by Brenon Daly
As holiday-sated workers troop back to the office, they are expected to go through the annual ritual of logging onto their favorite online shopping sites and, collectively, throwing a few billion dollars into those virtual cash registers. The unofficial holiday of Cyber Monday pits retailers of all stripes against each other in an annual test of who can get online shoppers to click the ‘buy’ button.
For retailers not named Amazon, drawing in more of those digital dollars has meant making ever-larger M&A bets. This year has already seen two of the four largest acquisitions of online retailers since the internet bubble burst, according to 451 Research’s M&A KnowledgeBase. The big prints have pushed this year’s spending on internet retailers to a record level, with the value of 2018 deals roughly matching the previous five years combined.
Looking at the blockbuster online retail transactions in 2018, however, we’re struck by the disconnect between the most-basic tenant of any market: supply and demand. Specifically, there’s a notable divergence between how an acquirer plans to use the target company to bolster its e-commerce site (supply), compared with what customers actually want from an e-commerce site (demand). One of our recent surveys of hundreds of online shoppers suggests that companies might do well to focus on optimization, rather than acquisition.
Consider the rationale for the two largest online retailing deals in 2018, which, admittedly, skewed overall spending in the sector compared with previous years. Walmart spent $16bn last summer for a majority stake in India-based e-commerce giant Flipkart, as part of a geographic expansion by the world’s largest retailer. A few months earlier, Swiss jewelry retailer Richemont handed over $3bn to expand into the clothing market as it purchased YOOX Net-A-Porter.
Broadly speaking, both of those transactions were driven by the buyer’s desire to expand into new markets. But merely offering more stuff – whether new products or new geographies – doesn’t necessarily lead to more sales. Without streamlining the acquired property, offerings turn into clutter. That’s an inconvenient fact that undermines much of the rationale for big e-commerce purchases like this year’s pair of billion-dollar deals.
As clearly shown in a recent survey by 451 Research’s Voice of the Connected User Landscape (VoCUL), more online stuff can slow sales, and send would-be buyers to other sites. In fact, three of the four top attributes that respondents to the VoCUL survey said they valued the most when shopping online had to do with being able to find and purchase things quickly. Would-be acquirers in the online retailing market should remember that when it comes to commerce, convenience is key.