Telecoms News East Africa

Online retailers' profitability struggle

International research has shown that online retailers are struggling to achieve profitability because of the high cost of maintaining a transactional website. Arthur Goldstuck, World Wide Worx MD, says while his company has not been able to collect local statistics on losses, its research shows that even the biggest of the online retailers are struggling to achieve profitability.

The transactional website is increasingly finding its way into the retailer's arsenal for growing reach and revenues. While transactional sites have the potential to make it easier and more cost-effective to deliver products and services to customers, a recent survey found online retail sites were costing retailers millions.

The research*, commissioned by Compuware, revealed that almost one quarter of respondents – 23% – estimated their annual losses resulting from poorly performing transactional websites at around R21 million. A further 21% said they were losing around R15.75 million, while another third put their losses at around R5.25 million per year.

“Even the large retailers are battling locally because of the high cost of maintaining a transactional web site, with issues ranging from secure and stable payment systems through to effective fulfilment,” says Goldstuck.

“Strategic gaps”

“In addition, site audits of online retail sites indicate tremendous strategic gaps in implementation, content management and transactional processes, with local online retailers showing very poor awareness of best practise in web site strategy.”

Filipe Serralheiro, application performance management consultant at Compuware South Africa, says transactional sites should form part of any retail business, much like shop fronts.

“Yet how often are IT managers asked to justify additional bandwidth, or marketing managers asked if the online site is feasible?” Serralheiro asks. “The tools used to measure performance, accessibility and – most importantly – user experience, are therefore vital to any business decision maker.

Serralheiro says consumers have confirmed that they find the mismanagement of websites highly frustrating, with 72% stating that if a website performs badly, they are unlikely to complete a transaction. In addition 68% said that if website performance does not match their expectations, they will use an alternative site to make the purchase. Only 43% of customers questioned said they would return to a poorly performing website.

‘Walking out'

“It's like having your customer walk out of your store and head for a competitor because of poor service. Only, ‘walking out' of a website is a lot easier and more convenient. A good customer experience is therefore considerably more important when trading online,” Serralheiro says.

Goldstuck agrees, saying research has shown that, locally, abandoned baskets are a major factor for online retailers.

“A high proportion of visitors to most sites begin a shopping process but then abandon their baskets during the checkout process – often due to the complexity of the transaction process,” he says.

Compuware's research revealed that while the 200 organisations surveyed believed that they had the necessary procedures in place to safeguard user experience, the reality is that they don't.

Half the respondents claimed to monitor and manage the performance of their transactional websites – yet only 6% have specific information about the end user experience for each individual logging on. In fact, 61% of companies have no idea whether, or when, a client drops off a page – or how many times they might click the refresh button in a particular section.

No idea how to monitor

Goldstuck says South African online retailers do have the data available to track the behaviour of their customers, but most have no idea how to monitor that information or make it meaningful in order to improve their performance.

“And if a customer complained, just 6% of European retailers would be able to take proactive steps to resolve individual user performance issues. If retailers want to start making money from their transactional websites they need to be able to pinpoint problems, solve them quickly and proactively manage their online service,” Serralheiro says.

Goldstuck predicts the market will not remain as forgiving as it has been until now. “Our research indicates the online shopper of 2008 and 2009 will be much more demanding, forcing online retailers to be far more strategic in managing their website,” he says.

*Independent research company Vanson Bourne conducted the research across the UK, France, Germany and the Netherlands. 200 CIOs in retail and financial companies were surveyed. In addition, 400 consumers were polled by Spark Communications.

Let's do Biz