Dave Hollander’s Internet Pitfalls

If you’ve not already dived into the e-commerce arena, I’m sure you’re thinking about whether you should. There are certainly advantages to leveraging your name and inventory outside of your physical stores. When we started beckersurf.com eight years ago, we were surf guys with tons of stoke and absolutely no knowledge of computers, the Internet, Photoshop, or anything else involved in e-commerce. I personally took the project to task. I got deep enough into it to become extremely frustrated and challenged—to the point of total obsession. I just was too bullheaded to quit and admit defeat.

Over the next two years my obsession evolved into a vehicle for personal growth and stimulation, because for the first time since the old college days I was learning something new every single day. Retail had become a bit stale for me after twenty years, and the Internet to me was like someone throwing you a new pool toy just about the time you were tiring of the old one.

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This toy is particularly fascinating. Its “how-to book has not been written yet. Almost everything you do is new once you get the lead in your niche. The barriers to entry are actually quite small, and the playing field is pretty darn level (PacSun feels us for a change—isn’t that great). We didn’t need expensive real estate (and the associated large lease obligations and risk) or inventory to start. You can pull a plug and it’s gone (just try that with your retail store). It’s a completely new business model within the existing model that you know and love. It’s new every day, and it’s never boring. It’s also a very big world. In fact, it’s so much bigger than an average twenty-mile circumference retail-store draw that it can’t help but stagger one’s mind.

But beware. Establishing a successful e-commerce Web site requires careful consideration of many factors. Today’s e-tailer must intertwine site traffic, image, advertising, vendor relations, time, fraud, and technology into a cohesive business model if they have any hope of success.

Traffic
The largest hurdle to successful selling on the Internet is traffic (or lack of). Assuming you have done everything right, your traffic will equate into sales. Traffic is everything once you have your act together. Without it, you’re dead in the water.

The sales-to-traffic ratio is called the “conversion rate. Let’s say, for example, that for every 100 people who come to your site, you convert one person to a sale. That would be ten sales per thousand. In other words, 10,000 people would need to frequent your site to create 100 sales a day.

Here’s the dilemma: You can’t create repeat traffic or start viral marketing (word-of-mouth sales) until you have a top-notch site, with tons of well-represented and pertinent product, but human nature says you should start your site small, and build and improve it as time goes on.

The Internet doesn’t work that way. The Internet isn’t like virtual stores that people will willingly watch improve and grow. Starting slow and making mistakes will doom you to an early extinction. Those early customers will not come back. Oh, you’ll still have a presence, but with no traffic you’ll have no sales. Buying traffic, on the other hand, isn’t a profitable proposition. It’s a huge world out there, and to reach that market by advertising would cost a fortune. Search engines and a million other Internet applications designed to sell you traffic are rigged so heavily into the advertisers’ favor that they’re not realistically feasible. In the early days of the Internet there was some real validity in these features. It’s now, however, like a huge yellow pages with an army of salespeople promising you everything—folks who are all too eager to take your money.

Vendors
How do you start to build a quality site that will attract shoppers without key vendors? Clearly the key vendors in this industry are getting savvy about the Internet. They’re in no hurrwhatsoever to open new e-commerce partners without first seeing the finished product and a proven track record. They’re also very sensitive to how their image and product will be portrayed online.

This is the classic horse-before-the-cart dilemma that also dooms many new brick-and-mortar stores. How do you show a reluctant Billabong how good Quiksilver looks when an equally reluctant Quiksilver is waiting to see what Billabong is going to do?

Good luck on that one.

Image
Yahoo stores and others make it so easy to get started at e-commerce. What online retailers need to realize, however, is that the image and success of their e-commerce ventures directly relate back to and affect their brick-and-mortar stores.

Poorly designed, unprofessional e-stores negatively affect the way a physical retailer’s customers perceive them. Core customers watch their favorite store’s site religiously. The more loyal the customer, the more frequently they’re likely to visit. When the pics are horrible—or there are plastic mannequins that just look ridiculous—it’s a direct reflection on the image of the physical store.

And if the site fails and the store throws in the towel, those customers will witness a real and surprisingly public failure. (Of course, if that site is really that poor, customers may have already built in the failure factor.) Make no mistake, this failure will register and be recorded in the minds of your customers. I see more than a few e-stores around that I believe are just treading water to avoid admitting defeat. They’re losing either way: either their image is tarnished by a half-assed e-store, or the act of closing it will be a very public admission of failure.

