The 3rd Wave of E-Commerce Disruption: Emotional Commerce

I believe that we are now entering a 3rd wave of e-commerce disruption.

The first wave of e-commerce — which was dominated by Amazon — was all about bringing commodity products online. I like to call this wave: Commodity Commerce. The fundamental principles of Commodity Commerce were/are selection, price and speed:  The biggest product catalogue, at the best prices, delivered as quickly as possible.  It’s Walmart online. It’s Target online. It’s Best Buy online.  It’s your drugstore online. It’s the Amazonification of commodity retail.  It’s convenience shopping for the products you already know you need. Perfect for buying commodity products where the consumer already knows what they are looking for and what matters most is price and convenience. Examples: Books, music, electronics, shoes (your size doesn’t change), underwear (your size hopefully doesn’t change very often), dry goods, tools & hardware, toys, and office supplies. 

Amazon has successfully executed a winner-take-all strategy in Commodity Commerce by investing heavily in the supply chain of massive selection. 

The second wave of e-commerce — which is a battle between Apple, Amazon, Netflix, Google, and others — is the digitization of media. Digital Commerce. Books. Music. Movies. TV. Video.

The third wave of e-commerce is all about bringing emotional purchases online. Non-commodity products. More thoughtful purchase decisions.  I like to call this Emotional Commerce. This is categories like furniture, home accessories, home textiles, fashion, art, and jewelry. These are categories where people care about having something special in their lives.

I believe that the following principles will carry the day in Emotional Commerce:

1. Exciting Merchandise. Winning in Emotional Commerce starts with great products. Stuff that people get excited about. Stuff that’s unique. Stuff that’s Fresh. Stuff that can’t be found elsewhere. Emotional Commerce is all about creating wow!
   
   
2. Amazing Shopping Experiences. Commodity Commerce was/is all about getting in and out as quickly as possible. One-click shopping. Emotional Commerce is all about getting lost in the moment. Emotional Commerce is all about taking the best offline shopping experiences — of being lured in by storefronts, of browsing through assortments and colors, of the joy of the hunt of finding something fabulous, or having fun while shopping — and making them even more amazing online. It’s about discovery via social and mobile and new formats for web and tablets. It’s about making online shopping not just convenient but downright fun.  It’s called “retail therapy” for a reason. Shopping can be and must be joyful in order to capture emotional purchases. 
   
   
3. Brand Building. Winning in Emotional Commerce will also take building aspirational brands. When people buy their first piece of furniture online, they want to know that there’s a solid and respected brand behind it — and they also want to be inspired by that brand. Consumers want to be excited by brands. People want to be associated with brands that are sharp, modern, colorful, edgy, and aspirational. (See: Apple, Target, Kate Spade). Brands will have to take care to have a consistent point of view and to honor and nurture the trust relationship between them and their customers. I think that brands will also need to have patience and staying power. Your customer likely wont buy furniture during their first purchase with you. But, if you treat them well and wow them at every turn, you can walk them down a path towards them turning to you when they are ready to make a furniture purchase online. At Fab we find that furniture transactions happen most often after the 5th or 6th purchase by a Fab customer. Nurturing the Fab brand is vital to our being there when the customer is ready…and to moving the customer towards being there perhaps faster than they might have otherwise been. 5% of Fab’s customers have now made a furniture purchase from Fab. That’s huge! But it’s just the start of bigger things to come. We know that building the Fab brand is key to enabling more and more people to trust and desire buying furniture from Fab.

I’m often asked just how big the total addressable market (TAM) is for Emotional Commerce.

Here are some ways to answer that question.

First, let’s take the Furniture Market in the United States.

• There was about $63 billion worth of furniture sold in the United States in 2012. 
  
  
  
  

• Less than 4% of that is sold online today.
• Crate & Barrel, which sells furniture and home accessories, has annual revenues around $4B.
• Williams-Sonoma, whose brands include William Sonoma Home, West Elm, Rejuvenation, Pottery Barn Bed & Bath and PBteen has annual revenues around $3.5B.
• Ikea has about 5% market share, with sales of around $3B in the U.S.
• Ashley furniture, who (to be honest) I have never heard of before writing this post, sold $2.6B worth of furniture in 2012.
• Rooms to Go, $1.5B.
• Ethan Allen, $500M.
• West Elm, $400M. 

That’s a whole lot of disruption waiting to happen.

And, talk about a broken supply chain. Have you ever had to wait 3 months for a piece of furniture you picked out in a store? That will be disrupted. Ever been able to customize a bookshelf or dining table online? That will happen.

That’s a whole lot of disruption waiting to happen.

Let’s take a related market, home textiles. That’s another $26B market in the U.S.. This includes everything from bed sheets to linens to rugs to bath textiles and window treatments. (Data below is from hometextilestoday.com).

The top 10 in U.S. home textile revenues: 

1. Bed Bath & Beyond, $3.75B in home textiles revenue alone. And almost none of it online.
2. Wal-Mart, $3.625B home textiles sales.
3. Target, $2.5B
4. JCP, $1.85B
5. Kohl’s, $1.3B
6. Macy’s, $870M
7. Kmart, $815M
8. TJMaxx, $740M
9. Williams-Sonoma, $700M
10. Ross Stores, $525M

Where’s Amazon? #18 at $250M.

That’s a whole lot of disruption waiting to happen.

• Bedding. $3.4B
• Rugs. $4.7B
• Kitchen linens (e.g. potholders, dishcloths, kitchen towels). $1.8B
• Bath linens, $6,7B
• Window treatments, $2.7B

That’s a whole lot of disruption waiting to happen.

At Fab, we’re excited to be innovating at the cutting edge of emotional eCommerce. We like to say that we’re at ground zero of a huge revolution that’s beginning to take place as emotional commerce moves online.

Is it possible to build a multi billion dollar eCommerce business in an Amazon world? In Commodity Commerce, I say probably not, except for in new emerging markets that Amazon does not yet serve (e.g. China). In Digital Commerce, yes, unless it goes to free. In Emotional Commerce, absolutely yes. We’re just getting started disrupting huge markets. Imagine what the world will look like when 10% or 20% of furniture or home textiles are purchased online. It will happen soon.

#disruptdesign.

Smile, you’re designed to.