On this bonus episode, we talk about the break offs/acquisitions of early Ecom platforms, the upcoming opportunity based on the large growth of B2B, why you shouldn’t count marketplaces out, and so much more!
Paul is a leading subject matter expert in Ecommerce. He is Managing Director at Deloitte Digital, one of the leaders in the US Commerce practice.
He leads the Commerce Practice Eminence initiative. He brings more than 25 years of experience in strategy, consulting, technology, and digital transformation.
Paul has led some of the world’s largest and most innovative e-commerce initiatives. He is a frequent speaker at Digital/Ecommerce events as well has been featured as an Ecommerce subject matter expert on many publications.
He has served such companies as Target, Foot Locker, Hyatt , Victoria Secret, General Electric and Siemens, and many more driving commerce and digital transformations.
He is a frequent speaker at Digital/Ecommerce events as well has been featured as an Ecommerce subject matter expert on many publications.
In This Conversation We Discuss:
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Paul do Forno
If you're looking to grow, don't ignore distribution channels such as other marketplaces.
Welcome to Honest Ecommerce, a podcast dedicated to cutting through the BS and finding actionable advice for online store owners. I'm your host, Chase Clymer. And I believe running a direct-to-consumer brand does not have to be complicated or a guessing game.
On this podcast, we interview founders and experts who are putting in the work and creating real results.
I also share my own insights from running our top Shopify consultancy, Electric Eye. We cut the fluff in favor of facts to help you grow your Ecommerce business.
Let's get on with the show.
Hey everybody, welcome back to another episode of honest ecommerce, I'm your host Chase Clymer.
Today, I'm welcoming to the show the managing director at Deloitte Digital, one of the leaders of the largest commerce practices in North America, Paul do Fono. How are you doing today?
Paul do Forno
I'm doing great. I'm really excited to be here.
Yeah. And then just because it's on trend for me when I do have another Ohioan here, another Buckeye, I just gotta shout it out that Ohio is where it's happening.
Paul do Forno
Yeah, it's amazing. Actually, the amount of ties to the history of commerce and all the different connections, Ohio's theme is the heart of it all.
But really, if you think about it, we are the commerce heart of it all between the fulfillment retail startups that are around in Ohio... You would be amazed.
This wasn't even something we talked about in the pre show. But let's dive in there. First, maybe let's just give them a little bit of your background and your history there. You've been around this Ecommerce game quite a while and you've seen a few things.
Paul do Forno
Yeah. I guess I'm the old guy in Ecommerce. So I've been doing Digital and Web... I worked on some of the first websites back in '94 and '95.
And I've been doing Ecommerce specifically for the last 20 years. So I've seen this whole arc. And what's funny is, I remember in the early 2000s, going to talk to retailers, and the way they even thought about Ecommerce.
It was like, "Oh, it's just like a play thing off to the side." And sometimes they would just talk about it like it was, store number 999. They would treat it literally like a side business, but it would never become important.
And so I've gone through that whole hype cycle to where we've almost...
During COVID It almost went to the other side where everything was going to be Ecommerce, but we know it didn't.
So it's been a very interesting path to see all the different technologies, all the different permutations of what has happened.
Absolutely. There have been a lot of interesting things that have happened just even in the last couple of years with Ecommerce not to mention the last 20 years. So take me back.
Are there any notable projects that you're allowed to talk about...
Paul do Forno
...that you'd worked on in Ecommerce and the challenges that you had to solve for back then when Shopify didn't exist? None of these easy, plug-and-play solutions existed.
Paul do Forno
Yeah, let me give a little bit of background on some of the technology because even though... On the enterprise side, there's a whole history of products.
Actually, some of the first commerce packages came out of Germany: Intershop. Intershop is one of the earliest... [It was] mid to late 90s, where it started. A little known fact is that Intershop was also the start of Demandware. So they...
Demandware merged off of Intershop about 15 years ago, took the code and made it a SaaS version. In fact, Intershop also broke off, and then a couple other major companies have used it internally.
