Dealernews conducted a roundtable discussion with a number of dealers and online retailers about the present and future of powersports e-commerce. This discussion was hosted by Dennis Johnson.
Jump to the end to read Todd Shafer's take on e-commerce startup costs.
Don Becklin photo, left) – founder, president and CEO of Motorcycle Superstore and www.motorcycle-usa.com.
Anthony Bucci (second photo) – co-founder of RevZilla.com along with Nick Auger and Matthew Kull. (Read more about RevZilla at www.dealernews.com/etailersjune2010.)
Mike Jackson (third photo) – Internet manager at World of Powersports (see our cover story).
Todd Shafer (bottom photo) – Dealernews e-commerce columnist, principal of Radical Powersports Sales and Marketing, and Internet sales director at Family Powersports, a five-store dealer network in Texas.
Steve Gabbay – CFO of Go AZ Motorcycles, the Scottsdale, Ariz., dealerships owned by GoDaddy.com founder and CEO Bob Parsons.
Dealernews: What are the biggest roadblocks dealers face when it comes to e-commerce?
Jackson: You can’t run e-commerce from the parts counter. E-commerce is an entirely separate profit center that needs to be operated that way. The online parts sales, Internet sales leads — all of it. You need to have at least one individual who is 100 percent in charge of the website, the product catalogs and the major unit inventory. In most cases you need at least two — one for parts and one for major units.
Bucci: The Web requires a unique personnel skill set which can be costly and/or hard to find, depending on the e-commerce budget and region of a dealer.
Shafer: Many dealers have no idea the level of resources needed to really take on e-commerce. You can have a small e-commerce business where you get, like, 10 orders a year, because you just happen to have that capability on your website that’s powered by a third-party. But that’s not a real business focus. That’s essentially like finding money in your sofa cushions.
To have a real business, you need to look at e-commerce as a separate line of business. You need at least one full-time, professional, motivated person to work on the more technical issues of running a site, and at least one person who does nothing but focus on the merchandising aspect of the site.
Becklin: One of the biggest challenges is putting a robust e-commerce software or service platform in place. But the ongoing maintenance of a commerce website is no less a challenge. Customers demand that commerce websites have easy navigation, great product information and photos, up-to-date inventory, fast shipping and competitive prices.
Bucci: The powersports competitive online landscape is rapidly maturing. I would classify it as hypercompetitive at this point. There are turnkey options which will allow dealers to have a Web presence that’s right “out of the box.” These could be a great way to showcase motorcycle inventory and the dealership, but the turnkey e-commerce functionality won’t be strong enough to gain any real marketshare against the truly custom online players. Going the route of a third party (Amazon or eBay) typically is not economically conducive to a thriving business as there will be little chance for cultivating customer loyalty, and margins and order processing times will be greatly impeded.
Future obstacles could come from a number of directions. What will the distribution model look like in three to five years? Will marquee brands go manufacturer-direct? Will the ability to drop-ship persist? What role will big-box online players (Amazon, eBay, Walmart) have in the mix if they continue to muscle into the space and potentially drown out real dealers on the search engine with their limitless budgets and search relevancy?
Shafer: The next major obstacle is that it’s almost impossible to get noticed now without a large marketing and advertising budget, because the level of competition in this space has increased dramatically. A few years ago you could build your business by really working the SEO angle and relying on organic rankings. Except for specialized, long-tail niches, those days are long gone. If you want to sell mainstream stuff, you’ll need to add a huge marketing and advertising budget to your calculations.
Gabbay: The online customer is much different than the "in-store" customer and many dealers have problems making that transition. You cannot feel or touch items sold online so you have to entice that customer in a different way.
DN: So how much do you think the average dealer would need to spend to build a good e-commerce site?
Becklin: Like anything, you can spend as much or as little as you’d like. Creating a Yahoo! store costs very little, but the functionality is limited. If you want to implement a full-blown e-commerce platform with all the bells and whistles from providers like Endeca, ATG or Fry, plan on spending hundreds of thousands of dollars. As more retailers demand e-commerce functionality for their websites and the feature lists grow, the technology costs will continue to escalate.
Bucci: That does not take into account any of the costs associated with on-site marketing, remarketing, customer review, personalization, and back-end inventory management and customer service systems. At the highest level, the big boys are embroiled in a battle for marketshare and technical supremacy. Our volume discounts can be easily eaten up by costs via third-party tech vendors which allow us to eke out single-digit percentage boosts in conversion rate.
