Ecommerce blogEcommerce strategy

Incremental sales, or cannibalising from other channels?

Reading about the imminent launch of a Gap ecommerce site in the UK got me thinking about to what extent online sales are incremental, or merely cannibalised from existing channels.
Gap in the UK has been a notable latecomer to online retailing (along with Primark, H&M, Zara, Claire’s Accessories, Morrisons…). In the US it has been trading online since 1997; in the UK it been testing the water with an online offering through asos.com.

It’s interesting reading discussions about why brands aren’t trading online. This one assumes that online sales have the potential to bring in 10% of total offline sales. Whilst this seems a reasonable ballpark for any retailer, it can’t be assumed that the 10% will be incremental and not simply customers who would have bought in store switching to buying online instead. It’s difficult for most brands to assess whether or not online sales are incremental, because there are so many competing factors determining retail sales and customer behaviour. Perhaps in Gap’s case the uplift would not be significant – as Gap’s stores are fairly widespread and I suspect the customer base is fairly loyal. Perhaps this has been their experience in the US, hence the slowness to launch online?

In some cases there’s a more compelling case for incremental sales – for a retailer with stores only in one part of the country, online opens up a much wider market. In my own experience working for a retailer with 15 or so stores located in factory outlet centres I don’t believe there was much cannibalisation from the stores, however there was almost certainly cannibalisation from other consumer and trade channels.

Of course there are many more benefits to trading online; lower cost of sale, brand building, more marketing channels, more flexible pricing & merchandising and the multichannel benefits (customers researching online, purchasing in store and vice versa). It is always better to be selling online yourself rather than through a third party, to be able to control pricing and how the brand is portrayed (on other sites and in their online advertising).

I did find a survey from 1999 predicting only 6% of online sales would be incremental. I would guess the experience of most brands is even lower than this. My conclusion? Not selling online is a missed opportunity, but the opportunity is complex and about much more than just sales.

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