Stifel Nicolaus Says A is for Apple & Retailers Need to Follow the EcoSystem Suit

When writing his presentation about how online retailers can compete in an Amazon-centric world, Jordan Rohan, Managing Director of Stifel Nicolaus, realized that perhaps he was looking at the wrong model…the wrong “A.”

Apple, he said, has a market capitalization more than the combined value of Google, Amazon, eBay, Yahoo, Groupon…the whole Internet.

“I’m an Internet analyst,” he said. “I cover Yahoo, Mercado Libre, Amazon. I don’t cover Apple. Six months ago I was writing this A is for Amazon thing and then we started saying, ‘What do you think about Apple?’ For the first time in my career I got coverage envy.”

Jordan Rohan

According to Rohan, who delivered a keynote presentation on the opening day of eTail West 2012, what’s truly compelling about Apple as a model for multi-channel retailers is its powerful ecosystem from which the company can launch an array of cascading products to which people become loyal.

“It’s not just about iPads or iPhones anymore,” he said. “It’s about all of that together. The ecosystem makes it all work better.”

The average Apple store, which has an average footprint of 6,000 to 7,000 square feet, has the same revenue as a 100,000 square foot anchor store in a mall like a JCPenny, said Rohan. “It’s something like 25 times the volume of those [anchor] stores.”

But Rohan said the big question right now which retailers need to consider is how quickly the consumer’s behavior is shifting to mobile devices, another area where Apple is a leader. In August of 2011, comScore put together a study of the share of connected device traffic, and they had grouped together “other + tablet + mobile” at 6.8% of traffic. In just 4.5 months, by December of 2011, that number was at 8.2%. The channel is growing at an unprecedented pace.

In relation to this shift, Rohan said that Google is losing centrality on the Internet, yielding to intergalactic battles. In 2005, Google enjoyed centrality whereas now, in 2012, the big four, G-A-F-A, are vying for dominance. (That big four would be Google, Apple, Facebook, Amazon). They’re all going after data and trying to establish ecosystems, he said. And all are robustly pursuing mobile programs, recognizing the huge shift in consumer usage toward mobile devices, particular inside programs from these big four.

Still, the numbers are not quite there, and that might scare off some retailers from allocating enough resources toward mobile development. Big mistake. Even though the PC still holds 86% of clicks 92% of revenue, Rohan and other retailers and technology providers agree that it won’t be long before the industry sees a massive uptick in revenue through mobile and choosing to ignore the channel any longer would be securing one’s doom.

Here are the hurdles to this strategizing:

– Mobile monetization is difficult – clicks are not a great metric.

– Social monetization is difficult – Clicks are not a great metric for social but neither are friends and likes.

– Online video monetization is difficult unless you are YouTube. Clicks are not a great metric for video – engagements are better, but not well defined.

The digital ecosystem is still click addicted, said Rohan. Although scary, Rohan predicts that retailers may face an acute shortage of commercial intent search clicks within the next five years. The reality, even though it may be hard to monetize, is that the retail industry is on the cusp of massive transformation in commerce, media and marketing, with mobile and social media becoming dominant addictive forces. Rohan predicted that mobile and social strategies would determine the winners and losers in retail over the next decade. He also said that generating referrals and conversions from social media will be crucial, as will the ability to drive the usage of apps.

In short, everything that retailers will need to do over the next decade to be successful will derive from a model similar to Apple’s ecosystem. The company has developed a platform that has set them up to easily introduce devices across channels that are seamlessly adoptable and intuitive for customers to transition onto. A clunky move from desktop to mobile will only mean a loss of market share and that is not what any online retailer wants.

Rohan quoted one of Steve Jobs’ many poignant phrases, advising that retailers need to adjust now to the mobile/social future:

“Innovation distinguishes between a leader and a follower.”