So it's historically one of the oldest commerce platforms that's been out there. But some of the other big players, IBM built one of the first big Java application servers and WebSphere Commerce again for a long time.
Some of the largest retailers use them and still use them as their core. It's one of the highest use... And then a couple of other ones.. Interestingly, there are a couple of companies...
Again, going back to Germany, there's a lot of commerce platforms that have come out of Germany. So Hybris is what SAP bought. And again, on the enterprise side, it's probably one of the largest market shares in both B2C and B2B.
And so if you go back the last 20 years between Intershop, IBM, Oracle --who bought ATG, again, one of the largest at one point-- it's been very cyclical and have been basically worked through some of the technologies.
So, stepping back, you talked about one of the challenges, right? We are so spoiled these days that you hit a button and you create an instance. I can remember we're working with...
In fact, to tie it all [together] again, we're both here in Columbus, Ohio. I was doing some work at Victoria’s Secret, back in 2006-ish and they were thinking about...
They were custom-built, but remember, they physically had their servers. And so if they wanted to migrate...
They were thinking about migrating to this new platform called Demandware, back in the day, you physically had to go buy the servers. And so we were...
Some of them were just pitching these ideas, and to go out... It was going to take 6 months just to get the servers to be able to just install and build because of all of the...
At the time, interestingly, Victoria's Secret was in the top 10 of internet retail sites, relatively speaking.
If you look now, it's the Amazons, Walmarts, some of the largest retailers up there. But at that time, they were one of the leaders in the space.
And so it's just interesting to go back where you had to put in and think about physically getting the hardware and stacking it in. So the whole...
This whole AWS cloudification and SaaS space just completely changed the game.
Oh yeah. Honestly, it makes everything so much easier. You can spin up a site with many of the SaaS solutions that...
Shopify, specifically. You press a button, you get a site. Is it good? Will it convert? Who knows? But you do have a site.
That's infinitely easier than the almost physical demanding work of doing this back in the day.
So are there any other projects that you remember working on historically, that bring up some of this history of Ecommerce?
Paul do Forno
Yeah, probably one of the biggest implementations ever that I was part of... It was one of the biggest commerce implementations of the last 15 years.
If you go back to 2009 - 2010, Target was actually hosted on Amazon, not just their core commerce, but their fulfillment, their call center, it was completely on Amazon technology.
So at the time, Target was way bigger than Amazon. It's crazy to think about it now. Amazon's one of the largest companies in the world and Target's doing great. But Target was better.
And they realized, "Oh, crap, these guys are going to be bigger than us and they're going to be competitors." So they had to get them off.
And so they were negotiating a deal. And we came in and I was able... I had actually had some experience in helping boarders get off of Amazon prior to that, just before they did go away. But in order to do that, it was a massive change. We had 5...
At its peak, we had 500 developers working for a couple of years to get all the changes into these new platforms. And a lot of it is new. Some of...
Again, during that time still, there weren't cloud capabilities. You were still having the physical [tasks of] getting the hardware going, being able to stack that, worrying about order management, supply chain integrations warehouses.
And in order to build all that out, the scale was just massive. But if you think about it, can you imagine Target having a differentiated experience if they hadn't got off of Amazon? Or Amazon, owning, having all that data on the Target customers.
So that was a great experience going through that.
Absolutely. I remember you sharing that with me before and it's definitely eye-opening, especially back then.
These days, it's obvious to us that you need to own your experience. You need to own your data.
But a lot of the sharpest minds at these businesses didn't have that foresight, because it wasn't something that was in the zeitgeist yet. You didn't know.
Paul do Forno
Yeah. In fact, then... We didn't do this work. I know they've done a lot of this internally. A lot of these large corporations have... They can invest to have custom built some of this work.
And so if you look at Target, the way they've executed over the last couple years, they're one of the best apps from a delivery perspective. Their numbers, as far as how they deliver out of their stores, is phenomenal.
I forget the exact numbers, but somewhere in the neighborhood of 60% to 70% fulfillment happens via stores, which... If you go to Target ever, I don't ever see anybody picking from stores that they can fulfill in the way they've done that. Whereas you might go to...
