Warehouses will become the key to e-commerce growth and dominance. To run an e-commerce company there are a few key things to nail.
- Internet/App Experience : This is not governed by anything that can considered as a moat for any company. New entrants in the market can replicate and even one-up the incumbents.
- Array of products : The variety of products available in the online store. Sites like Shopify make it easier for anyone to start their own store. This aspect has 2 sides to it. Niche and low volume products are maybe better off in it’s own store under it’s own brand. But the vast majority of products sold online can be aggregated into larger platforms like Amazon. So there is a fair chance for new entrants to get this right.
- Delivery network : E-commerce firms can go two ways with this one. They can either rely on existing delivery networks and courier services or they can have their own network. The advantage with the former is that the upfront cost is lower. Startups don’t have to go through hiring and managing a delivery service. But to offer an experience that stands apart, this is crucial. For example, the one-day deliver that comes as part of an Amazon Prime subscription.
- Warehouse : Out of the 4 key elements, this one is the hardest of them all. All the other aspects have options that reduces the advantages of large incumbents in this vertical. No matter how much the internet has made it friction less for someone to make an online purchase, there is still a necessity to have the physical product stored and inventoried. this aspect is hard to scale. There is a need for correctly managing orders, returns etc. Owning warehouses and related infrastructure is going to be the hardest of them all. In addition to this e-commerce firms will have to figure out how products come from their vendor to these warehouses.