Bucci: I see the mid- to low-end cost of e-commerce coming down as more turnkey or open-source options hit the market. There is also a cost associated with the part/product data needed to populate a non-turnkey site’s product catalog. So the short answer is that dealers will have the ability to spend less to get more in the low to mid-range solutions.
Jackson: If the goal is to compete with guys like Motorcycle Superstore, BikeBandit and the like, then set back at least $1 million for the development and setup of the systems, and then another $250,000 per year in updates and catalog development. But let’s get real, there aren’t many dealers who are going to do that; so let’s just say that a dealer can offer products online to his regular customers through a company like 50 Below, ARI or PowerSports Network for as little as $300 a month. Doing it yourself may get cheaper as suppliers provide better data that can be converted to Web catalogs more easily.
DN: Why should a dealer’s website allow customers to log in to check on order status, order history, etc.?
Becklin: It’s mandatory that customers have the ability to check their real-time order status and retrieve order history information. Online retailers also need to provide order and shipping confirmation e-mails and shipment tracking information. Without providing this information digitally, expect the phone to ring every time a customer has a question or concern about his or her order.
Shafer: Not having this ability is like selling a motorcycle that forces the rider to carry the gas in a backpack.
Gabbay: Customer service is imperative and you need to provide features that will enhance the experience. Unlike <i>in-store</i> customers, those shopping online are doing it 24/7 and want access to that information.
DN: What about mobile commerce on smart phones?
Becklin: It’s an emerging segment. For items that customers are inclined to research before purchasing, the small screen size and slower load times make it tough to create a sales-friendly environment.
Bucci: The potential is big.
Jackson: My (19-year-old) son recently told me that he no longer uses e-mail because it’s too slow. Texting and chatting in social communities is where things are at. I am not a big believer in commerce over mobile phones. It’s difficult to look up parts for your bike on a 3-inch phone screen. But as devices such as the iPad become more popular, it is sure to grow. But then the sale is no different than a normal e-commerce sale.
Shafer: As mobile devices become more capable, and broadband wireless technologies become more pervasive and robust, the lines between computation and communication will blur or disappear. They’ve been talking about mobile commerce for years. It’s just starting to show some potential as the devices, interfaces, paradigms, markets, networks, etc. all have matured and discovered what works and what doesn’t. But make no mistake: Alternate computing and communications platforms will one day be the dominant platforms through simple evolution of technology and user expectations.
DN: How important is it that a deaIer’s website is PCI-compliant to store customers’ credit cards?
Becklin: No matter the number of online credit card transactions your company processes, it’s vital to comply with PCI guidelines and keep sensitive data secure. If you use an e-commerce service provider, be sure to check that the platform your company is using is PCI-compliant.
Bucci: There are multiple levels of PCI compliance and accreditation. There are also many safety precautions and elements of PCI compliance that any corporation charging credit cards via Internet sales should adhere to. Does a motorcycle dealer need to have 100 percent of the same level of PCI-compliant systems in place as Amazon.com or a publicly traded company? That’s probably unnecessary and cost-prohibitive, but all of the basics in securing user’s most sensitive data should be adhered to, and that is less difficult than people realize. That being said, if a moto-company leaks sensitive customer data to the ‘Net, resulting in theft, fraud or identity theft, it would most likely be subjected to the same consequences as any other company.
Gabbay: Security is a major issue for online customers and they need to feel comfortable placing an order — just as they would when purchasing in your store.
DN: Should a dealership integrate its DMS with its e-commerce site?
Jackson: Of course it should be, but it is possible to operate without being integrated. We wrote our own programs to transfer data back and forth, but if a dealer isn’t processing more than 50 or 100 orders per day, it isn’t that difficult to just re-key the information.
Bucci: Anytime multiple systems containing relevant customer, sales, inventory, bike or part information can be integrated meaningfully, a new potential for insight can be gained. Questions the dealer should pose to itself before moving in that direction should be, Which pieces are the most important? What questions could I answer by doing this? How can I act on the new insight gained? and What am I willing to invest in that integration? Making unrelated systems talk is many times a technical adventure. Make sure the risk/cost is worth the reward.
Shafer: Technical integration always brings with it hidden issues that are just not worth dealing with if you have a small order volume and a robust manual process and toolset. There are “baby integrations” that can help streamline the manual process, like custom scripts, macros, and even limited middleware that can help speed up totally repetitive processes. Of course, you need to have a staff that recognizes the opportunities to automate routine (and robustly designed) manual processes and has the technical competency to actually implement it.