If you go to some of the grocery stores, like you see Amazon people picking all over the place. And so for them to be able to do, buy online, pick up in store or deliver from store at the rate that they did was just phenomenal.
Yeah. And some of what you're speaking to now is some of the innovations that were thrust upon the market during the pandemic.
So, I guess we can naturally just transition into that conversation. You were sharing with me before, some numbers.
And I will actually admit that I've been guilty of saying this on this very show about just the rise of the market, the penetration of Ecommerce versus the national spend.
But I'll let you shine some new light on what's actually going on since things have evolved even since then.
Paul do Forno
Yeah. So one thing I for sure want to dispel a myth... And I think it's still posted in some places up there. Early in the summer of 2020, you saw things like “10 years of acceleration in Ecommerce in a couple months.” Well, it's factually not correct. And some of that gets into really just looking at how numbers...
Taking one number from one source to another number from another source and merging them together, it really gets into some stuff like that, but they leverage it for a narrative.
But if you look at the actual numbers, I always try to reference the US Census Bureau because that is the... They are the guardians of retail. And it gets a little complicated.
But the big picture was that there was a jump during COVID, as you would expect on the penetration.
And if we just take the total retail, it jumped up to like 16% - 17%, of overall retail. And then it fell back to a median closer to around 14%. And that's if you still include gasoline, etc.
But the net-net of the pattern was there was a huge jump, but it actually fell back to the mean, meaning it actually is at the same growth potential of what it was before.
So if you look at the past 15 years growth trajectory, we're almost exactly back to what the original trajectory was before. So that's an important thing again.
It doesn't mean commerce isn't important. It just means that each category of different products, they're gonna find their natural mean. If you look at electronics, for example, they have a high distribution of selling online. Whereas apparel is only going to hit a certain amount.
There are certain products that are more apt to be sold online and over time, will hit what the natural mix between online and live shopping.
Because for sure retail and selling has been around for hundreds of thousands a year. They're not going away.
And so part of what you need to do is figure out what is the unique value that you can drive that will connect with your customer?
Absolutely. And something else to that trend is when you did see that jump in sales essentially --It's what it comes down to during the pandemic-- I think that something that a lot of brands... They got used to that growth, the rapid growth, and they didn't...
They weren't as prepared for it to go away and weren't as accepting of it. I talked to numerous merchants where they were like, "We're down from last year. What are we doing?"
And I'm like, "That's just... That's just what it is. There's nothing you're doing wrong. You're doing everything right. It's just like the market isn't spending online as it was."
Paul do Forno
Yeah. So I think there's a couple things there. There's... One there's the natural regression to the mean which means actually, if you look...
Many companies have actually done 2-year lookbacks. Because if you do a 2-year look back... 65% growth over 2 years is amazing.
So if you only have a couple percent this past year, it's not that bad in overall context. But I think the challenge that Ecommerce/online sellers have to think about is there's other things that are happening now. Obviously, because of this combo of challenges right now...
One, if you look at inflation, the latest stats say inflation in the US is up 8.5% over last year. That's a massive... That's the highest in close to 40 years. So that's going to impact your buying. And we do...
Part of our retail group, we do a lot of research around what those impacts are. And really what you're seeing is this bifurcation.
We saw this in years gone by, but it's getting worse and worse; Meaning actually at the highest end, on luxury, they're doing unbelievably well. In fact, they're doing much more.
But if you have products at the lower end, what you're seeing is either you're getting pushed to people or the luxury that is buying like crazy or at the lowest end of purchasing power is actually decreasing.
So if you have a segment down on the lower end, they don't have as much to spend, especially given the gas impacts and all of these inflations...
And so you take that, plus the supply chain challenges, plus what Ukraine hit, plus, what tried and true being able to access a lot of this first party data that are...
Some [of the] party data that used to get from... Because of Apple and on Facebook, it's a massive change.
And so what that's really exposing are who are the real retailers that know how to connect with their customer and align their product versus who were people who were taking advantage of an arbitrage?
