Will my eCommerce business cannibalize my bricks and mortar business?

Yes!

This is hands down one of the most popular executive-level questions in this industry. Even in 2013, when eCommerce is growing at 14-18% annually, this question is being asked in boardrooms everywhere.  As much as it is frustrating to still be talking about this so frequently, I get it. I understand why this is a fear for executives everywhere.

Executives have certain responsibilities. One of my highest priority responsibilities as the leader (CEO) of Demac Media is to ensure a healthy return for its shareholders. Luckily those shareholders include only a small handful of people who are heavily invested and operating in the company.  This means we answer to ourselves.

But that isn’t the case for all executives.  They answer to an owner, or to other shareholders (possibly numbering in the hundreds or thousands).  In the world of retail, these owners/shareholders have usually been in the industry for a very long time. They largely don’t understand this eCommerce thing and what they do understand is that it is taking sales away from their physical stores.

Why is this the wrong way to think?

My short answer usually goes something like this:

“If you don’t cannibalize your retail business with your online channel, someone else is going to build an online channel and do it for you.  When this happens, not if, that is money that isn’t even going into your company.”

The longer answers depend on who’s asking the question.  What business they are in? What channels do the currently have?  What does their competition look like? Logistics. And a whole host of other things at the strategic level that need to be evaluated when thinking about digital commerce channels (i.e. – eCommerce).

I also like to look at this from a purely mathematical point of view.

The Math

Online retail represents somewhere in the 8-12% market share of all retail globally.

Online retail grows at something in the 15-20% a year range.

Total Retail grows at 2-4% a year.

Using these rough data points, if all you have is physical retail strategy… you are losing a lot of sales to someone else. You actually can’t argue that. Online retail is simply eating sales volume away from physical retail. If your online store isn’t taking sales from your physical stores, someone else’s online channels are.

For many, Amazon would be the biggest eater of retail pie. For the smart few, they are eating their own total-retail pie… but at least that is money into their own corporate coffers and not someone else’s…