As I write this, we are just days from kicking off the 2008 holiday shopping season and I know a lot of retailers are holding their collective breaths in hopes that holiday sales aren't TOO flat this year. And while I think that online retailers need to keep their head down and hope for the best over the next 3 weeks or so, the elephant in the room is the state of the economy, and what happens once the holiday season is over. Online retailers clearly need to be thinking about how to run their business in an economy that's not necessarily conducive to consumer spending.
There's already a lot of good content out there to help online merchants over the next several months, but I'd like to throw my two shiny pennies into the mix as well. I had the fortune of starting and running an online business for several years, and grew it into an Internet Retailer Top-100 business. Not every year was a boom for us, and I learned some things about when to grow and when to hunker down. This is obviously going to be a "hunker down" year!
Here are a few things that I think are important to keep in mind over the next 12-18 months:
Cash is King: That line item in your online P&L statement that says "Net Income" or "Operating Income" is your new boss. There are times when you will want to focus on top-line revenue, or customer acquisition, but this ain't one of them. I would strongly rethink any strategy next year if the result isn't increasing the operating margin of your online business. This doesn't mean that you shouldn't spend money or invest in the business; you just have to be smart about it.
Don't Give it Away: One of the most important things you can do to maintain profitability is to protect your gross margin. This will be the hardest thing to do, because the economy is going to put pressure on the consumer to make purchasing decisions based on price more than ever before. Understand your margins in each category, and pay close attention to your competitors. If you can compete on price without cutting into your margin, then focus on other areas to swing the pendulum in your direction.
Dissect Your Market Spend: First off, if you don't know what the cost-to-revenue break even point is on your marketing dollar, stop reading this now and go figure it out. I'll wait....OK, got it? Good! The reason that you need to go through this somewhat painful process, is that otherwise you'll never know which marketing programs have the biggest impact on your bottom line. And those are the programs in which you should look to invest over the next year. Conversely, if you have programs that are barely above your break even line, then consider shifting some of those dollars to more profitable programs.
Invest in Analytics: This is one of those recommendations that makes sense, no matter what the economic conditions. However, when you are trying to squeeze everything you can out of your KPI's (conversion, AOV, margin, etc...), a solid foundation of analytical tools AND people are one of the most important investments you can make in your business. If you've talked to me more than 5 minutes on this subject, you know what my position is: If you have an analytics budget, spend 80% on people. If you don't have an analytics budget, or if it's in danger of getting cut, then go fight for it tooth and nail. If you look at the Top-100 online retailers, and I don't care who's list you use, you will find a common denominator of a strong analytical culture within their business.
Focus on Customer Satisfaction: Note that I didn't say "Focus on Customer Service", because it's not the same thing. When you say the words "Customer Service" in most retail organizations, they immediately think of it as a cost center and a bit of a necessary evil. Customer satisfaction is what will turn a first-time buyer into a loyal customer, and is what will keep a loyal customer coming back and spreading the word to their friends. Empower everyone in your organization to do what they can to help keep your customers happy. You can start by simply providing opportunities to start conversations with your customers on Twitter, GetSatisfaction, or FaceBook. Those conversations will create some transparency between your business and your customers, which will ultimately have a positive impact on customer satisfaction.
These suggestions aren't a silver bullet for surviving the next year or so in one piece, but should be a guideline for your strategy. At some point, someone is going to take a hard look at your P&L, and the easiest path to trimming the bottom line will be to cut people out of the SG&A expense. In the end, you may not be able to prevent this from happening, but a proactive strategy that shows some focus on the bottom line will hopefully make this a last resort.