Absolutely. Now, one thing that I think I skimmed over at the beginning because we just dived right into it is to let people know what is Deloitte Digital and what do they do? Do you know what I mean?
Paul do Forno
Yeah. So Deloitte Digital is, --I think you mentioned it-- we're one of the largest, if not the largest commerce service provider. We're the largest professional services firm in the world. But Deloitte Digital is one unit within that.
And so we're partners with Salesforce, SAP, Adobe, Shopify... A lot of different partners. Some of the largest partners for some of these and so we have 5 or 6 studios across North America.
And we help with everything from strategy, design, development to operate big, large, enterprise websites. And we help right now 5 of the top 10 internet retailers. We can't talk about those names. But a few of the names that we can share...
We're working with Chipotle, Lululemon, and Casey's stores and so a lot of brands...
In the past, I've led Foot Locker. And that would be the whole everything from design, order management, implementation of platforms rolling out, and driving out those changes.
Yeah. So what are some of the challenges that hit brands at that scale? Enterprise is such a different ballgame than a lot of the SMBs that might be listening to the show.
Paul do Forno
So the big challenge that you have with large, lots of large enterprises... One... Especially when they have existing businesses, how do you run your existing business, and then migrate...
In the instance of Foot Locker, they were on... When we helped them, they were on 15-year old technology and they needed to get off of it, because it's close to the end of life.
So how do you help them transition while they're running the business? And so one of the challenges that you necessarily don't have when you're running your own small company is, you might have hundreds or thousands of people that you need to coordinate with.
And so that whole change management, and getting, aligned and getting the people all the things that you need to coordinate, that ends up being one of the biggest changes or differences.
It's the people-change piece of it.
Yeah, absolutely. Just getting all incentives aligned. And even just timing aligned on some of these.
Paul do Forno
Yeah. And also, when you get into... "Well... Hey, we also have another division there that we acquired. They have another different ERP. We have 5 or 6 different back office systems. We have different order management systems. Well, we have to make sure that this is routing to a different distribution." And so it gets...
When you start to get into it, it gets unbelievably complicated. And so to break all that down in a large program, it really takes a lot to break out. And really what we've done is done large scale program agile delivery to be able to do that. So, no longer...
And it's been a long time since we've got into this big waterfall approach. Really what we get into is a modified hybrid agile, where we might prove out some architecture, do some proof of concept up front, then get into a more quick delivery schedule where we really help people get out.
But I can't overemphasize how complicated and focused on change management across all that and the training needed when you do prior to going live and going live.
Yeah, and not to mention, brands don't hit that enterprise level scale without having some solid systems in place and getting those systems to talk to each other.
And then to talk to new systems as you're solving for the future is a lot of strategic undertaking.
Paul do Forno
Yeah. Yeah, absolutely. And what you see too, is people get into "What's perfect? versus What's good enough?" And what we've tried to do, as we've gone through this is [to] slowly rollout stuff and get into... Instead of doing a big bang, cut over into a new program, maybe do a...
Find a sub sector of either brand or audience that you can test out with, without switching everybody over.
Get all the kinks out, get the training out, and then really roll all that stuff out. It becomes not as easy. "Hey, we can just [do it] quickly and change."
And the funny part too, is you get a lot of... When you're dealing with just a couple of owners, you know how hard sometimes it is just to get them to agree.
Well imagine different countries, and global, and all the impacts around the world, and all the different priorities of different senior people. And so we get into a lot of that.
And that's really what ends up being...
The tech part ends up being the easiest of every, of all the stuff to be honest. Actually, the alignment of strategy and the change management is the toughest.
Yeah. Communication and people skills, the soft skills...
I will say, a major difference between small businesses and enterprises is, when you're working with a small business, it's usually the founder is the buyer, is the decision maker, is the guy writing or gal writing the check.
Now, when you get to enterprise, all three of those are different positions that are C-suite level.
Paul do Forno
That would be a good - great case. Many times... Each of those areas, you might have a group or committee and they might be different committees, by country, different committees by brand.