You have to factor the industry in here as well. Let’s face it: this industry rewards strength. The scenarios above show weakness, where the Web site dilutes the actual retail image and customer base.

All this may sound a little harsh, but many retailers don’t take these consequences into consideration before they jump into the e-commerce marketplace.

Time
E-commerce stores take a ton of time to build and maintain—a ton of time. Don’t let the Yahoo salesman tell you otherwise.

You’ll inevitably face a number of site-wide revisions if you do succeed, and by this time you’ll probably have thousands of SKUs that will have to be rebuilt. At beckersurf.com, we’ve had at least five full rebuilds of our site that were so time-consuming and brain-numbing, I probably wouldn’t be foolish enough to do it again. Three times we’ve had to completely start from scratch because of software changes. Twice it was because we updated our photo quality and the old pics didn’t match with the new.

Oftentimes we’ve changed complete categories because we altered the formats of how the product was displayed (live models instead of props, etc). You can’t—or at least really shouldn’t—decide to change the way you shoot your T-shirts and have them on your site in three different formats. Your need to create confidence in your audience—confidence that says “This is the place to buy. You can’t do that when one T-shirt is on a mannequin, one is flat folded, and one is on a live model.

The point I’m trying to make is that if you decide you need to re-merchandise your e-store, it isn’t nearly as easy as walking into your ladies department with a Starbucks and having some fun. You’ll need to go and find every one of the pieces in that category and reshoot, edit, and upload them. If you’re smart, that new “look will include your other departments. Before you know it, you’ve created a mountain of work for yourself. That’s why you see so many e-stores Mickey Moused with inconsistent photo sizes, product layout, and manufacturer logo details. It’s a pitfall every e-tailer falls into. We’re certainly guilty and spend a ton of time trying to stay “merchandised in a professional manner.The amount of time to learn the details and art of shipping, customer service, computer maintenance, credit-card processing, returns, and fraud prevention—to name a few—probably isn’t properly built in to the plans of a retailer launching an e-tailing Web site. Usually, you get caught up in these time issues after you’re started. The further along you go, the more the time gets consumed. And by this time you’re insane and committed or really smart and quit.

Break-Even
I don’t know how any surf retailer can determine their costs or profitability of their e-commerce operation. We’ve tried on a number of occasions, but the crossing over of employees, inventory, bookkeeping, equipment, rent, and a number of other factors, make this a very murky call.

It’s also very frustrating to have a major business component that can’t factor its own profitability outside the “mothership’s books. This usually creates a poor business model that can drag down a physical store’s bottom line without the owner even knowing it. Our physical store’s bottom line swings so much with the whims of the market place, that we can’t clearly determine how the e-commerce sector plays in.

Fraud
When an e-store does get some traction, and some traffic, and those wonderful orders, the crooks will find you and make your life miserable. These roaches are invisible, well armed, smart, and the police don’t want to hear about it.

Almost twenty percent of the orders we receive are fraudulent. When you’re first getting started you’re especially vulnerable, and these guys are good. As time goes on, you learn the patterns and nuances and will be better able to defend yourself—but it’s never easy. Fraud isn’t going away and the credit-card games are changing every day.

One of the reasons we built our own software was to implement a three-stage fraud filter system that’s served us well. It’s constantly being updated as the crooks change their game. Just this week we spent thousands of dollars on software changes to help implement a new credit-card verification system.

Getting the mail in the morning used to be fun. Now we open the credit card charge-back letters and feel just a little more than violated on pretty much a daily basis. Certainly this takes some of the fun out of it. This is kind of like shoplifting, but how fun is it to know every piece they stole two weeks after they stole it?

Technology
My guess is that many retailers interested in establishing an online presence lack the financial and technical resources to deploy customized applications, and will turn to the many “simpler solutions—such as Yahoo and similar “cookie-cutter storefronts—available on the market.

Such stores may indeed be simple to use. These shops, however, soon discover that such simplicity isn’t without its own set of related drawbacks. Because they’re mostly template-based, such storefronts force e-retailers—especially those with no in-house programming expertise—to work within a set of design constraints that typically result in amateurish-looking Web sites that offer very limited branding potential and which are hard to differentiate from those of competitors.

The product catalogue and order-processing features of such sites are often static and lack automation and sensitivity to actual retail environments, forming a bad fit to the real-world requirements of traditional retailers both in terms of function and image. These sites can also be difficult to merchandise and categorize. The consequent need to manually update catalogs and locate inventory can often lead to paper trails that cost more than the benefits the “simple store offers.