DN: How do you use social networking sites?
Shafer: It’s the best way to establish an ongoing dialog with your customers and potential customers. You cannot view it as an advertising medium. Think of Facebook as a bar: How many of you would run into a bar holding up a big sign and scream at the top of your lungs as soon as you walk in the door, “Hey, come down to Jim Bob’s Powersports and buy some stuff,” and then run right back out?
Read the book Groundswell: Winning in a World Transformed by Social Media to understand more about how social technologies are about engagement and conversation. The selling will “just happen.”
It’s too early to measure ROI, and even then there’s no well-defined measurement criteria. Each business will need to pick what their goals are with social media (it can, and should be, different for each shop) and then work on executing it better and more often.
Becklin: Motorcycle Superstore has a Facebook account, and we keep it updated with fun posts along with the obligatory product and promotional posts. Social media is a challenge for retailers because most people don’t have any interest in hanging out on a retailer’s Facebook page. So we try to keep our posts interesting, encourage discussion around motorcycle topics, and let our fans know when we have special deals on the website.
Gabbay: Social media is a growing interface that needs to be used by anyone selling online. It is a great way to communicate to your customers, especially younger generations.
Bucci: We use them all and set goals and measure ROI in different ways per social media channel. Twitter came out of left field by establishing a new protocol for communication.
Jackson: We primarily use it to see what our “fans” are doing and to announce sales and specials like we would with a newsletter e-mail. The return is there because we allow our employees to surf the Web and update the social pages on the clock between customers (this is in addition to the dedicated guy who manages online marketing). Social media will become ubiquitous in the near future. I see a time very soon when you won’t even know if you are on Facebook or MySpace — you’ll just know you are communicating with your “friends.”
Shafer: There’s so much going on right now with issues of user privacy that it’s impossible to tell what will happen long-term. If Facebook gets too greedy and ignores concerns about privacy, it could become the next Friendster or MySpace, and [service] previously unheard of will be the dominant player in 2012. If it turns out that people really don’t care about online privacy, as Facebook seems to believe, then in a sence Facebook could “become” the Internet in a way that AOL could only have dreamt of.
DN: How have you adapted your business to the economic downturn?
Becklin: We’ve focused on customer service and marketing. We have steered most of our marketing budget toward Internet marketing campaigns and away from traditional advertising mediums.
Jackson: We heard that lots of dealers were going out of business, so we started advertising more consumer-direct in the markets where we knew dealers had failed. There are lots of consumers without dealers now, and we want them to know that we can take care of them.
Shafer: Discounting as a rule is a bad idea, especially if it’s an across-the-board discounting philosophy. Customers will come to expect it. However, promotions, sales and other ideas such as flash sales and Facebook-only promotions are all valid tools. As for return policies, if your returns policy is not on par with what all of the big guys are offering, then you might as well forget it. Restocking fees and other discouragements are dead as customers will not put up with these types of things in this age of places like Zappos.
DN: Do you use distributor drop-shipping programs?
Becklin: Motorcycle Superstore does not participate in any supplier drop-shipping programs. Shipments from Motorcycle Superstore to our customers originate directly from our facilities. We have no plans to use any drop-shipping programs in the future.
Bucci: There are many instances where drop-shipping makes sense. Drop-shipping opens a whole other set of issues and pitfalls with regard to total customer experience and a dealer’s ability to manage it. There are a lot of factors which will influence our propensity to drop-ship at the item, brand, geographic and distributor level.
Jackson: We’ve mainly used [distributor drop-shipping] for orders in California or Florida so customers get their orders quicker than if [the product] shipped from our store in Illinois. The picking errors would have to be reduced. and the ability to put my invoice/packing list and my marketing materials in the box would have to be added for me to use it more than I do now.
Shafer: We use it when it’s appropriate, but I wouldn’t say that we would ever rely on it. You’re leaving too large a part of the customer experience in the hands of someone else. Packaging quality, shipment accuracy are too important to leave up to someone else. These companies are used to dealing with large orders to retailers. Things like returns can get messy. Order consolidation is another issue. If two parts are from Tucker Rocky (drop-ship), one is from Honda (in-house) and one is from Western Power Sports (drop-ship), customers typically don’t want to get their order in three waves.
I know that there are online retailers out there that have builtessful businesses never stocking a single part and only selling products that can be drop-shipped.
Gabbay: We use drop-shipping programs from many of our suppliers but have a robust in-store inventory that we utilize for fulfillment.