So when you start to get into... "Well, we got 10 brands to go and we got 10 countries." It gets a little crazy.
So let's shift gears a little bit here. And this is something that you're super passionate about.
Obviously, we've been talking a lot today about direct-to-consumer and just the opportunity in the market and how things have changed there over the past 20 years. You're super excited about the opportunities coming to the B2B market.
So quickly highlight some of that opportunity that you see and what you think people are gonna be working on for the next couple of years.
Paul do Forno
Yeah, so as big as B2C is... I think the latest stats are the last running 4 quarters, we're very close to hitting a trillion dollars here in the US on a B2C basis based on the US Census Bureau, just to give you a sense of how big...
From last year, the latest numbers that are out there for B2B, the estimated amount in B2B commerce last year was like $2.6 trillion. And so it's almost two and a half times as big. And the opportunity there, if you look at all B2B payments, it's around $18 trillion.
And so right now, if you look at that B2B commerce plus EDI is actually one of the largest chunks. So about 50% of that is either done via EDI plus B2B.
So there's a huge movement of being able to migrate what traditionally was the first iteration of being able to buy. So if you think about...
If you're at Walmart, most of their customers that they're buying and selling are transacting via EDI, which is a very... It's a 40-year old, pre-internet...
They literally had their own network that you had to set up in the orders, and it was revolutionary back in the day. But now it's a higher cost to serve.
And so what B2B is opening up, especially as you're looking at opportunities, it's being able to connect.
And when I talk about B2B commerce, I also include marketplaces. And marketplaces, if you look at last year, they grew at a factor of 7 times the size of B2B commerce.
And so there's an unbelievable amount of marketplaces, more than just... Obviously Amazon is killing it in on the marketplace side for business, but all of these other vertical marketplaces. So for example...
There's a Faire.com, which helps small DTC sellers sell their product to different retailers to...
If you look at more industries, they're coming out with things such as chemical marketplaces where you can buy chemicals to help mold, plastics, etc.
Or even like, how to actually serve up different products. So anyways, that's actually what's been a laggard. If you look back at the beginning of 2020, they actually had a hit, because what happened was a lot of manufacturers pulled back and said, "Oh, we're not sure what's going to happen."
And then when they understood, a few months into it, that there's going to be a massive demand chunk up, they've been catching up.
And so right now, B2B is on a higher growth trajectory than B2C.
Oh yeah. That's super interesting. Now, is there anything I forgot to ask you about today that you think might resonate with our audience?
Paul do Forno
If I think about the suggested, again, coming from... Some of the truth that I've seen from an Ecommerce perspective, [there are] some things that are important, no matter what. I think you would do a little bit of a takeaway.
One, focus on your product, make it unique, and understand your customer. So get your data...
So if you don't have good data on your customer, look for ways to get it. And if you're looking to grow, don't ignore distribution channels such as other marketplaces. "Hey, what..." One of the things that... For example...
And I know we're talking a lot about Target again, but they have a great onboarding of new brands. If you can get distribution into Target, that's amazing.
But don't also ignore the marketplaces. A lot of companies sell tons on Amazon. But there's all these new marketplaces that are out there that are coming out from... If you look at...
Kroger has one massive marketplace that's grown out, too. Even Macy’s is going to be deploying a marketplace for third party sellers. And so there's probably about 50 to 60 major marketplaces in North America.
And so you got to get creative in not just selling in one channel. Think about all the different ways that you can sell, but focus primarily on what your value add is.
Absolutely. That's amazing advice. Paul, I can't thank you for coming on the show enough. If the audience is curious, how do they get a hold of you?
Paul do Forno
I share a lot on Twitter. So @dofornop. Follow me there and I can share or hit me up on LinkedIn.
Absolutely. I'll make sure to put both of those in the show notes. Thank you so much for coming on today, Paul.
Alright. I can't thank our guests enough for coming on the show and sharing their knowledge and journey with us.
We've got a lot to think about and potentially add into our own business. You can find all the links in the show notes.
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