Evolves Into An Established Market Worldwide

The numbers tell the story, or at least a very large part of it: According to Statista, in 2017, an estimated 1.66 billion people worldwide purchased goods online; in addition to that astounding statistic, global ‘e-retail sales’ were estimated to have reached $2.3 trillion (US). That number is predicted to almost double by 2021, hitting approximately $4.48 trillion (US).

While domestically, ecommerce is growing at a rapid pace, there continues to be a divergence between the level of online sales in various regions worldwide. Statista found that while e-retail sales accounted for 12.1 percent of all retail sales in the Asia Pacific region in 2016, ecommerce represented only 1.8 percent of retail sales in the Middle East and Africa during that same period.

There were also considerable variances based on product category, in the average online shopping and purchase intention rates among ecommerce shoppers. For example: Statista found that 53 percent of online shoppers had bought books or music online over the past year, while only five percent of shoppers purchased artwork online.

Regardless Of The Product, There Are Many Challenges Facing eCommerce Businesses

Unlike their traditional predecessors, almost all corners of the world are—literally—potential customers for ecommerce merchants’ products or services.

However, those same online market advantages proffered by the Internet for merchants (i.e. relatively low start-up costs, flexibility, global reach) mean that the number of ecommerce merchants—and competitors–also continues to dramatically increase.

It’s estimated that there are approximately 1.3 million ecommerce companies in North America, and up to 3 million ecommerce businesses worldwide, excluding China.

So while the global population is estimated to be about 7.5 billion, as any ecommerce businessperson knows all too well, the level of competition for ecommerce customers has also never been higher.

According to many industry analysts, there are at least four dimensions to the challenges facing ecommerce in today’s crowded online marketplace. They include:

1. Economic challenges

The economic challenges facing eCommerce merchants include the costs related to establishing an eCommerce business, the number of competing online merchants, issues connected with infrastructure upgrades, and the availability (or shortage) of skilled staff. Researchers point out that it’s estimated up to 90 percent of Internet host computers reside in high-income countries that are home to only 16 percent of the world’s population.

2. Technological challenges

According to industry analysts, the primary technology-related challenges facing ecommerce businesses include security concerns, bandwidth availability, and integration with existing protocols. One of the realities of the explosive popularity of ecommerce is that it has also become a more attractive target for criminals; put simply, more overall ecommerce activity also means greater security concerns.

In addition, with each new high profile ‘hacking’ incident, consumer confidence in online retailing takes a ‘hit’ and further raises the importance of ecommerce security. In addition, another challenge resulting from increased ecommerce activity is growing concern about the reliability of network infrastructure. Integrating Internet software with preexisting applications and databases presents another technology-related challenge; ecommerce technology continuously evolves, and integrating that new technology is not always an easy—or inexpensive—task.

3. Social challenges

In recent years, consumers’ concern over issues such as privacy, and sharing personal information has grown exponentially. Additionally, there are cultural differences that come into play as ecommerce businesses expand their reach beyond their native regions. Unlike traditional merchants who were easily able to use language and marketing methods that played well with their target audience, online sellers have to take into consideration the fact that there are many linguistic, cultural and social differences in their extended customer base. Any one of those differences has the potential to create stumbling blocks for ecommerce companies in their efforts to develop long-term ‘relationships’ with a broad customer base.

4. Legal challenges

Although it may seem as though ecommerce has been in existence for a very long time, the reality is that it remains a relatively new industry with many unresolved legal issues, including those pertaining to intellectual property rights. Then there are legal issues pertaining to taxation: as noted in our previous blogs—and covered extensively in business media in recent months—the recent Supreme Court decision allowing states to impose online sales taxes on businesses that are not physically located within their boundaries has the potential to dramatically impact the bottom line of ecommerce companies nationwide. One of the prime drivers of that decision—and states’ desire to tax ecommerce—has been the industry’s phenomenal success; one of the ‘down sides’ to increased market share, is that ecommerce companies have become a more desirable taxation ‘target’ for states seeking to increase their tax base.

The Road Ahead: Growth Opportunities Tempered By Increasing Challenges Facing eCommerce

A recent analysis of the ecommerce space by Shopify identified several trends that will likely help to shape the future of online sales.

Some of the most significant ecommerce trends shaping its future include:

  • Online to Offline Growth: Despite explosive growth in recent years, ecommerce still represents only about 11.9 percent of retail sales, although that is up from only 3.5 percent a decade ago. As a result, “online to offline” commerce is a trend to watch, as merchants strive to provide “shoppers with a digital experience that can match a distinctive in-store feel.”
  • Multi-Channel Ecommerce: Mobile customers are expected to account for $319 billion in sales by 2020, and “multi-channel” sales, providing customers the ability to easily purchase goods through an array of avenues, will become ever-more important in the years ahead; going forward, successful online merchants will need to have an infrastructure that manages and maintains multi-channel retailing.
  • Ecommerce automation: As technology continues to evolve, so too do the operational needs of online merchants. Ensuring that a business’ website is fully up-to-date with the latest technology, requiring minimal human involvement on a daily basis, will be vital to continued success for ecommerce companies.
  • Mobile Ecommerce’s Growing Popularity: According to data from Adobe, in 2017 on both Black Friday and Cyber Monday of that year, 30 percent of online sales closed through mobile devices. Although desktop is still far more popular for making ecommerce purchases, mobile is growing in popularity and should no longer be seen as just a method of allowing online customers to ‘browse’.
  • Opportunities in International Ecommerce: A study by McKinsey suggests that ecommerce merchants may want to shift their sights to the Asia Pacific region, when seeking out international sales opportunities. The study found that 1.4 billion people will join the global ‘middle class’ by 2020, with 85 percent of that growth in the Asia Pacific region. Establishing local partnerships, familiarizing oneself with regional laws and customs, and ensuring strong, effective marketing will all be key elements to consider as ecommerce companies consider expanding internationally.

Although we are still less than two decades into the new century, many ecommerce merchants are already facing the challenges of ‘growing pains’—moving beyond their start-up phase, and trying to optimize the opportunities that come with growth and business maturation.

Navigating the uncharted waters of ecommerce ‘maturity’ will require an abundance of business skills, acumen and the ability to remain flexible enough to adapt to an ever-evolving—and growing—business sector.