The actual hard costs of these “cookie cutter solutions shouldn’t be ignored either. Some actually have costs equaling those of basic managed solutions. For example. prices for Ebay stores are now upwards of 500 dollars per month. The per-item listing and per-transaction percentage fees of Yahoo stores add up quiclearn the details and art of shipping, customer service, computer maintenance, credit-card processing, returns, and fraud prevention—to name a few—probably isn’t properly built in to the plans of a retailer launching an e-tailing Web site. Usually, you get caught up in these time issues after you’re started. The further along you go, the more the time gets consumed. And by this time you’re insane and committed or really smart and quit.

Break-Even
I don’t know how any surf retailer can determine their costs or profitability of their e-commerce operation. We’ve tried on a number of occasions, but the crossing over of employees, inventory, bookkeeping, equipment, rent, and a number of other factors, make this a very murky call.

It’s also very frustrating to have a major business component that can’t factor its own profitability outside the “mothership’s books. This usually creates a poor business model that can drag down a physical store’s bottom line without the owner even knowing it. Our physical store’s bottom line swings so much with the whims of the market place, that we can’t clearly determine how the e-commerce sector plays in.

Fraud
When an e-store does get some traction, and some traffic, and those wonderful orders, the crooks will find you and make your life miserable. These roaches are invisible, well armed, smart, and the police don’t want to hear about it.

Almost twenty percent of the orders we receive are fraudulent. When you’re first getting started you’re especially vulnerable, and these guys are good. As time goes on, you learn the patterns and nuances and will be better able to defend yourself—but it’s never easy. Fraud isn’t going away and the credit-card games are changing every day.

One of the reasons we built our own software was to implement a three-stage fraud filter system that’s served us well. It’s constantly being updated as the crooks change their game. Just this week we spent thousands of dollars on software changes to help implement a new credit-card verification system.

Getting the mail in the morning used to be fun. Now we open the credit card charge-back letters and feel just a little more than violated on pretty much a daily basis. Certainly this takes some of the fun out of it. This is kind of like shoplifting, but how fun is it to know every piece they stole two weeks after they stole it?

Technology
My guess is that many retailers interested in establishing an online presence lack the financial and technical resources to deploy customized applications, and will turn to the many “simpler solutions—such as Yahoo and similar “cookie-cutter storefronts—available on the market.

Such stores may indeed be simple to use. These shops, however, soon discover that such simplicity isn’t without its own set of related drawbacks. Because they’re mostly template-based, such storefronts force e-retailers—especially those with no in-house programming expertise—to work within a set of design constraints that typically result in amateurish-looking Web sites that offer very limited branding potential and which are hard to differentiate from those of competitors.

The product catalogue and order-processing features of such sites are often static and lack automation and sensitivity to actual retail environments, forming a bad fit to the real-world requirements of traditional retailers both in terms of function and image. These sites can also be difficult to merchandise and categorize. The consequent need to manually update catalogs and locate inventory can often lead to paper trails that cost more than the benefits the “simple store offers.

The actual hard costs of these “cookie cutter solutions shouldn’t be ignored either. Some actually have costs equaling those of basic managed solutions. For example. prices for Ebay stores are now upwards of 500 dollars per month. The per-item listing and per-transaction percentage fees of Yahoo stores add up quickly as well.

Although I’m sure these options are much improved, we were here in the early days. We were pretty far along before we started to run up against the wall. You won’t see the drawbacks at first because you just don’t know the questions to ask.

To avoid such “system constraints, other retailers may decide to develop their own integrated, custom-built solutions. For those who can swallow the initial investment costs—costs of at least 100,000 dollars can be expected—a ton of additional issues must be considered. If collocating servers, where to put them? If not, what managed solution to employ at what cost? What carrier to go with? How will you manage availability, redundancy, and load balancing? What kind of hardware will you need to acquire, and how will you monitor network and server health, traffic, or critical services? What about security?

Such important questions lead to an ongoing process where support is limited and answers invariably require additional money and talent. The simplicity of the “cookie-cutter store may be both its greatest advantage and drawback, the same can be said of the complexity of the custom-built solution, which can make retailers feel like tightrope walkers as they negotiate the often-precarious balance between the costs of maintenance with the benefits of customized integration.

