Adapting, Surviving and Thriving in Today’s e-Commerce World - Alexander Graf, Spryker

Have you had any memorable experiences purchasing, buying new things, trying new things that you would like to share?

Yes, obviously. It's one of the active stakeholders in the German e-commerce industry. I was also always kind of very much into the distance buying stuff and with social distancing, distance buying became the standard also here in Germany and even businesses that never offered a digital channel of it. Now digital channels, and I'm not talking about online shops, like using short messaging services as an asset sales channel. So, when I ordered a bouquet of flowers at a flower dealer from the next village, it was possible just to order by short messaging service, others offered it via WhatsApp. So it definitely improved my quality of life. It definitely helped those businesses to set up new digital channels and helped them to understand how important it is to gather digital data from their customers that I can stay in contact with. And what was also interesting for me to see is that retailers with brick and mortar strategy, but with at least 10% e-commerce revenue before coronavirus, they kind of managed it. So their infrastructure was already prepared well enough that they had an auction and teams carried for the e-commerce business, though they were able to manage their sales during corona and the ones that never paid attention to what my colleague and I have written in the book. What we are hearing like for 10 years on the keynote stages of this industry, they kind of failed. So it was just like a catalyst for e-commerce in the last 18 months, definitely.

Tell me a bit about your company, why you founded it, and what market challenges it addresses?

When we started thinking about Stryker, Boris was my co-founder and co-CEO. He was working at a Magento agency, founded one of the biggest ones in Europe. I worked in a lot of Salesforce and Shop There Project, which is the biggest competitor of Magento and a common theme in our customers project was that like after a year or two, the customer said, that they wanted a feature ABCD or whatever, and from an agency, we always have to say that's not possible is all the system we set up for you was never meant to become the marketplace or to become a subscription business or become whatever. And this culture clash led actually to the realization that there must be another solution. Those businesses, they want to compete with Zalando, they want to compete with Amazon. Somehow, they want to compete with digital first businesses. So let's give them digital first software, which eventually led to the foundation of Spyker, where we said, “okay it's not about building an e-commerce software anymore with lots of features and functions, but building the building blocks of the composable architecture where our customers can build whatever they want without us taking assumptions about their businesses”. And I think that is the common denominator of success. The businesses that are able to adapt faster to market changes and to customer changes, those will win and nobody's able anymore to predict how the customer will buy tomorrow, where he will buy, what will be the payment methods of this choice and therefore this very long requirement documents, which you will obviously also know with like 100 pages of requirements. They are kind of dead, and it's not all replaced by speed and adoption. And that was the reason why we founded Stryker, which is now one of the leading systems, especially in the B2B market for commerce.

Do you think we’re now in an “innovate or die” area? Does it feel fair to say also, “achieve the actual true digital transformation to be a pioneer or die”? How do you look at that?

I'm often confronted with. So what should a small mom-and-pop store do like selling shoes or smart accessories? Or so what should the standard brick and mortar business do, and it all comes down to what are they up to the customers? Why should he or she buy at your store? What is a channel where you really can offer a better service, a better bread, a product experience, a better customer experience than your competition? And in many cases, those businesses cannot answer that simple question. They cannot answer why the customer should buy there. And for businesses that are not able to answer those questions in a market where everything is happening much faster. So nothing changed. Actually, it's just happening faster because we are at the clock kind of global competition. Even the flower shop competes with what is it called, one 800 flowers to call or whatever. They're on a global competition right now, and therefore there's no choice. It's not about what to do anymore, it's only about how that's actually where the claim comes from, innovate or die. So you have to innovate, you have to be in a modus where you are always trying to adapt fast, trying to find a better solution, trying to get it right, get better, and you have to find it like every day. And when we started the consultancy business, it drove. 10 years ago, more or less, the market searched for other answers. The market searches for answers “okay, I'd like to invest now. I'd like to find a spot in the Boston Consulting matrix or in the Potter five forces model where I have a competitive advantage”. Although a very long time in this time period where you are able to gain a competitive advantage, just shrink. Though there is no plateau anymore, there is no time to rest anymore. You have to continuously improve. There is, I think, one of the characteristics of the industry. And that's why it’s the only chance to survive is the only chance to get better. The only chance to win is to innovate and if you don't want to innovate, if you don't want to adapt, then you obviously choose dying right there. So, it sounds simplified. But actually, I really believe that this is the case. So it's not just something where I'd like to get some likes for on Twitter or LinkedIn, I really believe in that.

What would you say are the top three priorities for brands that are selling products today in the e-commerce world as a part of the How?

