miércoles, 24 de febrero de 2016

THE TREMENDOUS BOOM OF THE DIGITAL WORLD PLAYERS,..OR THE NEXT ECONOMIC BUBBLE?




Or how leading digital players make business, without making profit..?








By analyzing the major online retailers,..almost all have something in common...they haven tremendous increasing sales figures every year...but do not have... or make profit!

It seems to be part of a mystery, to know the real profits of above companies. 

If they have any profits???














By reading the comments of Coolblue..."that they make many millions of profit last year,..but due to strategic company decisions, it is a secret", by looking to Amazon, being in business for over 20 years, still not making money or Zalando, after 6 years of operating, achieving his first annual group profit in 2014, by mainly reducing its sales and marketing costs in order to obtain above positve results, it is creating a lot of doubts about above...





As independant retailer, for over more than 25 years, I always thought that basic business rules and the end results (profits) are the key and the target, as company to achieve.  .
That controled growing, always went together with strong clear company results. 
In order to achieve investment capital, a healthy business plan was needed..and that you could be proud, to announce every quarter year, your positive company results.

I would like to tell you the story of the "BREAD WAR" in Valencia, Spain. 

About 4 years ago, a local business man, decided to reinvent the bakery market, selling French bread at 20 euro cents, instead of the 1.20 euro. It started as a tremendous success,  He opened sudenly 5 bakeries, selling more than 15.000 pieces a day,..he had more than 150 people working for him. There were long waiting lines, to buy his cheap bread.




By using an aggressive low price expansion plan, killing local traditional competitors, he created a local revolution and lots of enemies.  
Unfortunately, due to his too fast expansion (in order to obtain the necessary volumes), his very low margins and the lack of fresh capital, in order to maintain his increasing production capacity, made him very fragil, for any 'out of control' situation.
Last month, he went bankrupt..leaving tremendous debts.

Above story, makes it clear, that a strategy, based on rapid expansion and low pricing, in order to penetrate and kill your competitors, is not the best and very difficult to maintain on a long term.   
It is amazing to see, that above online retailers, are able to continue to receive the back-up of investors, putting their trust into above companies, without receiving any profits. (after so many years)

Listening to the strategy of Amazon...

,... "they are not into short-term profits", nor "into short term profitability"..it is "all about growing and evolving" and "profits will come later"...

we could ask, for how long, his investors, still will have the patience, to wait for some return.


                    Are we not facing a kind of collective internet trance?




By analyzing the evolution and growth of above companies, we can see varios common points:


- They all started their activities as online retailer, many years ago. It was a virgin market,..
   easy to control,..as there were no other key players. 
- They all made a very rapid expansion. 

- They dont make real profits (comparing with their masive turn-over)

- They are all very secret about their real company results.

- They all started with the idea, eliminating the traditional retailer, delivery right
   at your home, but end up opening physical stores or showrooms, in order to give
   a better service.

- They are heavely investing in worldwide property owned logistic facilities.

- They all started with some small specific owned  productgroup, ending up, being
   a global platform for other brands to sell and or distribute their products.


As we can see, they all benefit of a kind of worldwide internet trance, where everything in 
the future is and will be focussed on digital retailing. Like there will not be any other form of retailing.
A kind of blind trust, to follow above companies and their strategies.

However, when a company does not have real results or any clear profits, 
after so many years, can we not talk about a speculative bubble?

Are they not.....

"Creating a super fast continuously growing project, with tremendous sales figures, covered and misusing this especific worldwide internet mood?"


A kind of internet bubble, a kind of  unusual very prolonged expansion, without any clear profit results.  Selling a project or business, using above mood, convincing investors to follow them untill the land of nowhere?

Lets called it speculacion.




Are we not just talking about future "Overvalued" logistic platforms, offering all kind of products around the world. (not even cheaper than classical retailers)


When they started, they were benefiting of a new unkown situation, which they were controlling. Internet was relatively new. Their competitors were the traditional retailers, not at all prepared for this digital change. 

It was quiet easy. 

"Offering the lowest prices of the market, 24hours, at your home,...backed up with a unlimited creditline."

With the time, they started realizing that above traditional retailers also got informed about internet, that digital retailing is more that just placing products on a website, that you still need physical salespoints, that you need a logistic system in order to serve above, that you can not continuously sell at the lowest price, earning almost nothing and hoping to maintain selling high volumes, that maybe, in order to earn real money, you need also proper products. (some or suddenly launching proper brands)

They tried to replace the global traditional retailer, offering a complete service but were faced, more and more with the reality of retailing. 

You, always, will need physical retail points, a well organized distribution system and a human team.
Offering this services have a cost, you still have to cover.

Today, all mayor traditional retailers have adapted or urging themselve to switch towards this new digital market, having the advantage of the experience of their product segement, possessing physical stores, a well controled distribution systems and a well trained team.

By implementing the latest digital technology, combining with the "savoir faire" and the tremendous experience they possess, they most probably will place above digital platforms on a 2nd plan.


At the end..they are the real retailers.





































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