​What no one tells you about e-commerce failures

surfstitchI am not an e-commerce denier. But I do have two e-commerce failures under the belt. So I can speak from experience.

But rather than my failures, let’s consider the more spectacular story of Surfstitch. My son was a customer of theirs, so I also have some experience to confirm that Surfstitch had:

  • Great customer service

  • Good product range and pricing

  • A very nice UI/UX on the website

  • Good marketing

In short, they had EVERYTHING the gurus are telling bricks-and-mortar retailers they should get as a matter or life or death. Yet that did not work out so well for them.

SurfStitch had their IPO in 2014, and less than a year later, the share price had more than doubled, pushing market value beyond $500 million.

Surfstitch shares crashed in 2016 after a peak in 2015. CEO Justin Cameron bailed out in 2016, and the company issued three profit warnings and is facing the prospect of a $100m class action from irate investors.The reported loss totalled $155m for 2016.

While sales grew 7 per cent over the (2016) year, this was largely due to the spate of acquisitions. In 2017 Surfstitch went into administration, although the main online operating entity continues to trade.

Excuses that were offered included:

  • The period of rapid expansion (multiple acquisitions and two major capital raisings) involved significant management time.

  • The focus on increasing market share, combined with difficult trading conditions – particularly in USA  – saw margins slump from 46 per cent to 39 per cent.

Excuses that were NOT offered, but probably did not help:

  • Co-founder Lex Pedersen – who returned as interim chief executive saw his base salary for the year jump from $280,000 to $634,000,

  • Cameron’s (previous CEO) had his base salary also increase from $220,000 to $561,000 in the eight months to his March departure.

  • Chairman Howard McDonald’s total remuneration jumped 40 per cent from $71,950 to $100,903.

But what really happened?

To paraphrase Forrest Gump: Life is a box of chocolates. And Surfstitch got stuck with the leftover Cherry Ripes.

Of course it would be presumptuous of an outsider to prognosticate about the specifics, so let me generalise the lessons for any retailer in any channel:

  1. Money (capital) does not fix everything

  2. There is no substitute for spending less than you are earning: sales is not the same as profits, and without sufficient margin you don’t have a platform

  3. You can indeed grow yourself broke

  4. Hubris will kill any business: don’t drink your own Kool Aid

  5. Inexperience can only be cured one way

  6. It can’t cost you more to acquire customers than you make from them – at least not forever

  7. You can bulls&*t some people some of the time

  8. There is nothing more vicious than an aggrieved shareholder who had already visualised spending the returns

  9. All the metrics matter – except positive PR

And finally, and most importantly:

  1. E-commerce businesses are not immune to all the issues that any other business faces. You have do all the same things ‘right’, and not do all the same ‘wrong’ things. And if you have an traditional retail business, simply adding e-commerce capability is in and of itself NOT a panacea.

As JH Plumb wrote so eloquently in his treatise on The Renaissance:

“Success comes most swiftly and completely not to the greatest or perhaps even to the ablest men, but to those whose gifts are most completely in harmony with the taste of their times.”

That was true then (fifteenth century), and it is true today. And that is just the start. After that you have to execute.

To fail at execution is to fail for sure.

Dennis Price: Co-Founder at ganador.com.au and yearone.solutions – can be reached on 0411030436.

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