I think one strategic assessment changed over COVID. It's definitely the direct to consumer assessment. So let's take the average brand, like five years ago, if we were sitting in a workshop there with them and say, “OK, how do you want to sell? How do you want to reach the customer?”, they obviously would have opted in for a wholesale slash marketplace strategy. We have to sell where the customer is. We don't necessarily need the customer address, we only need to sell where the customers that changed. So, direct consumer is kind of the main narrative right now for successful brands because if you don't control the access to the consumer, you become somehow a logistics company for platforms. It doesn't matter if you're a logistics company for Zalando, Amazon or Alibaba. But it's definitely something that changed a lot, and in the how perspective. So how to sell is not how can I get the most pallets of my merchandise to Amazon, but how do I get many customer data sets? Another way is definitely to understand that out of 10 projects you'd like to realize within the next 3-12 months, most likely 9 are software related, 9! One project is maybe redesigning the logo right or the other project is getting better product data, getting a faster upload to Amazon, getting a better CRM, whatever. So, investing more in the tech infrastructure in tech people, developers and product managers, that's most likely your second. Your second pillar, I would say that has massively changed and the third pillar we just talked about is the understanding that there's no long term strategy anymore, that even if you found a channel like WhatsApp to sell your merchandise, that might be a strategy that only works for the next 6 months. And that's why you have to be in constant renovation motors where you have to go for the next 10 debts to reach the customer and to sell, to sell even more. That is, I think what you see now is influencer marketing. It's kind of peaked. So, the very successful influencers are building their own brands. Now they don't need you as a brand anymore if they can build their own brands for whatever food, supplements or even fashion brands and outbid by an influencer and for the “cheaper influencers”, there are now such high prices on demand that it doesn't make any sense for spending with them. So lots of stuff happened over the last five years. All the conversations I have with brands are. I think our 180 degree change from what we discussed 5 years ago.

How else can brands be where the consumer is? And can you tell us a little bit more about your 90% is just a pyramid?

Let's maybe just try to understand where this selling better comes from. I started my e-commerce career at the auto group, which was one of the main mail order companies in Europe at this time in 2005, and they still claim they are the second-biggest multichannel company worldwide. But I am not 100% sure if everyone would agree on this kind of statistic. And in 2008-2009, we saw a company called Zalando, which just started in Berlin and in two years became a more successful, more powerful e-commerce company than the other groups were. Also, the other groups had all the assets, all the customers, all the logistics effort, all the supplier relations, the financial foundation, everything. And the lender was essentially selling the same stuff : fashion, more or less. What was also selling washing machines and all that stuff. But they thought they were selling the same stuff and the stuff was not better, not even cheaper. So it was not a pricing issue. It was just how they sold it, how they pitched their USP. You can return for free, you are getting a personalized customer experience, you're getting your delivery statement via email within like two minutes instead of two days. And I remember that time when the head of logistics auto pitched in front of like 400 people and said, “OK, we are really good on a competitive level”. And one of the e-commerce workers asked, “But John, you know, there's now Amazon NZ. I know they're delivering for free with like 24, I think, but at this time this was for free within 48 hours. And we are still charging 4 euros for the five-day delivery and for the express delivery, which is 48 hours, we are charging 12 euros. So how does that fit with your statement if we are competitive?” And then Johan said, “You know, we did a survey with our customers, and for most customers, it's unimportant. Speed isn't important at all. It's just about how accurate we are predicting the time of delivery. And I'm pretty sure the customers did not lie. But the assessment was a hundred percent wrong. So we are now so used to getting the stuff tomorrow or the day after tomorrow that one day it's like an online shop, and he's not offering the stuff we want to buy right now. Tomorrow, we are just searching for the next solution”.  And that was all. How related, there was no better product, no better infrastructure. It was all so related and that's why I'm saying, it's really how you sell your stock, your products and not what you are, what you're selling. That's why Zalando later stated, they're not a fashion company, they're a tech company. Most likely, this is true. 

And then this discussion went on, especially in the other group and other similar structure companies. We have to now create a better claim when it comes to return policy, or we have to really nail it on the product detail page, or we have to find the best recommendation engine for implementing this stuff. But that's not true if you look at Amazon, if you look at many other stores. So it's kind of a very basic customer experience when it comes to the shiny front end or the communication experience. But everything works, so you really need to manage that. The stuff you're selling, you're offering the first 1000 products of each category. They're now available as the price is correct, that your assortment is in your warehouse, inventory data is correct, you're charging the right price, you're printing the right labor for free returns for the package. So that's all basic stuff. And companies often focused on the fancy stuff because they said that they are not able to manage to get the return levels into the boxes within the next 24 months, and there's nothing they can do about it. So let's focus on the next check-out of the features, and that's a waste of time. That's the wrong strategy, for sure. 

Have you seen any very inspiring adapting brands examples over Germany or Europe that you'd like to share?