DN:Why is it important to offer such things as affiliate program in which dealers can link to your site for commissions?
Jackson: We offer an affiliate program purely out of greed. We think that a dollar spent paying an affiliate for a sale is a much better investment than a dollar spent paying Google for a click-thru to my site.
Bucci: Affiliates can be great. They take a lot of overhead to manage and do well. We have had reasonably good results. It’s a great way to augment incremental growth for an online presence.
Becklin: Our affiliate program doesn’t target links from dealer websites. Our affiliates are typically marketing websites that send traffic to Motorcycle Superstore for a commission on sales. It’s a decent marketing channel for online retailers, but it probably doesn’t makes sense for motorcycle dealers to direct traffic away from their website for a relatively small commission opportunity.
Shafer: Until a dealership is doing in the tens of millions of dollars per year in gross sales it’s just not worth the effort and distraction to design, implement, monitor and tweak this kind of program. Affilate program management is a department unto itself, and until a shop is pretty darn big the resources are much better used elsewhere. Once a retailer gets large enough for an affiliate program to make sense, it’s a brilliant tactic because it’s all activity-based: You only pay someone if they make the sale!
Of course affiliate programs do have an ugly side — you end up with affiliates bidding against you for Google AdWords inventory and so on, so you need to make sure that your affiliate program is well-thought-out and -administered.
DN: What dealer-related programs are connected to your sites?
Becklin: We created the Preferred Installer program which permits Motorcycle Superstore customers to purchase tires and ship them directly to a dealer or service shop in their area. There is no cost to the dealer to sign up for the program, and the shop will get new customers in the door that they may not have seen otherwise.
Jackson: We offer drop-shipping for our dealers. Basically we want everyone to be a salesperson for World of Powersports — even if the consumer doesn’t know the order came from us. We just want to be somewhere in the supply chain.
Todd Shafer on startup costs
Here’s a rough calculation of what you would need to do if you wanted to go big from the start. This is just the ante to get into the game. You can do it for a lot less and rely on a longer-term organic growth, but that’s going to take you three to five years to even get to the point where anyone even knows you exist.
These are conservative annual direct costs. Variable costs like shipping and transaction fees are not included. A fully loaded third-party site costs about $20,000. To make the most of your investment you’re going to need someone to oversee all aspects of the operation from multiple levels. A competent e-commerce expert is going to cost about $75,000/year plus benefits. You’d be fortunate to get someone who could actually do the job well who would be willing to work for less when similar jobs at more established e-commerce companies easily pay $80,000-plus.
Next you’ll want someone who can be your product specialist and can handle the merchandising and promotions management aspect. She needs to know the OEM and aftermarket PG&A space like the back of her hand. And she has to be technically savvy enough to not only learn how to use your e-commerce platform — she needs to use it creatively so that you can set yourself apart from the crowd. I can’t imagine having a person who would be willing to take less than $50,000 plus benefits. If she is willing to work for less, you really need to wonder why.
Additionally you’ll need someone who can handle things e-mail marketing and social media. They will need to be well versed in the best practices in this area as well as posses a strong skill set in HTML design, graphic design and all of the general marketing and advertising skills and knowledge that can tie it all together. The best case is you have someone who knows what they are doing and can dedicate at least two to three hours per day. You can handle this with the manager and merchandiser, but you’d be better off with a separate person. For online outbound marketing and social media engagement, plan on at least $15K for head-count and related expenses (e-mail creating and sending costs, etc.).
Search engine and other online advertising expenses are all going up as more people enter this space, recognize that SEO alone is not going to cut it, and start bidding up the prices for keywords relevant to our industry in places like Google AdWords. At a minimum you’re going to need to spend $5,000 per month for a total of $60K per year. You’re already at a quarter of a million dollars! And I can almost guarantee that even if you do everything perfectly, you will see hardly any orders for the first few months. You may do better if you do something revolutionary that allows you to gain traction in the market.
You can’t go big unless you’re willing to do whatever it takes for at least two years. If you’re not willing to do that, then there’s not much of a chance of building an e-commerce business that anyone would call “successful” (i.e., $6 million-plus per year gross sales.) You can start small, see what happens, and maybe find a niche that proves to be lucrative. Plenty of people are doing this. But unless you figure out a way to become an Internet sensation, you’re going to have to make some significant investments.
To read related dealer profiles of BikeBandit, GoAz Motorcycles and RevZilla, click on this link.