AlleyCorp General Partner Marshall Porter wrote Retail Tech: The Biggest Retail Problems Remain The Biggest Retail Problems, which got me thinking. Is it a lack of understanding of what the fundamentals of e-commerce are? E-commerce in its most fundamental state is a logistics system that is driven by marketing and financial analytics. Why are entrepreneurs and startups not interested in solving the cost part of profit and loss statements? Is it a lack of interest by venture capital investors to fund these companies, or does it lack domain expertise from founders who can generate 10x returns on these opportunities?

I do a fair amount of due diligence and in 2024 it has been mostly artificial intelligence companies trying to solve problems in a new manner. I understand that AI is the latest hype wave that has entrepreneurs and investors looking to cash in on and not miss out on. That said in retail and e-commerce has tangible opportunities that require technology to create new solutions for. Brands are in pain and do not have the correct tools available to them to solve inventory planning, logistics, and returns.

The primitive misunderstanding

I believe that successful e-commerce businesses are borderline manaical on profitability. The fundamental remains – most e-commerce businesses are not profitable due to it not being a prioirity.

Every part of the business must be analyzed and negotiated and renegotiated. I remain amazed at how companies are willing to accept carrier fees as gospel and do not realize that they must renegotiate quarterly for profits to be generated. I understand services like Shippo exists that help customers find better rates but e-commerce companies spend millions on logistics fees. Imagine if every week, month, or quarter your rates can be compared against sector incumbents. This is a big money opportunity as the data that needs to be used here sits inside APIs that are owned by carriers or what?

The foundations of inventory planning is a dark science found in a spreadsheet

Secondly, inventory planning at the moment is in most cases an Excel spreadsheet with metrics and calculations to ensure inventory is available for consumers at all times. Inventory planning is as fundamental to brands as is using logistics services to move goods to consumers. What can go wrong? Plenty. Ordering inventory should be based on data such as historical purchase rates, economic data for the market, temperature if seasonality is a part of the inventory demand. Imagine if a natural storm happens then all of this is moot and then inventory is nowhere to be found. Imagine the complication if your business is in apparel and minimum order quantities is a part of this calculation. In my decade plus of experience I have seen dashboard, reports but never anything that would help inventory planners buy the correct amount of inventory. I am not even mentioning inventory cash cycles, and shipping to location date.

Rudimentary returns eat capital and do not generate future revenues

Returns is a fundamental problem for every e-commerce business. Yet only startups creating solutions for Shopify seem to have received funding. Yes, there are incumbents that offer enterprise solutions but imagine you are a brand doing north of $50M in annual revenues – who is able to offer returns solutions that are aggregated data and constructs for a variety of order management software. I have not seen this at all. I also have learnt over the last eighteen months that private equity loves logistics/supply chain companies. These companies in some cases are run on archaic software that must be accessible API. Is the lack of interest for solutions due to the volume of software connectors that need to be built for a variety of warehouse (WMS) and order management software (OMS). The other thing that needs to be said is that your solution will need to interact with retailers who by-enalrge are not interested in using that latest software and who are anti-innovation (I know this reads like a generalization but this has been my experience).

In conclusion – the basics remain critical

The three areas (inventory planning, logistics, and returns) are fundamental to long term businesses.

If you are a brand or e-commerce executive – when last have you audited your vendors and carriers. How do you know you are getting the best deal? Contracts? Our sector is flooded by short term incentives and a newest and greatest solution to all your problems annually. It is not your Chief Financial Officers responsibility to keep your business unit profitability. The best operators I know own their own profit and loss statement and understand that its a grind to ensure results. It takes people, systems, and planning to ensure performance. If your business is listed on a stock exchange – this is even harder as your results are out in open and visible to the entire sector. Listed companies I have found are very adverse to change as it can cost executives their employment if they make a wrong decision. The fundamentals are

Agency staff and executives should ensure that the brands they work with communicate their current and expected state. What and where do we want to be in 12 months time? Inventory buying has direct connection to advertising campaigns – why would you run a campaign if there is no inventory available? I have sadly seen that they agency staff churn quarterly or annually and ensuring that returns, inventory buying and logistics analysis is not done as weekly and quarterly tasks take preference. Do you understand why smaller businesses can outperform incumbents run by agencies?

Private equity and venture capital investors. You see businesses in different states. One at the beginning (VC) and another post maturity (PE) but these companies need to be working with startups that can help these businesses grow through analysis and fundamentals. There is no overnight success stories (sorry those TechCrunch stories are not from companies that have access to silver bullets or new technologies that give them an unfair advantage) I hope VCs are willing to open executive-in-residence programs to help domain experts build companies that can solve returns, inventory planning, and logistics fees.

Porter is correct – we need more startup founders and startups going after these fundamental problems.