We've seen curbside pick up a lot during COVID. One of the most successful curbside pickup providers is Media Market, which is the best buy-in of Europe. And they're very proud of this strategy. They even want to nurture it as a strategy and say “it's very cool to offer this that people can buy now in the online shop and then come to the store”, which from my point of view, is the worst of both worlds. You cannot touch the product, but you have to pick up the delivery yourself. And I think it's all the work, and it's something that can be like a bridge into a pure play model where you don't have the delivery infrastructure yet, where you don't have the drivers yet. But most, most smart customers, from my point of view, would rather get it delivered. There are many customers that are still opting in for the curbside pickup, so friends of mine running consumer electronic businesses are surprised themselves. How many customers are doing that even though they are offering a cheap, nearly time delivery stuff like this, but so the customer is not acting kind of percent? Same here for my point of view about the most curbside pick up strategies I've read about, especially in the brick and mortar environment, are doomed. They are still structured around the shop infrastructure, and they're not focused on the customer experience. But we have seen a lot of this, but it was always kind of a back-up plan and even Germany is famous for paying cash and have forced a lot of bakeries and smaller shops to offer credit card payments. Now, when the bands are lifted, you are now finding stickers in front of the door saying there’s no credit card payment available anymore. The same would happen to curbside pickup. So when you are able to get the people back in the store again, you won't offer curbside pick up again. Still, lots of changes for new businesses that will definitely enter this space and when you get the customer into a superb online, pure online experience, but let's see, I'm still surprised every day from what I see from companies and from customers.

You mentioned (inaudible) before, a lot of brands and companies are putting their efforts here. What are your thoughts on this?

I understand what they are doing. For example, manufacturers that are selling very niche products will say that the niche advertising is in Google Ads or on Facebook or whatever, and getting the customer just for some smartphones, for example Asus, into their store. There won't be a repeat buy in the next two years, so I understand it. But even those niche cases must think about strategies to get out of the hamster wheel of Amazon or Zalando or Alibaba. Otherwise, they will lose all their margin in this big platform game. So I think Nike is doing a very good job right now and showing what is possible if you are a 100% direct consumer getting rid of a lot of stores, even owned franchise stores are closed. A lot of retail partners are losing direct access to Nike assortment. I think that's the right way to do it. And if Nike can do it and afford it, I'm pretty sure, lots of others will follow.

In which channels are you interested in when it comes to engaging customers? 

Though, obviously, I'm really interested in converting conversational commerce businesses on the B2C side. Not so much on the B2B side yet. I really would like to reorder stuff. We are WhatsApp or SMS or other services, and that's where I think AI did a lot of improvement over the last two years when it's now really possible to get a hyper personalized engagement, some level that was never achieved on the desktop or mobile app environment. So that's definitely a channel I'm looking forward to, where a lot of changes will happen. Chat in general is one of the leading conversion drivers, not only in B2C but also in B2B. We see that in our industry too, because you can have like one agent interacting with like 10 customers simultaneously and the experience is much better, you can do it for “why work, why you're doing a phone call…” So this kind of short text exchanges like chat on a desktop, like WhatsApp or Telegram powered by AI, but then obviously, the most complex question will be done by a human operator over the next few years. That is very interesting stuff. I am not interested so much into the next recommendation engine. I don't think those engines worked quite well, I think that's what most customers complain about when they say, “when I bought shoes at Amazon, the couture banner, the retargeting banner is following me over the next five weeks, order me the same pair of shoes”. That's actually where desktop e-commerce is kind of dying now.

What do you really see for the future of brick and mortar commerce?

It really makes sense for a specific assortment to have this brick and mortar experience, then there's quite a fruitful future for it. If we are talking about the standard H&M, Zara, Inditex experience, that's a big warehouse where we are. The customer is doing pick and packing logistics, and there's no service infrastructure in there. It's just like, OK, I'd like to see how a fabric feels, how it looks on my body, and that's it. But most brick and mortar stores that still rely on a horizontal retail business model where they're just buying third party merchandise, displaying it for the customers and selling it for a higher price than they paid themselves. I don't think both can survive in a digital world because the competition is too tough and customers won't pay the extra price. If I met a very interesting example in Germany, I'm not so sure. All I've heard about is called “strawberry farm”. It's actually a fun park, and they are selling 5000 items around strawberries. And it's all about the experience you can have. There's huge water slides, huge playgrounds. You can go there and spend a full day, and only 5% of the space of such a fun park is for a reserve, for displaying the merchandise, so you can buy stuff and still 90% of the market is done by retail. And I think if you think about experience in a brick and a brick and mortar environment, that's the way to go. It's not like one waterslide and a big shopping mall where 99% of the space is just retail space, and it's like one small playground. So this experience, that's not the way to go.