Employee Vulnerability
Another unforeseen drawback would certainly be your key employees’ knowledge of your systems and site—and your lack of that same knowledge. As your enterprise grows, you’ll realize you can’t do it all or know it all, and will surely delegate if you’re any kind of manager at all.

But what the heck do you do when you lose these key employees and have no idea exactly how they did what they did? It’s not like training a salesperson or buyer. You’ll more often than not have a hard time even interviewing new prospects because you didn’t understand all the things your last employee did.

Be careful too of losing sight of your bread-and-butter retail stores. Not all of your employees in retail will share your vision of the future. Too much time and obsession on your part will lead to resentment that you may not see until it’s too late. This thing is addictive, and it will take time away from your key employees who need it most (kind of like not spending much time with your wife, and we all know where that goes).

In fact, I fell into that one too, and it almost cost me a bitchen marriage. Some of you might remember our early motto: “We are damned and determined to add twenty pieces a day until our wives leave us, at which point we will add twenty pieces and surf a lot more. Well, it wasn’t funny after a couple of years—mainly because we were too busy to surf.

—————————————————

Dave Hollander began building surfboards in his garage in 1967 at age fourteen. He worked for Bing, Gordon & Smith, Hobie, and Rick before starting Becker Surfboards with partners Steve Mangiagli and Phil Becker in 1980. Becker has five retail locations in Southern California, and the beckersurf.com online store.

Dave would much rather be known for his pinline, airbrushing and glossing skills during his twenty-year board-building career, but since nobody cares about that anymore, he thought he would write about his second passion, the Internet.

This is the fifth in an ongoing series of articles brought to you by the Board Retailers Association. For more information, log on to www.boardretailers.org or call: (910) 509-7475, ext. 112quickly as well.

Although I’m sure these options are much improved, we were here in the early days. We were pretty far along before we started to run up against the wall. You won’t see the drawbacks at first because you just don’t know the questions to ask.

To avoid such “system constraints, other retailers may decide to develop their own integrated, custom-built solutions. For those who can swallow the initial investment costs—costs of at least 100,000 dollars can be expected—a ton of additional issues must be considered. If collocating servers, where to put them? If not, what managed solution to employ at what cost? What carrier to go with? How will you manage availability, redundancy, and load balancing? What kind of hardware will you need to acquire, and how will you monitor network and server health, traffic, or critical services? What about security?

Such important questions lead to an ongoing process where support is limited and answers invariably require additional money and talent. The simplicity of the “cookie-cutter store may be both its greatest advantage and drawback, the same can be said of the complexity of the custom-built solution, which can make retailers feel like tightrope walkers as they negotiate the often-precarious balance between the costs of maintenance with the benefits of customized integration.

Employee Vulnerability
Another unforeseen drawback would certainly be your key employees’ knowledge of your systems and site—and your lack of that same knowledge. As your enterprise grows, you’ll realize you can’t do it all or know it all, and will surely delegate if you’re any kind of manager at all.

But what the heck do you do when you lose these key employees and have no idea exactly how they did what they did? It’s not like training a salesperson or buyer. You’ll more often than not have a hard time even interviewing new prospects because you didn’t understand all the things your last employee did.

Be careful too of losing sight of your bread-and-butter retail stores. Not all of your employees in retail will share your vision of the future. Too much time and obsession on your part will lead to resentment that you may not see until it’s too late. This thing is addictive, and it will take time away from your key employees who need it most (kind of like not spending much time with your wife, and we all know where that goes).

In fact, I fell into that one too, and it almost cost me a bitchen marriage. Some of you might remember our early motto: “We are damned and determined to add twenty pieces a day until our wives leave us, at which point we will add twenty pieces and surf a lot more. Well, it wasn’t funny after a couple of years—mainly because we were too busy to surf.

—————————————————

Dave Hollander began building surfboards in his garage in 1967 at age fourteen. He worked for Bing, Gordon & Smith, Hobie, and Rick before starting Becker Surfboards with partners Steve Mangiagli and Phil Becker in 1980. Becker has five retail locations in Southern California, and the beckersurf.com online store.

Dave would much rather be known for his pinline, airbrushing and glossing skills during his twenty-year board-building career, but since nobody cares about that anymore, he thought he would write about his second passion, the Internet.

This is the fifth in an ongoing series of articles brought to you by the Board Retailers Association. For more information, log on to www.boardretailers.org or call: (910) 509-7475, ext. 112